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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
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[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
(AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
ACME ELECTRIC CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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ACME ELECTRIC CORPORATION
400 QUAKER ROAD
EAST AURORA, NEW YORK 14052
(716) 655-3800
October 11, 2000
Dear Shareholder:
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
You are cordially invited to attend a special meeting of shareholders of
Acme Electric Corporation to be held at the offices of Hodgson, Russ, Andrews,
Woods & Goodyear LLP, One M&T Plaza, 20th Floor, Buffalo, New York 14203 on
November 16, 2000 at 10:00 a.m., local time.
At the special meeting we will ask you to vote on the merger of Acme with a
subsidiary of Key Components, LLC. Following the merger, Acme will be the
surviving corporation and a wholly-owned subsidiary of Key Components. In the
merger, you will be entitled to receive $9.00 in cash, without interest, for
each share of Acme common stock that you own. In addition, because this is a
cash-out merger, when the merger is complete you will no longer own shares of
Acme common stock and you will not acquire any shares of Key Components.
Your board of directors has formed a special committee of independent
directors to evaluate the merger. The special committee is composed of Robert
Batting, Robert Brady, Randall Clark and Terry Manon, who are currently all of
the independent directors of the board.
On the recommendation of the special committee, your board of directors has
approved the merger with one director, Robert J. McKenna, dissenting. In
reaching its decision, the board considered, among other things, the written
opinion of Ernst & Young LLP that as of September 25, 2000, the $9.00 per share
cash consideration to be received by you in the proposed merger is fair to you
from a financial point of view. The $9.00 per share price represents a 29%
premium over $7.00 per share, being the highest closing sale price per share in
the 52-week period prior to April 26, 2000, the date Acme's previously proposed
merger with Strategic Investments and Holdings, Inc. was announced. A copy of
the merger agreement is included as Appendix A to this proxy statement and a
copy of Ernst & Young's fairness opinion is included as Appendix B to this proxy
statement.
The board believes that the terms and provisions of the merger agreement
and the proposed merger are fair to you and in your best interests. THEREFORE,
THE BOARD OF DIRECTORS, ACTING ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE,
WITH ONE DIRECTOR, ROBERT J. MCKENNA, DISSENTING, RECOMMENDS THAT YOU VOTE IN
FAVOR OF ADOPTION OF THE MERGER AGREEMENT. The accompanying proxy statement
provides detailed information about the proposed merger. We encourage you to
read the entire proxy statement, including the appendices, carefully.
The merger cannot be completed unless at least two-thirds of the
outstanding shares of Acme entitled to vote at the special meeting vote to
approve it. We have scheduled the special meeting for you to vote on this
matter. YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card. If you sign, date and mail
your proxy card without indicating how you wish to vote, your proxy will be
voted in favor of the merger. If you fail to return your proxy card, you will
not be counted as present or voting at the meeting unless you appear in person.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS COMPLETED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.
<PAGE> 3
The enclosed proxy statement provides you with detailed information about
the proposed merger and provides specific information about the special meeting.
If you attend the special meeting, you may revoke your proxy if you wish and
vote personally.
Sincerely,
ROBERT J. MCKENNA
Chairman of the Board, President
and Chief Executive Officer
The date of this proxy statement is October 11, 2000 and it is first being
mailed to shareholders on or about October 13, 2000.
<PAGE> 4
ACME ELECTRIC CORPORATION
400 QUAKER ROAD
EAST AURORA, NEW YORK 14052
(716) 655-3800
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 16, 2000
Acme Electric Corporation will hold a special meeting of its shareholders
on November 16, 2000 at 10:00 a.m., local time, at the offices of Hodgson, Russ,
Andrews, Woods & Goodyear LLP, 20th Floor, One M&T Plaza, Buffalo, New York
14203 for the following purposes:
- To approve and adopt the Agreement and Plan of Merger, dated as of May
26, 2000, as amended on September 18, 2000 and October 6, 2000, by and
among Acme, Key Components, LLC and KCI Merger Corp., a wholly-owned
subsidiary of Key Components. In the merger, KCI will merge with and into
Acme, with Acme surviving as a wholly-owned subsidiary of Key Components.
Each share of Acme outstanding will be converted into the right to
receive $9.00 in cash.
- To consider and act on other matters that may properly come before the
meeting or any adjournment or postponement thereof.
YOUR BOARD OF DIRECTORS, ACTING ON THE RECOMMENDATION OF A SPECIAL
COMMITTEE OF INDEPENDENT DIRECTORS, WITH ONE DIRECTOR, ROBERT J. MCKENNA,
DISSENTING, HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND RECOMMENDS THAT
YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The accompanying proxy statement describes the merger agreement and the
transactions contemplated thereby in greater detail and is attached to this
proxy statement as Appendix A.
Under New York law, you may be eligible to exercise appraisal or
dissenters' rights in connection with the merger. For a discussion of these
rights, and the manner in which they may be exercised, see the section entitled
"Dissenter's Rights of Appraisal" in the accompanying proxy statement. The
applicable provisions of New York law have been attached to the proxy statement
as Appendix C.
Acme has fixed the close of business on October 6, 2000, as the record date
for determination of the shareholders entitled to notice of and to vote at the
special meeting and any adjournment or postponement thereof. A list of
shareholders entitled to vote at the special meeting will be available and open
to the examination of any shareholder at the special meeting.
By Order of the Board of Directors,
ROBERT J. MCKENNA
Chairman of the Board, President
and Chief Executive Officer
Buffalo, New York
October 11, 2000
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING, PLEASE MARK,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE. SENDING A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU
ATTEND THE SPECIAL MEETING.
<PAGE> 5
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy
statement and may not contain all information that is important to you. To
understand the merger fully and for a more complete description of the legal
terms of the merger, you should carefully read this entire proxy statement and
the documents to which it refers. The merger agreement is attached as Appendix A
to this proxy statement. We encourage you to read the merger agreement. It is
the legal document that governs the merger.
THE SPECIAL MEETING
DATE, PLACE AND TIME.......... The special meeting will be held at 10:00 a.m.,
local time, on November 16, 2000 at the offices
of Hodgson, Russ, Andrews, Woods & Goodyear,
LLP, One M&T Plaza, Suite 2000, Buffalo, New
York 14203.
PURPOSE OF THE SPECIAL
MEETING..................... At the special meeting, you will be asked to
approve the Agreement and Plan of Merger, dated
as of May 26, 2000, as amended on September 18,
2000 and October 6, 2000, among Acme, Key
Components and KCI Merger Corp., a wholly-owned
subsidiary of Key Components. If the merger is
completed, Acme will become a wholly-owned
subsidiary of Key Components and you will be
entitled to receive $9.00 in cash for each
share of Acme common stock that you own. Please
read "Information Concerning the Special
Meeting" at page 9.
RECORD DATE................... The Board of Directors has fixed the close of
business on October 6, 2000, as the record date
for determination of the Acme's shareholders
entitled to notice of and to vote at the
special meeting.
QUORUM, ABSTENTIONS AND BROKER
NON-VOTES................... The required quorum for the special meeting is
a majority of votes eligible to vote as of the
record date. Both abstentions and broker non-
votes will be included in determining the
number of votes present and entitled to vote at
the special meeting for the purpose of
determining the presence of a quorum. THE
ACTIONS PROPOSED IN THIS PROXY STATEMENT ARE
NOT MATTERS THAT CAN BE VOTED ON BY BROKERS
HOLDING YOUR SHARES WITHOUT YOUR SPECIFIC
INSTRUCTIONS.
VOTE REQUIRED TO APPROVE THE
MERGER AGREEMENT............ Not less than two-thirds of the outstanding
shares of Acme's common stock must approve the
merger agreement. You are entitled to one vote
for each share of Acme common stock that you
owned on the record date. Because approval of
the merger agreement requires the affirmative
vote of two-thirds of the outstanding shares of
Acme's common stock, abstentions, failures to
vote and broker non-votes will have the same
effect as a vote against approval of the merger
agreement. ACCORDINGLY, YOU ARE URGED TO RETURN
THE ENCLOSED PROXY CARD MARKED TO INDICATE YOUR
VOTE.
REVOCATION OF PROXIES......... You may change your vote at any time before it
is voted by:
- delivering a written notice of revocation of
proxy prior to the special meeting to John B.
Drenning, Secretary, Acme Electric
Corporation, 400 Quaker Road, East Aurora,
New York 14052;
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- delivering to Acme a new proxy bearing a
later date prior to the special meeting; or
- attending the special meeting and voting in
person.
If you own your shares of Acme common stock in
"street name," you should follow your broker's
instructions concerning how to change your
vote.
You should not send any share certificates with
your proxy. A transmittal form with
instructions for the surrender of share
certificates representing your common stock
will be mailed to you as soon as practicable
after completion of the merger. Please read
"Information Concerning the Special Meeting" at
page 9.
THE PARTIES
ACME.......................... Acme Electric Corporation, a New York
corporation, is a leader in the design and
manufacture of power conversion equipment for
electronic and electrical systems for
industrial, commercial, residential, and
military/aerospace applications. Corporate
headquarters are in East Aurora, New York, with
operations in Cuba, New York, Lumberton, North
Carolina, Tempe, Arizona, and Monterrey,
Mexico.
KEY COMPONENTS................ Key Components, LLC., a Delaware limited
liability company, is a leading manufacturer of
custom engineered essential componentry for
application in a diverse array of end market
niches. Key Components operates in two business
segments, mechanical engineered components and
electrical components. The mechanical
engineered components products consist
primarily of medium security lock products and
accessories, flexible shaft and remote valve
control components, and turbocharger actuators
and related accessories. Key Components'
electrical components products include
specialty electric components including, but
not limited to, weather- and
corrosion-resistant wiring devices and battery
chargers, and high-voltage utility switches.
KCI MERGER CORP............... KCI Merger Corp., a New York corporation, and a
wholly-owned subsidiary of Key Components, was
organized to merge with and into Acme and has
not conducted any unrelated activities since
its organization.
Please read "The Parties" at page 11.
THE MERGER AND RELATED TRANSACTIONS
OVERVIEW...................... Pursuant to the merger agreement and assuming
all of the conditions to the merger are
satisfied or waived, KCI Merger Corp. will be
merged with and into Acme, with Acme surviving.
As a result of the merger, Acme will become a
wholly-owned subsidiary of Key Components and
each then outstanding share of Acme common
stock, other than shares held by shareholders
who perfect their dissenters' rights and shares
held in Acme's treasury, will, by virtue of the
merger, be converted automatically into the
right to receive $9.00 in cash.
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After the consummation of the merger:
- you will have no continuing equity interest
in, and will not share in future earnings,
dividends or growth, if any, of Acme;
- Acme will no longer be a public company; and
- Acme's common stock will no longer be traded
on the Nasdaq National Market or any other
national exchange or automated quotation
system.
We urge you to read the merger agreement, which
is attached as Appendix A to this proxy
statement, carefully and in its entirety.
RECOMMENDATION OF THE BOARD OF
DIRECTORS................... After an evaluation of business, financial and
market factors and consultation with its legal
advisors, at a meeting held on May 25, 2000,
the board of directors, acting through a
special committee of four independent
directors, determined that the merger was fair
to and in the best interests of Acme and its
shareholders, unanimously approved and adopted
the merger agreement and the transactions
contemplated thereby and voted to recommend
that Acme's shareholders approve and adopt the
merger agreement, subject only to receipt of a
fairness opinion of its financial advisor. The
board of directors subsequently received and
reviewed new projected financial information
for Acme and an updated fairness opinion of
Ernst & Young LLP. At a meeting held on October
3, 2000, the board, acting on the
recommendation of the special committee, and
with one director, Robert J. McKenna,
dissenting, reaffirmed its approval and
recommendation that Acme's shareholders approve
and adopt the merger agreement. Please read
"The Merger -- Reasons for the Merger;
Recommendation of the Board of Directors" at
page 17, "--Reasons of Mr. McKenna for Voting
Against the Merger" at page 19 and "-- Certain
Projected Financial Data" at page 24.
OPINION OF FINANCIAL
ADVISOR..................... On June 21, 2000, Ernst & Young delivered its
written opinion to the board of directors that,
as of such date, the $9.00 per share in cash to
be received by holders of shares in the merger
was fair from a financial point of view to such
holders. On September 25, 2000, Ernst & Young
delivered an updated written opinion to the
board of directors that, as of such date, the
$9.00 per share in cash to be received by
holders in the merger remained fair from a
financial point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF ERNST &
YOUNG DATED SEPTEMBER 25, 2000, WHICH SETS
FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED AS
APPENDIX B TO THIS PROXY STATEMENT. THE OPINION
OF ERNST & YOUNG DOES NOT CONSTITUTE A
RECOMMENDATION AS TO HOW YOU SHOULD VOTE WITH
RESPECT TO THE MERGER AGREEMENT. YOU SHOULD
READ THE OPINION IN ITS ENTIRETY. Please read
"The Merger -- Opinion of Ernst & Young LLP" at
page 20.
DISSENTERS' RIGHTS............ Under New York law, shareholders who do not
vote in favor of the merger agreement will be
entitled to exercise dissenters' rights in
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connection with the merger. Shareholders
desiring to exercise such dissenters' rights
will have the rights and duties and must follow
the procedures set forth in Section 623 of New
York Business Corporation Law, the full text of
which is attached to this proxy statement as
Appendix C. Shareholders who wish to exercise
dissenters' rights must carefully follow the
procedures described therein and are urged to
read Appendix C in its entirety. Please read
"The Merger -- Dissenters' Rights of Appraisal"
at page 29.
EFFECTIVE TIME................ The merger will become effective as of the date
and time that the Certificate of Merger is
filed with the Secretary of State of the State
of New York, which is expected to occur as soon
as practicable after the special meeting.
SURRENDER OF CERTIFICATES..... Pursuant to the merger agreement, Key
Components will deposit with a bank or trust
company of its choice an amount of cash
necessary to pay the aggregate consideration
payable to Acme's shareholders in the merger.
Promptly after the effective time of the
merger, each shareholder of record will be
mailed a letter of transmittal and detailed
instructions specifying the procedures to be
followed in surrendering certificates
representing Acme common stock. SHARE
CERTIFICATES SHOULD NOT BE FORWARDED UNTIL
RECEIPT OF THE LETTER OF TRANSMITTAL. Upon the
surrender of a share certificate, you will
receive a check representing an amount of cash
equal to $9.00 per share of Acme common stock
formerly represented by the share certificates
surrendered. Please read "The Merger
Agreement -- Exchange of Acme Stock
Certificates" at page 39.
CONDITIONS TO THE MERGER...... Acme's and Key Components' obligations to
consummate the merger are subject to several
conditions including:
- approval of the merger agreement by the
holders of not less than two-thirds of the
shares outstanding and entitled to vote on
the merger;
- no order, statute, rule, regulation, stay,
decree, judgment or injunction having been
promulgated, entered, issued, enacted or
enforced by any court or governmental
authority that would prohibit or restrict the
consummation of the merger;
- the waiting period required under the
Hart-Scott-Rodino Antitrust Improvements Act
having expired or been terminated (which
condition has been satisfied); and
- Acme, with respect to Key Components'
obligation, and Key Components, with respect
to Acme's obligation, having performed and
complied in all material respects with the
covenants set forth in the merger agreement
to be performed or complied with prior to the
merger, and the representation and warranties
of Acme, on the one hand, and Key Components,
on the other, set forth in the merger
agreement being true when made and as of the
effective time of the merger.
Key Components' obligation to consummate the
merger is subject to several additional
conditions including:
- there having been no material adverse change
in the business, operations, condition
(financial or otherwise) or results of
operations of Acme;
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- there having been received notices of
election to dissent to the merger from
shareholders who, in the aggregate, own no
more than 10% of the outstanding shares of
Acme;
- Key Components having obtained funding from
financing sources permitting it to pay for
the Acme shares and meet its obligations
under the merger agreement (which condition
has been satisfied);
- Key Components having received environmental
reports on Acme's properties reasonably
satisfactory to it and such environmental
reports not recommending further
investigation or remediation costing more
than $250,000 (which condition has been
satisfied); and
- Acme having terminated its existing "poison
pill" shareholder rights agreement (which
condition has been satisfied).
Please read "The Merger Agreement -- Conditions
to the Merger" at page 33.
TERMINATION AND AMENDMENT OF
THE MERGER AGREEMENT....... The merger agreement may be terminated at any
time prior to the effective time of the merger
by, among other things, the mutual agreement of
the parties or, after the occurrence of certain
events or actions, by one of the parties acting
independently. The merger agreement may be
amended by the parties at any time, but after
the merger agreement has been approved by the
shareholders, no amendment may be made which by
law requires further approval of the
shareholders without obtaining such approval.
Please read "The Merger
Agreement -- Termination of the Merger
Agreement" at page 34.
FEDERAL INCOME TAX
CONSEQUENCES............... The exchange of shares by an Acme shareholder
for the merger consideration will be a taxable
transaction under the Internal Revenue Code of
1986, as amended. BECAUSE OF THE COMPLEXITIES
OF THE TAX LAWS, YOU ARE ADVISED TO CONSULT
YOUR OWN TAX ADVISORS CONCERNING THE APPLICABLE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES RESULTING FROM THE MERGER. Please
read "The Merger -- Material U.S. Federal
Income Tax Consequences of the Merger" at page
28.
TERMINATION FEES.............. The merger agreement provides that in certain
circumstances Acme must pay a $2.5 million
termination fee to Key Components. These
circumstances are where:
- Acme terminates the merger agreement to
accept a more favorable acquisition proposal
from a third party; or
- Key Components terminates the merger
agreement following the withdrawal or
modification by the Acme board of its
approval or recommendation of the merger or
recommendation of another offer if on or
prior to such date a third party shall have
made and not withdrawn an acquisition
proposal.
In addition, if Acme terminates the merger
agreement for the reason set forth above or if
Key Components terminates the merger agreement
because Acme breaches its representations and
warranties or fails to perform its agreements
and obligations in the merger agree-
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ment or because the merger agreement is not
approved by the shareholders, or notices of
election to dissent to the merger are received
from holders of more than 10% of the shares of
Acme and Key Components elects not to
consummate the merger, then Acme will reimburse
Key Components for all out of pocket fees and
expenses arising in connection with the merger.
The merger agreement also provides that in
certain circumstances Key Components must pay a
$2.5 million termination fee to Acme. These
circumstances are where Acme terminates the
merger agreement because:
- A court or other governmental body enters a
nonappealable order restraining or
prohibiting the merger and such order or
ruling results from Key Components being a
party to the merger agreement;
- The merger is not completed by November 30,
2000 by reason of (a) the Hart-Scott-Rodino
Antitrust Improvements Act waiting period not
having expired or been terminated (which
period has terminated), (b) Key Components'
financing not having been obtained (which
financing has been obtained).
- Key Components or KCI has not performed in
all material respects the agreements and
obligations contained in the merger agreement
required to be performed and complied with by
each of them at or prior to the effective
time of the merger, or the representations
and warranties of Key Components or KCI
contained in the merger agreement not being
true when made or as of the effective time of
the merger.
In addition, if Acme terminates the merger
agreement for the reasons set forth above, Key
Components will reimburse Acme for all out of
pocket fees and expenses arising in connection
with the merger and the previously announced
transaction with Strategic Investments &
Holdings, Inc.
Please see "The Merger Agreement -- Termination
Fees" at page 35.
REGULATORY AND OTHER
APPROVALS..................... There are no U.S. federal or state regulatory
requirements to be complied with in order to
consummate the merger other than the filing of
certificate of merger with the Secretary of
State of the State of New York.
MERGER FINANCING.............. The merger will be financed with borrowings by
Key Components. Key Components has delivered to
Acme a commitment letter from First Union
National Bank, First Union Securities, Inc.,
Societe Generale and SG Cowen Securities
Corporation, as agents for a syndicate of
financial institutions, which provides for $140
million in senior secured credit facilities to
(a) finance the merger, (b) consummate a
refinancing of all outstanding indebtedness
under Key Components' existing senior secured
credit facility and certain indebtedness of
Acme, (c) pay fees and expenses and (d) provide
funds for working capital and general corporate
purposes following the merger. Key Components
has advised Acme that it has entered into a
definitive credit agreement substantially on
the terms of this commitment letter.
Please read "The Merger -- Merger Financing" at
page 29.
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TABLE OF CONTENTS
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SUMMARY TERM SHEET.......................................... 2
The Special Meeting....................................... 2
The Parties............................................... 3
The Merger and Related Transactions....................... 3
INFORMATION CONCERNING THE SPECIAL MEETING.................. 9
THE PARTIES................................................. 11
THE MERGER.................................................. 12
Background of Merger...................................... 12
Reasons for the Merger; Recommendation of Board of
Directors.............................................. 17
Reasons of Mr. McKenna for Voting Against the Merger...... 19
Opinion of Ernst & Young LLP.............................. 20
Certain Projected Financial Data.......................... 24
Interests of Certain Persons in the Merger................ 27
Material U.S. Federal Income Tax Consequences of the
Merger................................................. 28
Regulatory Approvals...................................... 29
Merger Financing.......................................... 29
Dissenters' Rights of Appraisal........................... 29
Public Trading Markets.................................... 31
Shareholder Lawsuits Challenging Strategic Transaction.... 31
THE MERGER AGREEMENT........................................ 32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 39
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 40
SHAREHOLDER PROPOSALS....................................... 41
OTHER BUSINESS.............................................. 41
WHERE YOU CAN FIND MORE INFORMATION......................... 41
Appendix A -- Agreement and Plan of Merger.................. A-1
Appendix B -- Opinion of Ernst & Young LLP.................. B-1
Appendix C -- New York Appraisal Rights Statute............. C-1
</TABLE>
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INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE
The enclosed proxy is solicited by and behalf of the board of directors of
Acme for use at the special meeting of shareholders of Acme scheduled for
November 16, 2000 at 10:00 a.m., local time, at the offices of Hodgson, Russ,
Andrews, Woods & Goodyear, LLP, 20th floor, One M&T Plaza, Buffalo, New York.
This proxy statement was first mailed to shareholders on or about October
13, 2000.
PURPOSE OF THE SPECIAL MEETING
At the special meeting the Acme shareholders will consider and vote on:
- the approval and adoption of the Agreement and Plan of Merger dated as of
May 26, 2000, as amended on September 25, 2000 and October 6, 2000, by
and between Acme, Key Components and KCI Merger Corp.; and
- any other matters that may properly come before the meeting or any
adjournment or postponement thereof.
The board, acting on the recommendation of a special committee of
independent directors, with one director, Robert J. McKenna, dissenting, has
approved and adopted the merger agreement and recommends that you vote "FOR"
approval and adoption of the merger agreement.
RECORD DATE; OUTSTANDING SHARES AND VOTING
The Acme board has fixed the close of business on October 6, 2000, as the
record date for purposes of determining the shareholders entitled to receive
notice of and to vote at the special meeting. Only those Acme shareholders as of
the record date are entitled to notice of and to vote at the special meeting. As
of the close of business on the record date, there were 5,077,587 shares of Acme
common stock issued and outstanding and entitled to vote at the special meeting.
Acme shareholders as of the record date are entitled to cast one vote on any
matter that may properly come before the special meeting.
VOTE REQUIRED
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Acme common stock is necessary to constitute a quorum for
the transaction of the business at the special meeting. Shareholders attending
the special meeting may revoke their proxies and vote personally. The
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of Acme is required to approve and adopt the merger agreement.
At the special meeting, abstentions and votes withheld will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. If a broker does not receive voting instructions from the
beneficial owner of shares on a particular matter and indicates on the proxy
that it does not have discretionary authority to vote on that matter (a "broker
non-vote"), those shares will be considered as present and entitled to vote with
respect to that matter for the purposes of establishing a quorum. Because the
affirmative vote of not less than two-thirds of the outstanding shares entitled
to vote at the special meeting is required to approve and adopt the merger
agreement, abstentions, votes withheld and broker non-votes will have the effect
of votes against approval of the merger agreement.
SHARE OWNERSHIP OF MANAGEMENT
As of the record date, the directors and executive officers of Acme as a
group beneficially owned less than 1% of the outstanding shares of common stock
entitled to vote at the special meeting.
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SOLICITATION AND VOTING OF PROXIES
Shares of Acme common stock represented by duly executed proxies in the
enclosed form received prior to the special meeting and not revoked will be
voted at the meeting or at any adjournments or postponements thereof in
accordance with the instructions specified on the proxy. If no instructions are
specified, it is the intention of such duly elected proxies to vote FOR approval
and adoption of the merger agreement.
The Acme board is not aware of any other matters which may be presented for
consideration and a vote at the special meeting. If other matters do properly
come before the special meeting, it is intended that shares of Acme common stock
represented by duly executed proxies in the enclosed form will be voted by the
persons named in the proxy in accordance with their best judgment.
Acme will pay all of the expenses of soliciting proxies for the special
meeting, including the cost of preparing, printing, assembling and mailing this
proxy statement and the enclosed form of proxy. In addition to the solicitation
of proxies by mail, certain officers and regular employees of Acme, without
additional compensation, may use their personal efforts, by telephone or
otherwise, to obtain proxies. Acme also will request persons, firms and
corporations holding shares in their names, or in the names of their nominees,
which shares are beneficially owned by others, to send this proxy statement to
and obtain proxies from such beneficial owners, and will reimburse such holders
for their reasonable expenses in so doing. In addition, Georgeson Shareholder
Communications Inc. has been retained by Acme to assist in the solicitation of
proxies. Georgeson will receive reasonable and customary compensation for its
services (estimated at $10,000), will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under the
federal securities laws.
REVOCATION OF PROXIES
A proxy that has been given according to the requirements set forth above
may be revoked by the person executing it at any time before the authority
granted by it is exercised or voted. Proxies may be revoked by:
- giving written notice to the Secretary of Acme stating that you would
like to revoke your proxy;
- delivering a new executed proxy bearing a later date according to the
solicitation requirements set forth above; or
- attending the special meeting and voting in person, although attendance
at the meeting will not in and of itself constitute a revocation of a
proxy.
All written notices of revocation and other communications with respect to
revocation of proxies should be addressed to Acme as follows: John B. Drenning,
Secretary, Acme Electric Corporation, 400 Quaker Road, East Aurora, New York
14052. Attendance at the special meeting will not have the effect of revoking a
proxy unless the Acme shareholder in attendance notifies the secretary of the
meeting in writing of the revocation before the proxy vote is taken.
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THE PARTIES
ACME
Acme designs, manufacturers and markets power conversion equipment for
electronic and electrical systems. Acme principally sells its equipment in
markets that encompass the computer, test equipment, information systems,
military, aerospace and telecommunications and a variety of industrial,
commercial and residential fields for applications that require conversion of
electrical energy from one usable state to another. Acme has operations in Cuba,
New York, Lumberton, North Carolina, Tempe, Arizona and Monterrey, Mexico.
Acme's headquarters are located at 400 Quaker Road, East Aurora, New York 14052,
and its telephone number is (716) 655-3800.
KEY COMPONENTS, LLC
Key Components is a Delaware limited liability company and is a holding
company for several wholly owned subsidiaries. Key Components, Inc., a New York
corporation, holds directly and indirectly all of the member interest in Key
Components, has no operations and has no material assets other than its interest
in Key Components.
Key Components is a leading manufacturer of custom engineered essential
componentry for application in a diverse array of end market niches. Key
Components conducts its operations through its two business segments, mechanical
engineered components and electrical components. The mechanical engineered
components products consist primarily of medium security lock products and
accessories, flexible shaft and remote valve control components and
turbo-charger actuators and are manufactured by its subsidiaries Hudson Lock,
LLC, ESP Lock Products, LLC, B.W. Elliott Manufacturing Co., LLC and Gits
Manufacturing, LLC. The electrical components products include specialty
electrical components including, but not limited to, weather- and
corrosion-resistant wiring devices and battery chargers and high-voltage utility
switches and are manufactured by its subsidiaries Marine Industries, LLC,
Atlantic Guest, Inc. and Turner Electric, LLC.
Key Components maintains its principal office at 200 White Plains Road,
Tarrytown, New York 10591. Key Components' telephone number is (914) 332-8088.
KCI MERGER CORP.
KCI Merger Corp., a New York corporation and a wholly-owned subsidiary of
Key Components, was formed solely for the purpose of effecting the merger and
has undertaken no activities except in connection with the merger.
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THE MERGER
This section of the proxy statement describes aspects of the proposed
merger we consider important, including the merger agreement which is attached
as Appendix A and is incorporated into this proxy statement by reference. While
we believe that the description covers the material terms of the merger, the
summary may not contain all of the information that is important to you. You
should read this entire proxy statement and the other documents we refer to
carefully and in their entirety for a complete understanding of the merger.
BACKGROUND OF THE MERGER
Acme has on several occasions since 1992 attempted unsuccessfully to sell
one or more of its operating divisions. These efforts were led by Acme
management and on occasion by third party financial advisors. In mid-1999,
primarily in response to concerns regarding Acme's stock price, which had traded
in the range of $4.00 to $7.00 per share for the preceding 18 months despite
significant improvements in Acme's operating results, the board authorized
management to solicit potential strategic buyers for all of Acme. Although
management made contact with several potential buyers, no party evidenced an
interest in acquiring Acme and no specific terms were discussed. In the fall of
1999, the board authorized management to investigate a potential sale of Acme to
financial buyers, including a potential "going private" transaction where
management would participate with the buying group. Robert McKenna, Acme's
Chairman of the Board, Chief Executive Officer and President, made contact with
several potential financial buyers throughout the remainder of 1999, none of
whom indicated interest in an acquisition of Acme.
In January 2000, Mr. McKenna met with William Joyce of Strategic
Investments and Holdings, Inc., a private equity buyout firm with offices in
Buffalo, New York, to discuss a potential acquisition of Acme. No specific terms
were discussed and Mr. McKenna agreed to provide Strategic with certain publicly
available information regarding Acme.
On January 31, 2000, Strategic entered into a confidentiality agreement
with Acme and Acme provided Strategic with certain non-public information,
including Acme's fiscal 2000 operating plan.
On February 17, 2000, at a special meeting of the Acme board, principals of
Strategic presented a proposal to acquire Acme in a cash merger at $7.25 per
share plus assumption of all debt, an approximate 15% premium to the then
current stock price. The proposal included the participation of Mr. McKenna in
the buying group. Following the presentation by Strategic, the board appointed a
special committee consisting of the four outside directors, Robert Brady,
Randall Clark, Robert Batting and Terry Manon, to act for the board in
connection with the Strategic offer. The board also authorized the special
committee to engage a financial advisor and legal counsel.
On March 8, 2000, the special committee determined to retain Winthrop,
Stimson, Putnam & Roberts as its legal counsel, and, pursuant to a request of
Strategic, determined to provide additional due diligence information to
Strategic. At a meeting of the entire board held on March 8, the board received
a presentation from representatives of DT Magnetics, a division of Dover
Technologies Company, with respect to a potential acquisition of Acme. The Dover
representatives provided background information regarding Dover and its business
and submitted a letter dated March 6, 2000 expressing an interest in making an
offer for the purchase of all of the outstanding shares of Acme stock at a price
within the range of $7.30 to $8.00 per share. The board determined to submit
further consideration of the Dover proposal to the special committee, which
authorized making due diligence materials available to Dover.
On March 14 and 15, 2000, representatives of Strategic visited Acme's East
Aurora, New York headquarters and its electronics division in Cuba, New York. On
March 16 and 17, 2000, representatives of Dover visited Acme's East Aurora
headquarters and its electronics division in Cuba.
On March 20, 2000, representatives of Dover visited Acme's power
distribution products division in Lumberton, North Carolina and discussed
general business conditions and prospects.
On March 21, 2000, Dover advised Acme that it was discontinuing its due
diligence and withdrawing its proposal because Acme did not present the
prospects for growth that Dover had anticipated.
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On March 30, 2000, based on the results of its ongoing due diligence
investigation, Strategic advised Acme that it was raising its proposed offer
price from $7.25 per share to $7.65 per share, plus assumption of all debt.
On April 10, 2000, the special committee met to consider a letter of intent
submitted by Strategic dated April 10, 2000, proposing a merger at a purchase
price of $7.65 per share plus assumption of all debt. The special committee
discussed the recently withdrawn Dover proposal and reviewed the efforts of Acme
and its representatives over the preceding 18 months to solicit other potential
buyers of Acme. At this meeting, the special committee appointed Robert Brady as
Chairman and Randall Clark as Vice-Chairman. Following discussion, the special
committee approved the letter of intent, authorized Mr. Brady to execute the
letter of intent on behalf of Acme and approved the engagement of Ernst & Young
to render a fairness opinion in connection with the proposed transaction.
Between April 11, 2000 and April 20, 2000, Strategic and its attorneys and
accountants conducted additional due diligence and the parties, through their
attorneys, negotiated a merger agreement.
On April 21, 2000, the special committee met to discuss a proposed merger
agreement submitted by Strategic calling for a merger of Acme with Strategic's
acquisition entities, Miranda Holdings, Inc. and Miranda Acquisition Sub, Inc.
The special committee received a report from representatives of Winthrop,
Stimson regarding the terms and conditions of the merger agreement. After a
general discussion regarding the provisions of the merger agreement, the special
committee approved the merger agreement, which was conditioned upon the receipt
of an acceptable fairness opinion from Ernst & Young according to the terms of
the merger agreement, and Mr. Brady was authorized to execute the agreement on
behalf of Acme substantially in the form approved by the special committee. On
April 26, 2000, Mr. Brady executed the merger agreement on behalf of Acme and
the parties publicly announced the proposed transaction.
On April 27, 2000, Key Components transmitted a letter to Mr. Brady stating
its interest in acquiring Acme and indicating, based on its review of publicly
available information, that it was prepared to offer a higher price than was
being offered in the Strategic transaction. The letter expressed Key Components'
belief that it could complete a transaction quickly and that its definitive
offer would be subject to a due diligence investigation to confirm only the
accuracy of Acme's publicly available information. By letter dated May 1, 2000,
and pursuant to the requirements of the Strategic merger agreement, Mr. Brady
notified Strategic of the Key Components proposal.
On May 4, 2000, representatives of Ernst & Young, who at the time were not
aware of the proposal received from Key Components, made a report to the special
committee regarding the fairness of the consideration provided for in the
Strategic merger agreement and concluded that the price per share being offered
by Strategic was fair to the shareholders of Acme from a financial point of
view. Ernst & Young's report was subsequently amended at the request of the
special committee to remove from the report data which relied on comparisons to
several high technology companies in businesses dissimilar to Acme that sold at
prices in excess of 20 times earnings. The report was resubmitted in writing on
May 8, 2000. Please see the discussion under " -- Opinion of Ernst & Young LLP"
at page 20. Later that day, Strategic unilaterally raised its proposed purchase
price per share from $7.65 to $8.00 and an amendment to the Strategic merger
agreement was signed to provide for the higher price per share.
On May 5, 2000, following execution of a confidentiality agreement, Acme
provided Key Components with the legal and financial due diligence information
that had been previously supplied to Strategic.
On May 10, 2000, representatives of Key Components met with management of
Acme to discuss Acme's then current business and future prospects, including
business conditions for each of Acme's operating divisions.
On May 22, 2000, representatives of Key Components visited Acme's power
distribution products division in Lumberton, North Carolina for a plant tour and
for a general discussion with the general manager regarding then current
business operations and prospects.
On May 23, 2000, by letter to the special committee, Key Components offered
$9.25 per share for all of the outstanding shares of Acme, plus assumption of
all outstanding indebtedness. The offer included a proposed form of merger
agreement in substantially the form as was executed between Acme and Strategic.
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On May 24, 2000, Mr. Brady and representatives of Winthrop, Stimson had
several discussions with representatives of Key Components and its legal counsel
regarding the terms of the offer letter focusing particularly on the risk to
Acme and its shareholders of incurring a termination fee to Strategic without
having assurances of the consummation of the new transaction with Key
Components. In response to this concern, Key Components agreed, by means of a
termination fee, to reimburse Acme for any termination fee and expenses payable
by Acme to Strategic as a result of the proposed transaction with Key Components
in the event Key Components subsequently failed to consummate the merger by
reason of its breach of the merger agreement. Please see the discussion under
"The Merger Agreement -- Termination Fees" at page 35. In connection with the
resolution of this issue, Key Components reduced its offer price to $9.00 per
share.
On May 25, 2000, the special committee met to consider the Key Components
offer. The special committee received a report from representatives of Winthrop,
Stimson regarding the proposed form of Key Components merger agreement and
Acme's obligations to pay to Strategic a termination fee and expenses under the
Strategic merger agreement in the event the special committee acted to accept
the offer made by Key Components. The special committee discussed the reasons
for the reduction in Key Components' initial offer from $9.25 to $9.00 per share
in light of the financial risks to Acme and its shareholders associated with the
termination of the merger agreement with Strategic and a subsequent failure to
consummate a merger with Key Components. The special committee also considered
Key Components' ability to obtain financing for the transaction. After this
discussion, the special committee voted unanimously to approve and adopt the
proposed form of merger agreement with Key Components substantially in the form
presented to the special committee at the meeting and authorized Mr. Brady to
execute the merger agreement on behalf of Acme.
On May 26, 2000, legal counsel to Acme and the special committee and legal
counsel to Key Components finalized the disclosure schedules to the merger
agreement and the merger agreement was signed. A joint press release announcing
the transaction was made that day. Also on May 26, 2000, Strategic provided
written notice to Acme terminating the Strategic merger agreement in accordance
with its terms by reason of the special committee's action in approving the
proposed Key Components transaction. The notice requested immediate payment of
the $2.5 million termination fee called for under the Strategic merger
agreement. On May 30, 2000, Acme paid Strategic the termination fee, together
with certain expenses of Strategic payable under the merger agreement, in the
total sum of approximately $2.8 million. Mr. McKenna did not receive and is not
entitled to receive, directly or indirectly, any portion of the termination fee.
Throughout June, July and the early part of August 2000, the parties worked
to satisfy the various conditions precedent to the merger contained in the
merger agreement.
At a regular meeting of the board on August 18, 2000, Mr. McKenna presented
information regarding developments at Acme's operating divisions arising after
June 21, 2000, the date of Ernst & Young's initial fairness opinion. Mr. McKenna
reported that prospects had improved at each of the operating divisions and
circulated to the board sales and projected operating income for each division
for the 2001, 2002 and 2003 fiscal years. The projected increases for the Power
Distribution Products Division were significant and reflected primarily
projected new business from a single customer, the Power Systems Division of
Invensys PLC (known as Powerware). On a combined basis, these new projections
indicated sales and operating income substantially in excess of the projected
financial data provided to Ernst & Young in connection with the preparation of
its June 21, 2000 fairness opinion. The Acme board reviewed this new projected
financial information and asked questions of Mr. McKenna and Mr. Nicholas Arena,
the Vice-President and General Manager of the Power Distribution Products
Division, regarding the assumptions underlying the projections and the risk that
the projected new business would not materialize. Because Acme's engagement
letter with Ernst & Young required that Acme advise Ernst & Young of any
material developments that could affect Acme's business or financial condition,
the board authorized Mr. Brady to communicate these new developments to Ernst &
Young.
At a meeting of the Acme board on August 28, 2000, Mr. Brady reported that
Ernst & Young had advised orally that the new financial projections would not
require it to withdraw its June 21, 2000 fairness opinion because the opinion
was accurate as of its date. The board determined that given the significant
change in Acme's financial projections versus the projections used by Ernst &
Young in preparing its June 21, 2000 fairness opinion, an updated fairness
opinion was necessary. The board authorized Mr. Brady to engage Ernst & Young to
update its June 21, 2000
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fairness opinion and to communicate the board's decision to Key Components. On
August 29, 2000, Acme and Ernst & Young entered into an engagement letter
providing for an updated fairness opinion at a cost of $250,000.
By letter dated August 28, 2000, Key Components advised Acme that in its
view none of the information contained in the updated projections warranted an
update of the Ernst & Young fairness opinion.
By letter to Mr. Brady dated September 5, 2000, Key Components requested
certain information from Acme regarding the status of Acme's discussions with
Ernst & Young and asserted that Acme was not in compliance with certain of its
covenants in the merger agreement, including its obligation to furnish
information to Key Components.
By letter dated September 7, 2000, Acme provided written notice to Key
Components of the board's decision to obtain an updated fairness opinion and
requested an extension of the termination date contained in the merger agreement
to November 10, 2000.
By letter to Acme dated September 8, 2000, Key Components asserted, among
other things, that Acme had breached the merger agreement, demanded that Acme
comply with its obligations under the merger agreement to mail a proxy statement
and hold a special shareholder's meeting, and stated that notwithstanding such
breaches it remained Key Components' intention to complete the merger even if
completed after the October 2 termination date. This letter also stated that Key
Components previously had advised Acme of the satisfaction of a condition in the
merger agreement regarding certain environmental matters. Acme responded by
letter dated September 14, 2000 denying that it had breached the merger
agreement and asserting that any delay in mailing the proxy statement or holding
the shareholders' meeting had resulted from Key Components' failure to have
acknowledged satisfaction of the condition in the merger agreement regarding
certain environmental matters prior to its September 8 letter.
On September 11, 2000, the Acme board met and received an update from Mr.
McKenna on the status of the negotiations with Powerware. Mr. McKenna explained
that negotiations concerning a written pricing agreement were continuing. Mr.
McKenna also reported his belief that the projected new business with Powerware
would likely be realized in whole or significant part. Mr. McKenna also reported
that updated financial projections for each division and for Acme as a whole for
the five fiscal years ending 2005 were near completion and would be provided to
Ernst & Young. On September 14, 2000, the updated five year financial
projections were provided to Ernst & Young. See the discussion in this proxy
statement under "Certain Projected Financial Data" for information regarding
these projections.
On September 13, 2000, Acme advised Key Components that the updated Ernst &
Young fairness opinion was expected to be available by September 25, 2000.
On September 18, 2000, the parties entered into an amendment to the merger
agreement to provide that if Ernst & Young delivered to Acme their updated
fairness opinion by September 25, 2000 stating that the merger consideration was
fair to the shareholders from a financial point of view and Acme delivered a
copy of such opinion to Key Components by September 26, 2000, then the
termination date of the merger agreement would be extended to November 10, 2000.
The updated fairness opinion was subsequently delivered to Key Components on
September 25, 2000, and the extension of the termination was thereafter
effective.
On September 20, 2000, Mr. Brady received a letter from the private equity
group of a major New York based investment bank (the "Equity Group") regarding
its potential interest in making a proposal to acquire Acme that would be more
favorable to Acme's shareholders than the Key Components merger. The letter
stated that any such proposal would provide for the continuity of management and
the opportunity for management to participate in the equity of the new Acme
entity. The letter also stated that it was a condition to the Equity Group
proceeding that the existence and terms of the letter be kept confidential, and
that the Equity Group would have the right to terminate its interest if Acme
made public disclosure of that interest. On September 22, 2000, Acme entered
into a confidentiality agreement with the Equity Group. By memorandum from
Winthrop, Stimson dated September 22, 2000, Key Components was notified of the
Equity Group letter.
On September 25, 2000, Ernst & Young delivered its updated fairness opinion
and its written report thereon. On September 26, 2000, the Acme board met to
consider the updated opinion and report. The board received an
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oral presentation regarding the report from representatives of Ernst & Young.
The board asked questions of such representatives focusing on the discounted
cash flow and leveraged buyout analysis contained in the report. The board
specifically questioned the use of discount rates of 24% and 25% in the
discounted cash flow analysis and required rates of return of 30%, 40% and 50%
in the leveraged buyout analysis. The board noted that these discount rates and
rates of return were significantly higher than those used in the June 21, 2000
fairness opinion. The board also noted that notwithstanding the use of these
discount rates and rates of return the discounted cash flow and leveraged buyout
analyses showed a significant increase in the range of values for Acme, although
under both analyses the merger consideration remained within the range of
fairness. The representatives of Ernst & Young advised the board in response to
these questions that the choice of discount rates and required rates of return
was necessarily a judgment call and that the risks associated with the projected
new business justified the higher discount rates and required rates of return.
Following the presentation by Ernst & Young, the board discussed the September
20 letter of the Equity Group and Acme's obligations under the merger agreement
with Key Components. The board also voted provisionally to set November 9, 2000
as the date for the special shareholders' meeting on the merger and October 6,
2000 as the record date for the meeting.
On September 26, 2000, Acme provided the Equity Group with certain
financial information, including the updated projections provided to Ernst &
Young. On September 27, 2000, Mr. McKenna met with representatives of the Equity
Group regarding Acme's financial performance, markets and customers.
By letter to Acme dated September 26, 2000, Key Components asserted that
Acme had breached the merger agreement because it had engaged in discussions
with the Equity Group before Acme received a written acquisition proposal from
the Equity Group and because Acme had failed to immediately notify Key
Components orally of the Equity Group letter. The letter also stated that, as
the Equity Group letter did not constitute a bona fide acquisition proposal,
Acme was prohibited by the merger agreement from furnishing the Equity Group
non-public information, and demanded that Acme cease to provide any such
information to the Equity Group. The letter further demanded that Acme proceed
to carry out its obligations under the merger agreement, including calling a
meeting of the shareholders to vote on the merger.
On October 3, 2000, the Acme board met to consider whether to reaffirm its
adoption and approval of the merger agreement and to recommend the merger to the
shareholders given Acme's substantially improved projected financial performance
and the interest of the Equity Group. The board received a report from Mr.
McKenna regarding the status of the Equity Group proposal and recent
developments regarding the Powerware new business. Mr. McKenna reported that
there had not yet been an offer from the Equity Group regarding a transaction
with Acme and that he did not expect a proposal in the near future if at all.
Mr. McKenna also reported that Powerware has advised Acme that they would be
seeking an additional source of supply for certain of the products that were
then the subject of discussions with Acme. This would result in lower sales to
Powerware than projected, although Powerware also indicated that it would like
Acme to supply products to certain product models that Acme was not currently
supplying. Mr. McKenna reported that the effect of Powerware's decision would be
to reduce projected sales and operating income in fiscal years 2001, 2002 and
2003. Mr. McKenna then delivered updated financial projections to the board
reflecting these new developments. These projections are presented under the
heading "October 2000 Projections" in the section of this proxy statement
entitled "Certain Projected Financial Data." After a discussion of the board's
obligations under the merger agreement and under applicable law, the four
members of the board constituting the special committee voted to reaffirm the
board's adoption and approval of the merger agreement and to recommend the
merger to the shareholders. Mr. McKenna voted against reaffirming the board's
approval and against recommending the merger to the shareholders. Given the
views of Mr. McKenna, and recognizing that as the chief executive officer he is
the director most knowledgeable regarding Acme and its prospects, the board
authorized Acme's legal counsel to include separate disclosure in the proxy
statement regarding Mr. McKenna's reasons for voting against the merger. See the
discussion in this proxy statement under "Reasons of Mr. McKenna for Voting
Against the Merger."
On October 4, 2000, Mr. McKenna was advised orally by representatives of
the Equity Group that it was no longer interested in pursuing a transaction with
Acme. The Equity Group advised Mr. McKenna that it would likely not be able to
review and become comfortable with Acme's financial projections and business
prospects given the time constraints imposed by the Key Components merger. The
Equity Group also advised Mr. McKenna that based on
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their initial investigation there did not appear to be a strategic fit between
Acme and another business opportunity they were currently pursuing.
On October 6, 2000, the board reviewed and approved the draft proxy
statement prepared by Acme's legal counsel. The board also considered and
approved a proposed amendment to the merger agreement to extend the termination
date from November 10 to November 30, 2000, and acted to set November 16, 2000
as the date of the special shareholders' meeting on the merger.
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
The board, acting on the recommendation of the special committee,
determined to approve the merger, and to recommend that the shareholders vote to
approve and adopt the merger agreement, for the following principal reasons:
- The Merger Consideration Represents a Substantial Premium to Acme's
Historical Stock Price and to the Consideration Payable in the Proposed
Transaction with Strategic. The $9.00 per share to be paid to Acme
shareholders in the merger represents (1) a premium of 29% over the
highest closing sale price of Acme common stock during the 52-week period
prior to April 26, 2000 (the date of announcement of the Strategic
transaction), and (2) a premium of 12.5% over the $8.00 per share
proposed to be paid in the Strategic transaction.
- The Merger Represents the Best Transaction that the Board Was Able to
Obtain After a Solicitation of Proposals and Public Disclosure of the
Proposed Strategic Transaction. From time to time since 1992, management
has sought buyers for Acme's operating divisions. In 1999, the board
authorized management to contact strategic and financial buyers to
solicit interest in an acquisition of all of Acme. The transaction with
Strategic was the only acquisition proposal to result from this process.
Given the substantial premium to the price proposed in the Strategic
transaction and the fact that no other proposals have been received in
the six months following the announcement of the Strategic transaction
(other than the Equity Group proposal), the board determined that the
merger with Key Components represented the best available transaction for
Acme and its shareholders.
- The Merger is More Likely to be Successfully Consummated than a
Transaction with Strategic. Key Components is an operating company,
doing business in markets complementary to Acme, with experience in
acquisitions. The financing necessary for Key Components to consummate
the merger is proposed to be senior debt obtained through a bank
syndicate led by First Union National Bank, Societe Generale and SG Cowen
Securities Corporation. Notwithstanding Strategic's experience in buyout
transactions, as a financial buyer Strategic could rely only on the
assets and operations of Acme to support its financing of the
transaction. Furthermore, the involvement of Mr. McKenna in the Strategic
buyout group (i) brought the SEC's "going private" rules into play
complicating disclosure of the transaction and increasing the risk of
delay and (ii) resulted in several lawsuits against Acme and its
directors alleging breach of fiduciary duty, among other claims, which
lawsuits are likely to be dismissed or withdrawn given the termination of
the Strategic merger agreement and the merger with Key Components.
- The Financial Projections Presented to the Board are Subject to Risks. A
significant portion of the increase in sales and operating income
contained in the most recent projections presented to the board results
from new business from one customer, Powerware. Approximately, 9% and 18%
of 2001 and 2002 projected sales and 16% and 22% of 2001 and 2002
projected operating income is represented by this new business. Although
Acme's agreement with Powerware guarantees it 65% of this new business,
Acme will have no guaranteed volume of orders from Powerware and will be
required to commit approximately $1.0 million in capital expenditures to
the Powerware opportunity. A significant assumption of the projections
presented for the Electronics Division is that the division successfully
transitions from primarily a manufacturer of power supplies to a more
integrated engineering and outsourcing partner to customers in the very
early stages of their life cycle with unproven market acceptance of their
products. Leading contract electronic manufacturers possess large scale
and global presence. The Electronic Division's limited scale and limited
geographic presence may put it at a competitive disadvantage if the
leading contract electronic manufacturers begin targeting these market
niches. Further, resource limita-
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tions place additional risks on this strategy. For information on the
projections presented to the board, see the section of this proxy
statement entitled "Certain Projected Financial Data."
- Future Business Prospects for Acme are Uncertain. Acme's Aerospace
Division has had limited success over the recent past in securing new
business. Furthermore, a large percentage of the Aerospace Division's
revenues are concentrated among a few OEM customers, which increases
risk. Despite its recently improved sales, the prospects for the
Electronics Division are difficult to assess as it transitions from
designing and manufacturing traditional electronic power supplies to
becoming an integrated engineering and manufacturing program manager for
customers with complex early-stage electronics products. Notwithstanding
the significant potential new business with Powerware, Acme's Power
Distribution Products Division competes in a mature market and is subject
to competitive pressures. Given the substantial competitive pressures
facing each of Acme's operating divisions and the risks described above,
the Acme board determined that a sale of all of Acme was appropriate.
In reaching its decision, the Acme board, acting through the special
committee, consulted with Acme's management and with its financial and legal
advisors, and considered several factors, including the following:
- the reasons described under "Reasons for the Merger;"
- historical information concerning Acme's businesses, financial
performance and condition, technology, competitive position and share
price;
- the difficulty in predicting future stock price performance of Acme even
assuming the improved operating results set forth in the new projections;
- the thin trading market and lack of liquidity for Acme's common stock,
which limits Acme's ability to attract institutional investors;
- possible alternatives to the merger, including continuing to operate as
an independent public company and growing through acquisitions, or
continuing to seek a sale of Acme to another party, and the effects,
benefits and risks, short term and long term, of such alternatives on the
value of the common stock;
- the analyses and presentation of Ernst & Young on the financial aspects
of the proposed Strategic transaction, and its written opinion to the
effect that as of May 8, 2000, and based upon and subject to the
considerations set forth in its opinion, the merger consideration in the
Strategic transaction (which was 11.1% lower than provided for in the
merger with Key Components) was fair from a financial point of view to
the Acme shareholders;
- the analyses and presentation of Ernst & Young on the financial aspects
of the merger, and its written opinion to the effect that as of September
25, 2000, and based upon and subject to the considerations set forth in
its opinion, the merger consideration (in the merger with Key Components)
is fair from a financial point of view to the Acme shareholders, and the
fact that this opinion was rendered on the basis of projections that were
subsequently revised downward by management; compare the September 2000
Projections with the October 2000 Projections under the section of this
proxy statement entitled "Certain Projected Financial Data";
- the substantial potential cost and expense of litigation, including for
breach of the merger agreement, arising from a decision by the board to
reverse its earlier adoption and approval of the merger agreement and not
to mail a proxy statement and convene a shareholders' meeting;
- the terms and conditions of the merger agreement, including Key
Components' agreement to reimburse Acme for any fees or expenses payable
to Strategic as a result of the termination of the Strategic merger
agreement in the event the merger with Key Components is not consummated
by reason of a breach of Key Components of certain provisions of the
merger agreement and the related financial risks to Acme and its
shareholders;
- the fact that Key Components' obligations under the merger agreement are
conditioned on obtaining financing (which condition has been satisfied);
and
- the impact of the merger on Acme's shareholders, customers and employees
and the communities in which they reside, including the fact that Acme's
shareholders will no longer participate in any potential future growth of
Acme following the merger.
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<PAGE> 22
This discussion of the factors considered is not intended to be exhaustive
but includes the material factors considered by the board, acting through the
special committee. No particular weight or rank was assigned to these factors,
but the board, acting through the special committee, considered all factors as a
whole and overall considered them favorable to and to support its determination.
THE BOARD, ACTING ON RECOMMENDATION OF THE SPECIAL COMMITTEE, WITH ONE
DIRECTOR, MR. MCKENNA, DISSENTING, HAS DETERMINED THAT THE MERGER IS ADVISABLE,
FAIR TO AND IN THE BEST INTERESTS OF ACME AND ITS SHAREHOLDERS. ACCORDINGLY, THE
BOARD, ON RECOMMENDATION OF THE SPECIAL COMMITTEE, WITH ONE DIRECTOR, MR.
MCKENNA, DISSENTING, HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE ACME SHAREHOLDERS VOTE IN FAVOR OF APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AT THE SPECIAL MEETING.
REASONS OF MR. MCKENNA FOR VOTING AGAINST THE MERGER
At the board meeting held on October 3, 2000, Mr. McKenna voted against
adoption and approval of the merger agreement and against recommending that
shareholders vote to adopt and approve the merger agreement. Although Mr.
McKenna was not a member of the special committee charged with evaluating the
merger on behalf of the board, the board determined that the conflict of
interest that had existed when Mr. McKenna was a participant in the buyout group
on the Strategic transaction no longer existed. Mr. McKenna participated fully
in all board meetings held and all board actions taken after the date of signing
of the merger agreement with Key Components, including the October 3, 2000 board
meeting.
The primary reasons for Mr. McKenna's voting against the merger are the
following:
- The Approximate $57.0 Million Value for Acme Implied by the Merger
is 4.4x, 2.9x and 2.4x Most Recent Projected EBITDA for Fiscal Years
2001, 2002 and 2003, Respectively. Mr. McKenna believes these
implied EBITDA multiples are substantially below historical EBITDA
multiples applicable in sales of manufacturing businesses like Acme.
Mr. McKenna believes that the best course to maximize shareholder
value would be to postpone any sale of Acme for 12 to 15 months to
permit the projections to be proven out and in the meantime to
retain a financial advisor to position Acme for sale.
- A Substantial Portion of the New Business Represented in the Most
Recent Projections Reviewed by the Board is More Likely Than Not to
be Realized. Mr. McKenna believes that the substantial projected new
Powerware business is likely to be realized because Acme is a
current significant supplier to Powerware. Powerware knows Acme and
its capabilities. In addition, in Mr. McKenna's experience,
Powerware's forecasts to its suppliers on expected business are
conservative. In Mr. McKenna's view, it is also possible that the
outsourcing trend that has led to the projected new business with
Powerware will result in Acme realizing additional new business of
this sort. Powerware and Acme have entered into a letter of intent,
dated October 3, 2000, which confirms Powerware's intention to
execute a pricing agreement for the new business not later than
October 23, 2000, and which will provide for Acme to supply 65% of
Powerware's requirements for this new business. The letter of intent
also provides that Acme will immediately order equipment necessary
for the program and will be reimbursed by Powerware for the cost of
such equipment up to $500,000 in the event the pricing agreement is
not signed.
- The September 25, 2000 Fairness Opinion of Ernst & Young Improperly
Discounts the Projected Financial Information Prepared by
Management. The discounted cash flow analysis and the leveraged
buyout analysis performed by Ernst & Young utilize inappropriately
large discount rates and required rates of return, respectively. The
discounted cash flow and leveraged buyout analyses performed by
Ernst & Young in connection with its June 21, 2000 fairness opinion
utilized discount rates of 13.0% and 14.0% and required rates of
return of 20% and 30%. In its September 25, 2000 fairness opinion,
the discount rates used are 24% and 25% and the required rates of
return are 30%, 40% and 50%. Even giving effect to the
forward-looking nature of the projections presented to Ernst &
Young, lower risk-adjusted discount rates and required rates of
return are indicated. Use of lower rates would result in the merger
consideration falling out of the range of fairness on the discounted
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<PAGE> 23
cash flow and the leveraged buyout analyses. Mr. McKenna believes that
use of lower risk-adjusted discount rates and required rates of return
would have resulted in Ernst & Young not finding the merger
consideration fair from a financial point of view to the shareholders.
Based on the foregoing, Mr. McKenna determined to vote against adoption and
approval of the merger agreement and against the recommending that the
shareholders vote for adoption and approval of the merger agreement at the
special meeting.
OPINION OF ERNST & YOUNG LLP
Ernst & Young was initially engaged to render and did render an opinion
regarding the fairness of the consideration payable in the proposed merger with
Strategic. Ernst & Young was thereafter engaged by the special committee to
render an opinion as to whether, as of the date thereof, and based on and
subject to the assumptions, limitations and qualifications set forth in the
opinion, the merger consideration in the transaction with Key Components is
fair, from a financial point of view, to the shareholders of Acme. Ernst & Young
rendered this written opinion as of June 21, 2000. As a result of the board's
review of new financial projections for Acme, the board engaged Ernst & Young in
September 2000 to render an updated opinion as to the fairness from a financial
point of view of the merger consideration in the merger with Key Components.
The full text of the written opinion of Ernst & Young, dated September 25,
2000, which sets forth the assumptions made and matters considered is attached
as Appendix B. Shareholders are urged to read the opinion carefully and in its
entirety. Ernst & Young's opinion is addressed to the special committee and does
not constitute a recommendation as to how a shareholder should vote at the
special meeting. The summary of the opinion of Ernst & Young set forth in this
narrative is qualified in its entirety, by reference to the full text of the
opinion.
No limitations were imposed by Acme or the special committee on the scope
of Ernst & Young's investigation or the procedures followed by Ernst & Young in
connection with preparing its opinion, except that Ernst & Young was not
authorized to solicit, and did not solicit, any indications of interest from any
third party with respect to a purchase of all or a part of Acme's business.
Ernst & Young was not requested to and did not make any recommendation to the
special committee as to the form or amount of consideration to be received by
the shareholders in the merger, which was determined through negotiations
between the special committee and Key Components. In arriving at its opinion,
Ernst & Young did not ascribe a specific range of value to Acme, but rather made
its determination as to the fairness, from a financial point of view, of the
consideration to be received by the shareholders in the merger on the basis of
the financial and comparative analyses described below. Ernst & Young was not
requested to opine as to, and its opinion does not in any manner address, Acme
or the special committee's underlying business decision to proceed with or
effect the merger.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial and comparative analysis
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its opinion, Ernst & Young did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevancy of each analysis and
factor. Accordingly, Ernst & Young's analyses must be considered as a whole and
that considering any portions of its analyses and of the factors considered by
it, without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying its opinion. In its analyses, Ernst &
Young made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
Acme's control. Any estimates or projections contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein.
In arriving at its opinion, Ernst & Young:
- Reviewed the merger agreement and the specific terms of the merger;
- Reviewed, among other public information, the annual report on Form 10-K
of Acme for the fiscal years ended June 30, 1999, 1998 and 1997;
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<PAGE> 24
- Reviewed Acme's quarterly report on Form 10-Q for the fiscal quarters
ended September 30, 1999, December 31, 1999 and April 1, 2000;
- Reviewed Acme's internal financial statements for the period ended June
30, 2000 and the month ended July 29, 2000;
- Reviewed certain information, including financial forecasts and prospects
of Acme furnished to Ernst & Young and prepared by Acme, relating to its
businesses, earnings, cash flow, assets and liabilities, prospects,
financial forecasts and prior efforts to sell Acme;
- Conducted meetings and discussions with members of senior management of
Acme concerning, among other things, Acme's businesses, assets,
liabilities, prospects, financial forecasts, prior efforts to sell Acme
or any of its divisions and environmental compliance;
- Compared the historical financial results and present financial condition
of Acme with those of certain other companies, the securities of which
are publicly traded, that it believed may be relevant or comparable to
Acme in certain respects to Acme;
- Reviewed the historical market prices and trading activity for Acme's
common stock and compared such prices and trading activity with those of
certain publicly traded companies which it deemed to be relevant;
- Compared the proposed financial terms of the merger with the financial
terms of certain recent acquisitions and business combination
transactions among manufacturers and distributors of electrical
components specifically, and in other related industries generally, that
it believed to be reasonably comparable to the merger or otherwise
relevant to its inquiry;
- Reviewed the premiums paid by the purchaser in other business
combinations relative to the closing price one day prior to the
announcement, one week prior to the announcement, four weeks prior to the
announcement and versus the 52-week high and low;
- Undertook such other financial studies, analyses and investigations and
reviewed such other information as it considered appropriate for purposes
of its opinion; and
- Reviewed Phase I environmental site assessments obtained from Acme for
each facility.
In its review and analysis and in formulating its opinion, Ernst & Young
assumed and relied upon the accuracy and completeness of all of the historical
financial and other information provided to or discussed with it or publicly
available and Ernst & Young did not assume any responsibility for independent
verification of any of such information. Ernst & Young also assumed and relied
upon the reasonableness and accuracy of the analyses and prospective financial
information provided to it and assumed that such analyses and prospective
financial information were reasonably prepared in good faith and on bases
reflecting the best currently available judgments and estimates of the
respective managements of Acme. Ernst & Young expresses no opinion with respect
to such analyses and prospective financial information or the assumptions on
which they were based. In addition, Ernst & Young did not review any of the
books and records of Acme or Key Components or assume any responsibility for
conducting a physical inspection of their properties or facilities or for making
or obtaining an independent valuation or appraisal of the assets or liabilities
of either Acme or Key Components and no such independent valuation or appraisal
was provided to Ernst & Young.
Comparable Public Company Analysis. Ernst & Young compared the historical
financial, operating and stock market performances of certain publicly traded
companies that it considered relevant with the historical financial, operating
and stock market performance of Acme, based upon information that was publicly
available at that time and based upon information provided to Ernst & Young by
management of Acme. Ernst & Young considered companies that manufacture
electrical apparatus used to control or change electrical power. Furthermore,
Ernst & Young searched for companies whose products were primarily in the mature
stage of their life cycles and whose customers were primarily industrial-based
as compared to technology-based. Companies with market capitalizations below
$200 million were reviewed with a primary focus on companies with
capitalizations between $25 million and $150 million. The comparable public
companies considered were Aerovox Inc., Ault Inc., Bel Fuse Inc., Del Global
Technologies Corp., SL Industries, Inc. and Spectrum Control, Inc.
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<PAGE> 25
Ernst & Young calculated a range of market multiples for the comparable
public companies by dividing the aggregate equity market value (total common
shares outstanding multiplied by the closing market price per share on September
21, 2000), plus the latest reported debt, preferred stock and minority interest
minus latest reported cash and cash equivalents (in aggregate, the "Total
Invested Capital") of each of the comparable public companies by such company's
latest twelve months ("LTM") net sales; earnings before interest, taxes,
depreciation and amortization ("EBITDA"); and earnings before interest and taxes
("EBIT"), as reported in publicly available information. In addition, Ernst &
Young divided the equity market value per share on September 21, 2000 of each of
the comparable public companies by the latest reported equity book value per
share as reported in publicly available information and by LTM earnings per
share ("EPS"). This analysis indicated the following results:
<TABLE>
<CAPTION>
LOW HIGH MEDIAN
---- ----- ------
<S> <C> <C> <C>
Total Invested Capital as a multiple of LTM net sales....... 0.4x 2.5x 0.8x
Total Invested Capital incl. cash as a multiple of LTM
EBITDA.................................................... 5.6x 16.5x 8.9x
Total Invested Capital as a multiple of LTM EBIT............ 7.1x 20.0x 14.3x
Price per share as a multiple of book equity value per
share..................................................... 0.7x 4.4x 1.5x
Price to LTM earnings per share............................. 9.8x 46.1x 20.8x
</TABLE>
Implied multiples for Acme based on the merger price for LTM net sales,
EBITDA and EBIT were 0.7x, 8.6x and 12.7x, respectively, equity book value per
share was 2.0x and price to LTM EPS ratio was 21.9x.
Because of the inherent differences between the business, operations and
prospects of the comparable public companies, on the one hand, and Acme, on the
other, Ernst & Young believed that it was inappropriate to, and therefore did
not, rely solely on the quantitative results of the analysis but rather also
made qualitative judgments concerning differences between the financial and
operating characteristics and prospects of the comparable public companies, on
the one hand, and Acme, on the other, that would affect the public trading
values of each.
Precedent Transactions Analysis. Ernst & Young compared the financial and
operating performance of certain companies that had entered into merger
transactions since 1997 and the financial terms of such transactions, which
Ernst & Young considered relevant, with the historical financial and operating
performance of Acme and the financial terms of the merger. Using publicly
available information, Ernst & Young analyzed the purchase prices and multiples
paid in selected merger and acquisition transactions in four different Standard
Industrial Classification ("SIC") codes along with companies that were in
similar lines of businesses but were defined under different SIC codes. The four
SIC codes consisted of: 3612 -- transformers not electrical; 3629 -- electrical
apparatus; 3679 -- electrical components; and 3677 -- electrical coils and
transformers. In addition, Ernst & Young eliminated transactions where the
transaction value was lower than $20 million or greater than $300 million to
focus solely on similar mid-cap transactions.
Ernst & Young calculated the purchase price (including net debt) as a
multiple of LTM net sales, EBITDA and EBIT for each acquired company for the
four fiscal quarters immediately preceding the announcement of the transaction.
This analysis indicated the following results:
<TABLE>
<CAPTION>
LOW HIGH MEDIAN
---- ----- ------
<S> <C> <C> <C>
Purchase price as a multiple of LTM net sales............... 0.6x 2.2x 1.0x
Purchase price as a multiple of LTM EBITDA.................. 5.8x 17.2x 8.6x
Purchase price as a multiple of LTM EBIT.................... 2.2x 50.8x 9.9x
</TABLE>
Based on the merger price, the multiple of LTM net sales, EBITDA and EBIT
paid for Acme are 0.7x, 8.6x and 12.7x, respectively.
Because the market conditions, rationale and circumstances surrounding each
of the precedent transactions analyzed were specific to each transaction and
because of the inherent differences between the businesses, operations and
prospects of the precedent transactions, on the one hand, and Acme, on the
other, Ernst & Young did not rely solely on the quantitative results of the
analysis and, accordingly, also made qualitative judgements
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<PAGE> 26
concerning differences between the characteristics of the precedent
transactions, on the one hand, and Acme, on the other, that would affect the
acquisition value of Acme and such acquired companies.
Premiums Paid Analysis. Ernst & Young also analyzed the premiums paid
relative to prices prior to announcements in connection with the precedent
transactions where the target was a publicly traded company. Ernst & Young
calculated the premium per share paid by the acquirer in four of the precedent
transactions as a percentage of the stock price of the acquired company one day,
one week, four weeks, at the 52-week high and the 52-week low prior to the
original announcement of the precedent transactions. This analysis indicated the
following results:
<TABLE>
<CAPTION>
LOW HIGH MEDIAN
---- ---- ------
<S> <C> <C> <C>
One Day Prior.............................................. 14% 33% 16%
One Week Prior............................................. 7% 49% 28%
Four Weeks Prior........................................... 8% 75% 28%
Vs. 52-Week High........................................... -41% 27% -15%
Vs. 52-Week Low............................................ 30% 171% 102%
</TABLE>
Ernst & Young compared the above-mentioned ranges and median premiums of
the precedent transactions to the premiums implied by the merger price over the
closing market price of Acme's common stock one day, one week, four weeks, at
the 52-week high and at the 52-week low prior to the initial announcement of
Acme's merger with Strategic.
The merger price of $9.00 per share implied premiums of 50%, 50%, 53%, 29%
and 95%, respectively, over the closing market price of Acme's common stock per
share one day, one week, four weeks, at the 52-week high and at the 52-week low
prior to the initial announcement of Acme's intention to be acquired by
Strategic on April 26, 2000.
Discounted Cash Flow Analysis. Ernst & Young performed a discounted cash
flow analysis on the projected financial information of Acme, based upon
operating and financial assumptions, forecasts and other information provided to
Ernst & Young by the management of Acme for the fiscal years 2001 through 2005.
This projected financial information was substantially improved over the similar
information reviewed by Ernst & Young in connection with its preparation of its
June 21, 2000 opinion. Using this information, Ernst & Young discounted to
present value the projected stream of unleveraged net income (earnings before
interest and after taxes) for the fiscal years 2001 through 2005 as adjusted for
certain projected non-cash items (such as depreciation, amortization and pension
income), forecasted capital expenditures (including discretionary capital
expenditures), and forecasted changes in non-cash working capital and forecasted
changes in long-term assets (in aggregate, "Free Cash Flow"). To estimate the
residual value of Acme at the end of the forecast (the "Terminal Value"), Ernst
& Young utilized two approaches, applying a range of 5.5x-6.5x multiples to
projected fiscal 2005 EBITDA and applying terminal period growth rates of
3.0%-4.0% to projected fiscal 2005 Free Cash Flow, and discounted these Terminal
Values to present value.
Ernst & Young applied a range of discount rates that varied from 24.0% to
25.0%, based on a weighted average cost of capital analysis of the comparable
public companies derived from the capital asset pricing model and various risk
factors associated with Acme, its divisions and the related forecasts for Acme
and its divisions. To calculate the aggregate net present value of the equity of
Acme, Ernst & Young subtracted total debt less cash and cash equivalents of Acme
as of June 30, 2000, from the sum of the present value of the projected Free
Cash Flow and the present value of the Terminal Value. This analysis resulted in
a range of equity values of approximately $7.53 to $16.13 per share.
Leveraged Buyout Analysis. Ernst & Young performed a leveraged buyout
analysis to determine the potential implied equity value per share of Acme's
common stock that might be achieved in an acquisition of Acme in a leveraged
buyout transaction based on current market conditions. In conducting this
analysis, Ernst & Young utilized projected financial information of Acme, based
upon operating and financial assumptions, forecasts and other information
provided to Ernst & Young by the management of Acme for the fiscal years 2001
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<PAGE> 27
through 2005. This projected financial information was substantially improved
over the similar information reviewed by Ernst & Young in connection with its
preparation of its June 21, 2000 opinion. Assumptions also were made with
respect to the availability of financing based on the Acme's cash flow. Ernst &
Young assumed that a minimum internal rate of return ranging from 30% to 50% on
equity invested during a five-year period would be required by an acquirer. In
estimating the range of minimum internal rates of return, Ernst & Young
considered various risk factors associated with Acme, its divisions and the
related forecasts for Acme and its divisions. This analysis resulted in a range
of equity values of $7.76 to $13.30 per share.
Common Stock Price Analysis. Ernst & Young calculated Acme's common stock
price performance for the five-year, three-year and one-year periods ended May
25, 2000, one day before the announcement of the Key Components merger. Using
the first closing price in each period as the base level, the prices were
indexed to 100. On May 25, 2000, Acme's common stock price index was 34.8, 110.2
and 130.8 for the five-year, three-year and one-year periods, respectively. As
of April 25, 2000, one day prior to the initial announcement of the Strategic
transaction, the values in the five-year, three-year and one-year periods ended
May 25, 2000 were 28.1, 88.89 and 105.5, respectively.
Ernst & Young compared Acme's common stock price performance for the
five-year, three-year and one-year periods ended May 25, 2000 with an index of
the six comparable companies, the Russell Producers Durables Index, the S&P 500
Index and the S&P Electrical Index. Using the first closing price in each period
as the base level, the prices were indexed to 100. The analysis indicated the
following results.
<TABLE>
<CAPTION>
FIVE-YEAR THREE-YEAR ONE-YEAR
--------- ---------- --------
<S> <C> <C> <C>
Index of comparable companies........................ 198.2 133.2 93.9
S&P Electrical Index................................. 436.8 227.4 138.4
Russell Producers Durables Index..................... 187.6 136.2 128.0
S&P 500 Index........................................ 266.1 163.1 103.9
</TABLE>
Ernst & Young noted that the merger price of $9.00 per share was 50% above
the $6.00 per share closing price of the common stock on April 25, 2000, one day
prior to the initial announcement of the Strategic transaction, 50% above the
$6.00 per share closing price one week prior to announcement of the Strategic
transaction, 53% above the $5.875 per share closing price four weeks prior to
announcement of the Strategic transaction, 29% above the common stock's 52-week
high of $7.00 per share and 95% above the common Stock's 52-week low of $4.625.
As of May 25, 2000, S&P Electrical Index was down 9% from its 52-week high, the
Russell Producers Durables Index was down 22% from its 52-week high, the S&P 500
Index was down 10% from its 52-week high, and the index of comparable companies
was down 29% from its 52-week high.
Ernst & Young is an internationally recognized accounting firm and, as part
of its activities, is regularly engaged in the evaluation of businesses in
connection with mergers and acquisitions, competitive bids, private placements
and valuations for corporate and other purposes.
As compensation for its services in rendering the fairness opinions
referred to above, Acme has paid Ernst & Young aggregate fees in the amount of
$525,000.
CERTAIN PROJECTED FINANCIAL DATA
Acme does not, as a matter of course, make public forecasts or projections
as to future sales, earnings or other income statement data, cash flows or
balance sheet and financial position information. However, in order to aid the
evaluation of the merger with Key Components, and Ernst & Young's assessment of
the fairness, from a financial point of view, of the merger consideration
payable in the merger, Acme in early May 2000 furnished the board of directors
and Ernst & Young with projections prepared by its management. The income
statement portion of the May 2000 projections is included below. In response to
significantly improved prospects for higher revenues at Acme's Power
Distribution Products and Electronics Divisions, Acme in mid-September 2000
furnished the Acme board and Ernst & Young with new projections prepared by
management. The income statement portion of these September 2000 projections is
included below. Finally, primarily in response to
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<PAGE> 28
changes in expected order levels from Powerware, in early October 2000,
management furnished the board with new projections. The income statement
portion of these October 2000 projections is included below.
The projections set forth below were not prepared with a view toward public
disclosure or compliance with published guidelines of the SEC or the American
Institute of Certified Public Accountants regarding forward-looking information
or generally accepted accounting principles. Neither Acme's independent
auditors, nor any other independent accountants, have compiled, examined, or
performed any procedures with respect to the prospective financial information
contained in those projections, nor have they expressed any opinion or given any
form of assurance on the information or its achievability, and assume no
responsibility for, and disclaim any association with, the prospective financial
information. Furthermore, the projections necessarily make numerous assumptions,
some (but not all) of which are set forth below and many of which are beyond the
control of Acme and may prove not to have been, or may no longer be, accurate.
The projections are not necessarily indicative of future performance of Acme,
which may be significantly more favorable or less favorable than as set forth
below, and should not be regarded as a representation that they will be
achieved.
You should understand that the following important factors, among others,
could affect the future results of Acme and could cause results to differ
materially from those expressed in the projections: (i) the effect of general
economic conditions, both domestic and international; (ii) Acme's outstanding
indebtedness and leverage; (iii) restrictions imposed by the terms of Acme
indebtedness; (iv) the impact of raw material costs; (v) future capital
requirements; (vi) the impact of competition, including its impact on market
share and prospects in each of Acme's operating divisions; (vii) the loss of key
employees; (viii) the impact of litigation; and (ix) the impact of current or
pending legislation and regulations. It is likely that there will be differences
between the projections and actual results because events and circumstances
frequently do not occur as expected, and these differences may be material. With
respect to the September 2000 and October 2000 projections below, there are
additional important factors which could affect the future results of Acme and
could cause results to differ materially from those expressed in the
projections, as follows. The largest component of the improved financial
performance shown in the September 2000 and October 2000 projections is new
business with Powerware as a supplier to its "Big Hawk" program. This program
involves Powerware's outsourcing of transformer assemblies for several of its
existing product models. It is expected that projected sales to Powerware will
represent approximately 17% of Acme's sales in fiscal year 2001, 25% in fiscal
year 2002 and 27% in fiscal year 2003. This represents significant reliance on a
single customer. Although Acme will supply at least 65% of Powerware's "Big
Hawk" program requirements, there is no guarantee of any minimum volume, and
Powerware may decide to terminate the Big Hawk program at any time. An
additional significant contribution to the improved financial performance shown
in the September 2000 and October 2000 projections is higher sales generated
through realization on the Electronics Division's new business model. This new
business model involves the risky strategy of transitioning the division from a
manufacturer of power supplies to an integrated engineering and outsourcing
partner principally for early stage companies. Although customers are
participating in several programs with potential for growth, the growth of these
programs and identification of new customer programs is uncertain.
THE FOLLOWING PROJECTIONS ARE NOT GUARANTEES OF PERFORMANCE. THEY INVOLVE
RISKS, UNCERTAINTIES AND ASSUMPTIONS. THE FUTURE RESULTS OF ACME MAY MATERIALLY
DIFFER FROM THOSE EXPRESSED IN THE PROJECTIONS. MANY OF THE FACTORS THAT WILL
DETERMINE THESE RESULTS AND VALUES ARE BEYOND ACME'S ABILITY TO CONTROL OR
PREDICT. SHAREHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THE
PROJECTIONS. THERE CAN BE NO ASSURANCE THAT THE PROJECTIONS WILL BE REALIZED OR
THAT ACME'S FUTURE FINANCIAL RESULTS WILL NOT MATERIALLY VARY FROM THE
PROJECTIONS. ACME DOES NOT INTEND TO UPDATE OR REVISE THE PROJECTIONS.
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<PAGE> 29
THE MAY 2000 PROJECTIONS
($000)
These projections were prepared by management and submitted to the Acme
board and Ernst & Young in early May 2000.
<TABLE>
<CAPTION>
FY 2000 FY 2001 FY 2002 FY 2003
------- ------- ------- --------
<S> <C> <C> <C> <C>
Sales.............................................. $81,076 $92,265 $99,100 $103,500
------- ------- ------- --------
Cost of Goods Sold................................. 56,253 64,247 69,590 73,020
------- ------- ------- --------
Gross Profit....................................... $24,823 $28,018 $29,510 $ 30,480
------- ------- ------- --------
SG&A Expense....................................... 19,224 19,817 20,573 21,446
Other Operating Income............................. 350 0 0 0
Operating Profit................................... $ 5,949 $ 8,201 $ 8,937 $ 9,034
Interest Expense................................... 586 360 323 287
------- ------- ------- --------
Earnings Before Taxes.............................. $ 5,363 $ 7,841 $ 8,614 $ 8,747
Provision for Income Taxes......................... 3,571 3,136 3,446 3,499
Net Income......................................... $ 1,792 $ 4,705 $ 5,168 $ 5,248
======= ======= ======= ========
EBITDA............................................. $ 8,107 $10,276 $11,012 $ 10,859
</TABLE>
THE SEPTEMBER 2000 PROJECTIONS
($000)
These projections were prepared by management and submitted to the board
and to Ernst & Young in mid-September 2000.
<TABLE>
<CAPTION>
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales............................... $120,746 $154,352 $162,085 $161,019 $175,035
Cost of Goods Sold.................. 86,224 112,139 117,230 114,382 123,292
SG&A Expense........................ 20,966 21,334 21,535 22,176 23,701
-------- -------- -------- -------- --------
Operating Profit.................... 13,556 20,879 23,320 24,461 28,042
Interest............................ 840 215 155 145 135
-------- -------- -------- -------- --------
Earnings Before Taxes............... 12,716 20,664 23,165 24,316 27,907
Tax Provision (40%)................. 5,086 8,266 9,266 9,726 11,163
-------- -------- -------- -------- --------
Net Income.......................... $ 7,630 $ 12,398 $ 13,899 $ 14,590 $ 16,744
======== ======== ======== ======== ========
Additional Information:
Capital Expenditures.............. $ 3,396 $ 2,750 $ 2,750 $ 2,800 $ 3,000
Depreciation/Amortization......... $ 2,515 $ 2,550 $ 2,650 $ 2,750 $ 3,050
Pension Income.................... $ 685 $ 600 $ 600 $ 600 $ 600
EBITDA.............................. $ 15,386 $ 22,829 $ 25,370 $ 26,611 $ 30,492
</TABLE>
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<PAGE> 30
THE OCTOBER 2000 PROJECTIONS
($000)
These projections were prepared by management and submitted to the board at
the meeting of the board held on October 3, 2000.
<TABLE>
<CAPTION>
FY 2001 FY 2002 FY 2003 FY 2004 FY 2005
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales............................... $108,204 $137,074 $151,090 $161,178 $175,035
Cost of Goods Sold.................. 76,126 97,895 107,750 114,640 123,550
SG&A Expense........................ 20,949 21,310 21,510 22,714 23,701
-------- -------- -------- -------- --------
Operating Profit.................... 11,129 17,869 21,830 23,824 27,784
Interest............................ 1,015 215 155 145 135
-------- -------- -------- -------- --------
Earnings Before Taxes............... 10,114 17,654 21,675 23,679 27,649
Tax Provision (40%)................. 4,046 7,062 8,670 9,472 11,060
-------- -------- -------- -------- --------
Net Income.......................... $ 6,068 $ 10,592 $ 13,005 $ 14,207 $ 16,589
======== ======== ======== ======== ========
Information Only:
Capital Expenditures.............. $ 3,396 $ 2,750 $ 2,750 $ 2,800 $ 3,000
Depreciation/Amortization......... $ 2,515 $ 2,550 $ 2,650 $ 2,750 $ 3,050
Pension Income.................... $ 685 $ 600 $ 600 $ 600 $ 600
EBITDA.............................. $ 12,959 $ 19,819 $ 23,880 $ 25,974 $ 30,234
</TABLE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the board and the dissenting director
with respect to the merger, you should be aware that, as described below,
certain members of Acme's management may have interests in the merger that are
different from, or in addition to, your interests as shareholders, and that may
create potential conflicts of interest.
Equity-Based Awards. In accordance with the terms of the merger agreement,
all options outstanding under Acme's stock option plans will be accelerated so
as to be fully exercisable prior to the effective time of the merger, subject to
the condition that the holder of each option surrender all outstanding and
unexercised options in consideration of the payment at the effective time of the
merger an amount in cash per share subject to each option equal to the
difference between $9.00 and the exercise price of such option.
Agreements with Certain Officers. Mr. McKenna, Michael Simon, Corporate
Controller of Acme, Daniel Corwin, Vice President and General Manager of the
Electronics Division, Nicola Arena, Vice President and General Manager of the
Power Distribution Products Division, and John Gleason, Vice President and
General Manager of the Aerospace Division, have employment agreements with Acme
with terms of three years (Mr. McKenna), two years (Messrs. Arena, Corwin, and
Gleason) and one year (Mr. Simon). Each of the agreements has an "evergreen"
provision whereby, unless Acme provides notice to the contrary, each month
during its term the agreement automatically extends for an additional month.
Each of the agreements provides for continuing salary payments, bonus and
benefits for the remainder of the term if Acme breaches the employment agreement
after a change in control of Acme. After a change of control of Acme, Acme will
be deemed to have breached the agreement if Acme gives notice that the term of
the agreement will not automatically extend, or if Acme terminates the officer's
employment, or if Acme reduces the officer's compensation or benefits or changes
his position or duties.
Indemnification and Insurance. Pursuant to the merger agreement, for a
period of six years following the effective time of the merger, Key Components
is required to cause all rights to indemnification by Acme of each present and
former director or officer of Acme to continue in full force and effect for at
least six years. Pursuant
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<PAGE> 31
to the merger agreement, Key Components is required to cause Acme to indemnify
and hold harmless from liability the present and former directors and officers
of Acme for acts or omissions by such directors and officers occurring at or
prior to the effective time of the merger. Key Components also has agreed for
not less than six years after the effective time of the merger to cause Acme to
use its reasonable best efforts to maintain, if available for an annual premium
not in excess of $70,000, liability insurance covering acts or omissions
occurring prior to the effective time of the merger with respect to those
present and former directors and officers who were covered by Acme's directors'
and officers' liability insurance policy on terms no less favorable than those
in effect on the date of the merger agreement or at the effective time of the
merger. If such insurance coverage is not available for an annual premium not in
excess of $70,000, Key Components is required to cause Acme to use its
reasonable best efforts to obtain the amount of coverage that is available for
an annual premium of $70,000.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material United States federal income
tax consequences of the merger to an Acme shareholder whose shares of common
stock are surrendered in the merger (including any cash amounts received by
dissenting stockholders pursuant to the exercise of appraisal rights). You
should keep in mind that this discussion is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), U.S. Treasury regulations promulgated
thereunder, and judicial decisions and administrative rulings and
interpretations of the Code, all as in effect on the date hereof, all of which
are subject to change, possibly with retroactive effect.
The discussion does not address the effects of any state, local or foreign
tax laws. In addition, the tax consequences discussed do not address all aspects
of federal taxation that may be relevant to a particular shareholder in light of
personal circumstances or to shareholders who are subject to special treatment
under the U.S. federal income tax laws, including:
- shareholders who, at the effective time of the merger, are not U.S.
persons;
- tax-exempt organization;
- dealers in securities or foreign currency;
- insurance companies;
- banks, trusts or financial institutions;
- shareholders who acquired Acme common stock through exercise of an
employee stock option or otherwise as compensation or through a
tax-qualified retirement plan.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN ANY APPLICABLE TAX LAWS.
You will receive cash in the merger in exchange for your shares of Acme
common stock. Receipt of the cash in the merger, including any cash amounts
received by dissenting shareholders pursuant to the exercise of appraisal
rights, will be a taxable transaction for federal income tax purposes under the
Code. In general, for federal income tax purposes, a shareholder will recognize
gain or loss equal to the difference between the cash received by the
shareholder pursuant to the merger agreement and the shareholder's adjusted tax
basis in the shares of common stock surrendered pursuant to the merger
agreement. Such gain or loss will be a capital gain or loss. The rate at which
any such gain will be taxed to non-corporate shareholders (including
individuals, estates and trusts) will, as a general matter, depend upon each
shareholder's holding period for the shares of common stock at the effective
time of the merger. If a non-corporate shareholder's holding period for the
shares of common stock is more than one year, either a 20 percent or a 10
percent capital gains rate generally will apply to such gain, depending on the
amount of taxable income of such shareholder for such year. If the shareholder's
holding period for the shares of common stock is one year or less, such gain
will be taxed at the same rates as ordinary income. Capital loss generally is
deductible only to the extent of capital gain plus ordinary income of up to
$3,000. Net capital loss is excess of $3,000 may be carried forward to
subsequent taxable years.
For corporations, capital losses are allowed only to the extent of capital
gains, and net capital gain is taxed at the same rates as ordinary income.
Corporations generally may carry capital losses back up to three years and
forward up to five years.
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<PAGE> 32
Payment is connection with the merger may be subject to "backup
withholding" at a 31% rate. Backup withholding generally applies if the
shareholder fails to furnish such shareholder's social security number or other
taxpayer identification number ("TIN"), or furnishes an incorrect TIN. Backup
withholding is not an additional tax but merely a creditable advance payment
which may be refunded to the extent it results in an overpayment of tax,
provided that specific required information is furnished to the Internal Revenue
Service. Certain persons generally are exempt from backup withholding, including
corporations and financial institutions. Certain penalties apply for failure to
furnish correct information and for failure to include reportable payments in
income. Shareholders should consult with their own tax advisers as to the
qualifications and procedures for exemption from backup withholding.
REGULATORY APPROVALS
The parties' obligations to consummate the merger are conditioned on the
expiration or termination of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"). Under the HSR
Act and the rules promulgated thereunder the merger may not be consummated
unless notification has been given and certain information has been furnished to
the Federal Trade Commission and the Department of Justice's Antitrust Division
and the waiting period has expired or been terminated. Acme and Key Components
have filed a Notification and Report with the FTC and the Antitrust Division and
in late August 2000 received notice of termination of the waiting period under
the HSR Act.
Acme is not aware of any federal or state regulatory requirements that must
be complied with or approval that must be obtained in connection with the merger
other than the filing with the Securities and Exchange Commission of this proxy
statement and compliance with applicable securities laws and regulations and
filings necessary under New York corporate law. Should any such approvals be
required, it is currently contemplated that such approvals will be sought.
MERGER FINANCING
The merger will be financed with borrowings by Key Components. Key
Components has delivered to Acme a commitment letter from First Union National
Bank, First Union Securities, Inc., Societe Generale and SG Cowen Securities
Corporation, as agents for a syndicate of financial institutions. The commitment
letter, dated June 9, 2000, provides for $140 million in senior secured credit
facilities to (a) finance the merger, (b) consummate a refinancing of all
outstanding indebtedness under Key Components' existing senior secured credit
facility and certain indebtedness of Acme, (c) pay fees and expenses and (d)
provide funds for working capital and general corporate purposes following the
merger. Key Components has advised Acme that it has entered into a definitive
credit agreement providing for a $40 million six-year revolving credit facility
and a $100 million six-year term loan facility which will be secured by a first
priority pledge of the capital stock of Key Components and its subsidiaries and
perfected first priority security interests in substantially all tangible and
intangible assets of Key Components and its subsidiaries, except certain assets
of Acme for which existing liens have been granted.
DISSENTERS' RIGHTS OF APPRAISAL
Acme is a New York corporation. The New York Business Corporation Law (the
"BCL") provides Acme shareholders with the right to dissent from the merger and
to obtain payment of the fair value of their shares if the merger is
consummated. "Fair value" means the value of the shares immediately before the
effective time of the merger, excluding any appreciation or depreciation in
anticipation of the merger unless exclusion is inequitable. You must follow
certain procedures required by Section 623 of the BCL to dissent from the
merger. A copy of Section 623 of the BCL, which governs the procedures for the
exercise of such dissenters' rights under New York law, is attached as Appendix
C. We provide a summary description of the dissenters' rights of appraisal
requirements below. Our description is only a summary and is qualified in its
entirety by reference to the text of Section 623 of the BCL in Appendix C. We
urge you to read these requirements and follow the procedures precisely as
failure to follow all of the steps required by Section 623 will result in the
loss of your dissenters' rights.
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<PAGE> 33
Any Acme shareholder who votes against the merger may dissent and elect to
exercise appraisal rights under Section 623 of the BCL. A dissenting shareholder
must exercise appraisal rights with respect to all shares of Acme common stock
that are owned of record and beneficially by the shareholder. A nominee or
fiduciary who holds shares of record for a beneficial owner may not dissent on
behalf of the beneficial owner with respect to less than all shares held on
behalf of the beneficial owner.
To dissent and to receive the fair value in a cash payment, if the merger
is effected, a dissenting shareholder must take each of the following actions:
- file with Acme, prior to or at the special meeting and before the vote, a
written objection to the merger (and not withdraw the objection before
the vote) that sets forth the following: the dissenting shareholder's
election to dissent, the dissenting shareholder's name and residence
address and the number and classes of shares owned by the dissenting
shareholder, and a demand for payment of fair value of the dissenting
shareholder's shares if the merger is consummated; and
- vote against the merger.
The written objection is not required from any shareholder to whom Acme did
not give notice of the special meeting. It is recommended that any written
objection which is mailed be sent registered or certified mail "return receipt
requested."
Within 10 days after the vote of shareholders approving the merger, Acme
must give written notice of such authorization to each dissenting shareholder
who filed written objection or from whom written objection was not required and
who did not vote in favor of the merger. Within 20 days after the giving of such
notice, any shareholder from whom written objection was not required and who
elects to dissent from the proposed merger must file with Acme a written notice
of such election, stating the dissenting shareholder's name and residence
address, the number of shares of Acme as to which the notice applies and a
demand for payment of the fair value of such shares.
Upon consummation of the merger, each dissenting shareholder who dissents
in the manner set forth above will cease to have any rights as a shareholder,
except the right to be paid the fair value of their shares of Acme common stock
and any other rights under Section 623 of the BCL.
The written notice of election of dissent may be withdrawn by a dissenting
shareholder at any time prior to accepting in writing an offer by Acme for
shares of Acme common stock held by the dissenting shareholder, but in no case
later than 60 days after the later of the consummation of the merger and the
date Acme makes its written offer. Thereafter, withdrawal will require Acme's
written consent. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to Acme of any advance payment made to the
shareholder. If a written notice of election is withdrawn, the dissenting
shareholder will lose his or her dissenter's rights.
At the time of filing the written notice of election to dissent or within
30 days thereafter, a dissenting shareholder must submit all of the certificates
representing his or her shares to Acme or its transfer agent. Acme will then
note thereon that a written notice of election to dissent has been filed in
respect of such shares and will then return them to the dissenting shareholder.
Any dissenting shareholder who fails to submit certificates representing shares
of Acme common stock for such notation will, if Acme, at its option, so notifies
such dissenting shareholder in writing within 45 days after the date that the
written notice of election to dissent was filed, lose his or her dissenter's
rights (unless a court, for good cause shown, shall otherwise direct).
Within the later of 15 days after the consummation of the merger or 15 days
after the expiration of the period within which shareholders may file their
notices of election to dissent (but in no event later than 90 days after the
special meeting), Acme will be required to make a written offer to each
dissenting shareholder to pay for their shares at a specified price which Acme,
as the surviving corporation, considers to be their "fair value." The dissenting
shareholder will have 30 days to accept this written offer. Acme may request a
court to determine the rights of dissenting shareholders and to fix the fair
value of their Acme shares. If Acme does not institute such a proceeding, any
dissenting shareholder may do so. Acme can not predict the fair value of any
shares that may be determined by a court.
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<PAGE> 34
Merely voting against the merger will not satisfy the requirements for a
written demand for the payment of fair value of a shareholder's shares or the
other actions specified in Section 623 of the BCL to perfect such appraisal
rights, and the written demand for the payment of the fair value of a dissenting
shareholder's shares must be in addition to and separate from any proxy or vote
against the merger.
ANY ACME SHAREHOLDER WHO DOES NOT DELIVER TO ACME BEFORE THE VOTE IS TAKEN
WRITTEN NOTICE OF HIS OR HER INTENT TO DEMAND FAIR VALUE PAYMENT FOR THE
SHAREHOLDER'S SHARES, WHO VOTES IN FAVOR OF THE MERGER, WHO DOES NOT DEMAND
PAYMENT OR WHO DOES NOT DEPOSIT THE SHAREHOLDER'S CERTIFICATES BY THE DATE SET
FORTH IN THE DISSENTERS' NOTICE IS NOT ENTITLED TO FAIR VALUE PAYMENT FOR HIS OR
HER SHARES OF ACME COMMON STOCK UNDER SECTION 623 OF THE BCL.
PUBLIC TRADING MARKETS
Acme's common stock is currently traded on the Nasdaq National Market under
the symbol "ACEE." Upon consummation of the merger, Acme's common stock will no
longer be traded on the Nasdaq National Market and will be deregistered pursuant
to the Securities Exchange Act of 1934, as amended.
SHAREHOLDER LAWSUITS CHALLENGING STRATEGIC TRANSACTION
Acme and its directors have been named as defendants in four separate
shareholder actions asserting derivative claims and alleging breach of fiduciary
duty arising out of the Strategic transaction. The actions seek to enjoin the
Strategic transaction and, alternatively, damages. Given the termination of the
Strategic transaction, the requests for injunctive relief have become moot. In
one of these actions, the plaintiff has filed an amended complaint requesting
that the Key Components merger be enjoined and challenging payment of the
termination fee to Strategic. Acme intends to defend these actions vigorously.
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<PAGE> 35
THE MERGER AGREEMENT
The following summary of the merger agreement is qualified in its entirety
by reference to the complete text of the merger agreement, which is incorporated
by reference and attached as Appendix A to this proxy statement. We urge you to
read carefully the full text of the merger agreement.
General. The merger agreement provides for the merger of Key Components'
wholly-owned subsidiary, KCI Merger Corp., with and into Acme, following
approval of the merger agreement by the requisite vote of the Acme shareholders
and the satisfaction or waiver of the other conditions to the merger. Following
the merger, Acme will be the surviving corporation and will be a wholly- owned
subsidiary of Key Components. Acme will continue to exist following the merger
and its internal affairs will continue to be governed by New York law. Key
Components, as the only shareholder of Acme following the merger, will have sole
power and authority to control all aspects of internal corporate and business
affairs of Acme following the merger.
Effective Time of the Merger. If the merger agreement is approved by the
requisite vote of the Acme shareholders, all required governmental and other
consents and approvals specified in the merger agreement as conditions to
consummation of the merger are obtained, and the other conditions to the
respective obligations of the parties to consummate the merger are either
satisfied or waived (as permitted), the merger will be consummated and will
become effective on the date and at the time that a certificate of merger is
duly filed with the Secretary of State of New York. The merger cannot become
effective until all of the conditions to the merger are either satisfied or
waived (as permitted). Thus, there can be no assurance as to whether or when the
merger will occur. See "-- Conditions to the Merger."
Conversion of Shares. Each issued and outstanding share of Acme common
stock (other than shares held by shareholders exercising appraisal rights and
shares of Acme capital stock held in Acme's treasury) will be cancelled and
converted into the right to receive an amount in cash equal to $9.00 per share.
Each issued and outstanding share of KCI common stock, no par value, will
be converted into and become one share of common stock of Acme following the
merger.
Dissenting shareholders who do not vote to approve and adopt the merger
agreement and who otherwise strictly comply with the provisions of New York law
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their shares of common stock and such payment in cash therefor
in lieu of the merger consideration. See "-- Dissenters Rights of Appraisal."
Treatment of Acme Options. Prior to the effective time of the merger, the
Acme board will take actions necessary:
- to provide that each Acme stock option issued pursuant to Acme's 1989 and
1998 Stock Option Plans and the Directors' Stock Option Plan which is
outstanding and unexercised will be accelerated so that it is fully
exercisable prior to the effective time; and
- to obtain the consent of each holder of an Acme stock option to surrender
their outstanding and unexercised options (whether or not exercisable) in
consideration of an amount in cash per share subject to each Acme stock
option equal to the difference between the exercise price of such stock
option and $9.00.
Certificate of Incorporation and Bylaws. The merger agreement provides
that at the effective time the certificate of incorporation and bylaws of KCI
will become the certificate of incorporation and bylaws of Acme, as the
surviving corporation.
Officers and Directors of Acme Following the Merger. The merger agreement
provides that, at the effective time, the board of directors of KCI immediately
prior to the effective time will become the directors of Acme and the current
officers of Acme will continue as the officers of Acme following the mergers in
each case until their successors have been duly elected, appointed and
qualified.
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<PAGE> 36
CONDITIONS TO THE MERGER
Each of Acme's, KCI's and Key Components's obligations to complete the
merger are subject to the satisfaction or waiver of specified conditions before
completion of the merger including the following:
- the affirmative vote or consent of not less than two-thirds of the Acme
shareholders;
- the expiration or termination of any applicable waiting period under the
HSR Act (which condition has been satisfied);
- no order, statute, rule, regulation, execution order, stay, decree,
judgment, or injunction shall have been enacted, entered, issued,
promulgated or enforced by any court or governmental authority which
prohibits or restricts the consummation of the merger; and
- the receipt by Acme of a signed written opinion from Ernst & Young
stating that the merger is fair from a financial point of view (which
condition has been satisfied).
KCI's and Key Components' obligations to effect the merger are subject to
the satisfaction or waiver of following additional conditions:
- Acme shall have performed and complied in all material respects with its
agreements and obligations under the merger agreement and the
representations and warranties of Acme contained in the merger agreement
shall be true and correct in all material respects at and as of the
effective time as if made at and as of such time (other than
representations and warranties that address matters only as of a
particular date, which shall be true and correct in all material respects
as of such date), except as permitted by the merger agreement, and both
KCI and Key Components shall have received a certificate of an authorized
officer of Acme to such effect;
- Key Components and KCI shall have obtained funding in an amount
sufficient to consummate the merger (which condition has been satisfied);
- Acme shall not have received notices of election to dissent from
shareholders who, in the aggregate, own 10% or more of Acme common stock;
- Key Components and KCI shall have received Phase I Environmental reports
for all of Acme's properties and facilities which reports are dated no
earlier than sixty (60) days prior to the effective time and which are
reasonably satisfactory to Key Components and KCI and which do not
recommend further investigation or remediation of the property owned or
leased by Acme which would cost in excess of $250,000 (which condition
has been satisfied);
- Acme shall have terminated its Rights Agreement by and between Acme and
its transfer agent, American Stock Transfer and Trust Company (which
condition has been satisfied); and
- there shall not have occurred any change in the business, operations,
condition (financial or otherwise) or results of operations of Acme that
would have or would be reasonably likely to have a material adverse
effect on Acme and its subsidiaries, taken as a whole.
Acme's obligations to complete the merger are subject to the satisfaction
or waiver of the following additional conditions:
- Key Components and KCI shall have performed in all material respects
their agreements and obligations under the merger agreement; and
- the representations and warranties made by KCI and Key Components in the
merger agreement shall be true when made and as of the effective time as
if made at and as of such time (other than representations and warranties
that address matters only as of a particular date, which shall be true as
of such date), except as permitted by the merger agreement, and Acme
shall have received a certificate of an authorized officer of Key
Components and of KCI to such effect.
At any time before the effective time, the conditions to the obligations of
Acme, Key Components or KCI to consummate the merger which are subject to waiver
may be waived by the other party. Any determination to waive a condition would
depend upon the facts and circumstances existing at the time of such waiver and
would be made by the waiving party's board, exercising its fiduciary duties to
such party and its shareholders. See "--Amendment and Waiver."
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<PAGE> 37
NO OTHER TRANSACTION INVOLVING ACME
Under the merger agreement, Acme has agreed not to and has agreed to use
its best efforts to ensure that its affiliates, officers, directors, employees,
investment bankers, attorneys, and other representatives and agents are aware of
their obligation not to do any of the following on behalf of Acme:
- engage in any further discussions or negotiations with any parties with
respect to the acquisition of or an investment in Acme (other than with
respect to the assets constituting Acme's aerospace division), including
a merger, amalgamation, consolidation, share exchange, recapitalization,
business combination, purchase of stock, acquisition of assets, joint
venture, strategic alliance or other acquisition proposal;
- encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation,
partnership, person or other entity or group (other than Key Components
and KCI) concerning any such acquisition proposal or that could lead to
an acquisition proposal;
If Acme were to receive an unsolicited written, bona fide acquisition
proposal from a third party, the Acme board may proceed with discussions based
upon their good faith determination that the failure to do so would be
inconsistent with the discharge of their fiduciary duties. Upon proceeding with
any such discussions Acme must (a) provide information and access on a basis
that does not prohibit or restrict disclosure of any matter to Key Components
and (b) participate in discussions and negotiate with such entity or group
concerning any acquisition proposal. Acme has agreed to provide Key Components
and KCI orally and in writing of the receipt of any acquisition proposal and any
material terms and conditions of such proposal as well as the identity of the
party making the proposal and documents relating to the proposal.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time of the merger:
- by mutual written consent of Key Components, KCI and Acme; or
- by Key Components and KCI or Acme if
- the merger shall not have occurred on or before November 30, 2000; or
- any U.S. court or governmental body shall have issued a final order,
decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the merger and such order, decree, ruling or
other action shall have become nonappealable.
In addition to the foregoing, Key Components and KCI may terminate the
merger agreement prior to the effective time of the merger if:
- there has been a breach of any representation or warranty by Acme such
that any such representation or warranty will not be true and correct in
all material respects as of effective time of the merger as if made at
and as of such time or of an earlier time for a representation or
warranty relating to a particular date that is earlier than the effective
time;
- there has been a breach of a covenant or agreement by Acme such that Acme
will not have performed and complied in all material respects with the
agreements and obligations in the merger agreement that are to be
performed and complied with by it at or prior to the effective time; or
- the Acme board has withdrawn or modified its approval or recommendation
of the merger agreement or the merger or recommended another offer and on
or prior to such approval or recommendation, an acquisition proposal from
a party other than Key Components and KCI has been made and has not been
withdrawn.
In addition to the foregoing, Acme may terminate the merger agreement if:
- there has been a breach of any representation or warranty by Key
Components and KCI such that any such representation or warranty will not
be true and correct in all material respects as of the effective time of
the merger as if made at and as of such time or of an earlier time for a
representation or warranty relating to a particular date that is earlier
than the effective time;
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- there has been a breach of a covenant or agreement by Key Components and
KCI such that Key Components and KCI will not have performed and complied
in all material respects with the agreements and obligations in the
merger agreement that are to be performed and complied with by it at or
prior to the effective time; or
- the Acme board receives an unsolicited acquisition proposal and, by a
majority vote, determines in its good faith judgment and with the
discharge of its fiduciary duties according to the procedures discussed
under "-- No Other Transactions Involving Acme" above, that the
unsolicited acquisition proposal is more favorable to Acme's shareholders
than the merger.
In the event of the termination and abandonment of the merger agreement by
either Key Components and KCI or Acme as provided above, the merger agreement
shall become void and have no effect and there shall be no liability or
obligation on the part of either Key Components and KCI or Acme or their
respective affiliates, officers, directors or shareholders thereunder except:
- to pay certain fees and expenses pursuant to certain specified provisions
of the merger agreement described below under "-- Termination Fees" and
"-- Fees and Expenses;" and
- to the extent that such termination results from the breach by either
party of any material representation, warranty or covenant under the
merger agreement.
TERMINATION FEES
The merger agreement provides that Acme shall reimburse Key Components for
all out-of- pocket fees and expenses incurred by it or on its behalf in
connection with the merger and the transactions contemplated by the merger
agreement, including, without limitation, attorneys' fees, fees payable to
financing sources, investment bankers, counsel to any of the foregoing,
accountants fees, filing fees and printing costs if:
- Acme terminates the merger agreement because the board has determined
that a third party acquisition proposal is more favorable to the Acme
shareholders than the merger or
- Key Components terminates the merger agreement because
- Acme has breached a representation and warranty or failed to satisfy
its agreements and obligations in the merger agreement or
- the Acme board has withdrawn or modified its approval or recommendation
of the merger or recommended another offer in response to a third party
acquisition proposal or
- the Acme shareholders shall not have approved the merger agreement.
In the event Key Components terminates the merger agreement because the
Acme board has withdrawn or modified its approval of the merger agreement as
described above, or if Acme terminates the merger agreement to accept a more
favorable third party acquisition proposal, Acme shall also pay a termination
fee to Key Components in the amount of $2.5 million.
In the event that Acme terminates the merger agreement due to (i) the entry
of a nonappealable order of a court or other governmental authority restraining,
enjoining or prohibiting the merger as a result of Key Components and/or KCI
being a party to the merger agreement when it would not have resulted from
another person being a party to it; (ii) the merger not having been consummated
by November 30, 2000 as a result of the failure by Key Components to obtain
funding for the merger, or to obtain HSR Act clearance (which clearance has been
obtained); or (iii) the failure of Key Components to have satisfied its
agreements and obligations in the merger agreement or the breach of a
representation and warranty by Key Components, then Key Components will pay or
cause to be paid to Acme, a termination fee of $2.5 million plus all
out-of-pocket fees and expenses incurred by Acme or any of its subsidiaries in
connection with the merger and the transactions contemplated by the merger
agreement and the merger agreement with Strategic (except for the termination
fee under such agreement).
35
<PAGE> 39
FEES AND EXPENSES
Except as set forth above, all costs and expenses incurred in connection
with the merger agreement and the transactions contemplated thereby will be paid
by the party incurring the expense.
ALLEGED BREACHES OF MERGER AGREEMENT
Key Components has asserted that Acme is currently in breach of certain of
its obligations under the merger agreement, including its obligation to provide
Key Components with notice of certain matters, its obligation to provide access
to information, its obligation to promptly mail a proxy statement and convene a
shareholders' meeting and its obligation not to conduct discussions with other
potential bidders for Acme. Acme has denied that it is in breach of its
obligations under the merger agreement.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of the
parties relating to, among other things:
- organization and similar corporate matters;
- authorization, execution, delivery, performance and enforceability of the
merger agreement and related matters;
- conflicts under governing documents, required consents or approvals and
violations of any agreement or law;
- accuracy of information supplied in this proxy statement; and
- absence of brokers.
Acme made extensive and detailed additional representations and warranties
relating to, among other things:
- capitalization;
- ownership of subsidiaries;
- filing of all required forms, reports, schedules, registration statements
and proxy statements with the Commission since January 1, 1995;
- the fair presentation, in all material respects, of Acme's financial
statements included in its Form 10-K for the year ended June 30, 1999 and
those included in Acme's Form 10-Q for the quarterly period ended April
1, 2000;
- undisclosed liabilities and product warranties;
- certain changes and events;
- valid title to assets;
- ownership of intellectual property;
- ability of computers to process information in the year 2000 and leap
years;
- insurance;
- employee benefit plans;
- compliance with laws and regulatory authorities;
- legal proceedings;
- compliance with applicable tax laws;
- material agreements;
- compensation and insider interests of officers, directors and employees;
- compliance with environmental laws;
- fair labor laws and other labor matters;
- termination of the Strategic transaction; and
36
<PAGE> 40
- approval of the merger by the Acme board and by not less than two-thirds
of the shares outstanding and entitled to vote on the merger.
Key Components and KCI made additional representations and warranties
relating to, among other things:
- with respect to KCI, the absence of any prior activities, liabilities or
obligations other than those relating to the merger and the transactions
contemplated thereby; and
- no ownership of capital stock of Acme.
CONDUCT OF BUSINESS PENDING THE MERGER
Acme has agreed that after the date of the merger agreement until the
effective time of the merger, it will operate its business in the ordinary
course consistent with past practice and will seek to preserve intact its
current business organization as well as customer and supplier relationships to
preserve good will, in all material respects. Further, without advance written
consent of Key Components, Acme and its subsidiaries will not do any of the
following:
- amend its Certificate of Incorporation or bylaws, unless required by
applicable law;
- create, incur or assume indebtedness or assume, guarantee, endorse or
otherwise become liable for the obligations of any other person, except
for negotiable instruments to be executed by Acme in the ordinary course
of business consistent with past practice;
- declare set aside or pay any dividend or distribution in cash or capital
stock;
- issue, sell, grant, purchase or redeem, or issue or sell any securities
convertible into, or options with respect to, or warrants to purchase or
rights to subscribe to, or subdivide or in any way reclassify, any shares
of its capital stock, except for outstanding stock options to be
exercised and to be cashed-out as part of the merger and shares under
Acme's employee stock purchase plan and 401(k) plan;
- increase compensation to directors and officers, except for the funding
on the aggregate amount of $25,000 in connection with certain
supplemental executive compensation agreements between Acme and each of
Robert McKenna and Daniel Corwin and except in the ordinary course of
business consistent with past practice;
- enter into any agreement or commitment or transaction other than those
entered into in the ordinary course;
- sell, transfer, mortgage, pledge, grant any security interest or permit
the imposition of any lien or encumbrance on any asset other than in the
ordinary course and except pursuant to the credit agreement (other than
with respect to the assets constituting Acme's aerospace division);
- waive any right under any contract or agreement identified by the
parties, if such waiver would have a material adverse effect;
- except as required by GAAP, the SEC or applicable law, make any change in
certain accounting methods or practices;
- terminate or fail to renew and contract including, all current insurance
policies or other agreements (excluding customer leases or contracts);
- make any loan or advance to shareholders, officers or directors outside
the ordinary course of business;
- enter into any collective bargaining agreement;
- take, agree to take or knowingly permit to be taken any action, or do or,
with respect to anything within Acme's control that would be contrary to
or in breach of the terms or provisions of the merger agreement or would
cause any representation to be or become untrue in any material respect;
- acquire or agree to acquire by merger or consolidating with or by
purchasing a substantial portion of the assets of, or by any other manner
any business or other business organization or division or any assets
that are materially, individually or in the aggregate to Acme and its
subsidiaries, taken as a whole
- make any tax election that would reasonably be expected to have a
material adverse effect or settle or compromise any material tax
liability;
37
<PAGE> 41
- settle or compromise any claim involving payments by Acme in excess of
$50,000 individually, or $100,000 in the aggregate which is not subject
to insurance reimbursement without Key Components prior written consent;
or
- agree to do any of the foregoing.
AMENDMENT AND WAIVER
The merger agreement may be amended by Acme and Key Components (for itself
and KCI) at any time before the effective time of the merger. However, after
approval by the Acme shareholders no such amendment may alter the form or
decrease the amount of consideration to be received by the Acme shareholders
upon consummation of the merger without the approval of the Acme shareholders.
Acme and Key Components (for itself and KCI) may extend the time for the
performance of any of the obligations or other acts of the other parties to the
merger agreement, waive any inaccuracies in the representations and warranties
contained therein or in any document delivered pursuant thereto, and waive
compliance with any of the agreements or conditions contained in the merger
agreement.
On September 18, 2000, the parties entered into an amendment to the merger
agreement extending the termination date from October 2 to November 10, 2000,
subject to certain conditions which have been since satisfied. On October 6,
2000, the parties entered into a second amendment to the merger agreement
extending the termination date from November 10 to November 30, 2000.
ACCESS TO INFORMATION
Acme has agreed, subject to a confidentiality agreement between Acme and
Key Components, to afford Key Components and its authorized representative full
access during ordinary business hours and upon reasonable advance notice and
reasonable request until the effective time of the merger to:
- its books, records (including, without limitation, the work papers of
Acme's outside accountants), contracts, commitments, plants, offices and
other facilities and properties and its personnel, representatives,
accountants and agents (including prospective lenders);
- permit Key Components to make inspections of these items as it may
reasonably request (including, without limitation, observing Acme's
physical inventory of its assets);
- cause its officers and advisors to furnish to Key Components its
financial and operating data and other information relating to its
business, properties, assets, liabilities and personnel (including,
without limitation, title insurance reports, real property surveys and
environmental reports, if any);
- take such actions as Key Components reasonably deems appropriate to
verify the existence and condition of equipment leased by Acme to its
customers; and
- permit Key Components' accountants to conduct reasonable confirmation and
testing procedures, provided that any such investigation does not
interfere unreasonably with the operation of Acme's business.
INDEMNIFICATION OBLIGATIONS
In the merger agreement, Acme, as the surviving corporation, has agreed for
a period of six years following the effective time of the merger to indemnify
each person who was a director or officer of Acme as of or before the date of
the merger agreement against liabilities arising at or prior to the effective
time. In addition, Key Components has agreed to cause Acme, as the surviving
corporation, to maintain in effect for a period of six years from the effective
time certain directors' and officers' liability insurance with an annual premium
not in excess of $70,000 covering Acme's directors and officers. Key Components
has also agreed to cause Acme to keep in effect the provisions in its Articles
of Incorporation, By-laws or indemnification agreements providing for
exculpation of directors and officers and former directors and officers and for
Acme's indemnification of directors and officers to the fullest extent allowed
by law for a period of at least six years following the effective time.
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<PAGE> 42
EXCHANGE OF ACME STOCK CERTIFICATES
Promptly after the effective time, a paying agent selected by Key
Components will mail to each person who was an Acme shareholder as of the record
date a letter of transmittal and instructions for use in effecting the surrender
of the certificates held by such Acme shareholders that represent shares of Acme
common stock in exchange for payment in cash therefor. Upon surrender of a
certificate representing shares of Acme common stock to the agent for
cancellation, together with a duly executed letter of transmittal and such other
documents, if any, as the agent may require, the agent will promptly pay to the
holder of such certificate or certificates a check in the amount to which such
persons are entitled, after giving effect to any required tax withholdings and
such certificate or certificates will be canceled. Until surrendered, each
certificate representing shares of Acme common stock will be deemed at any time
after the effective time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the certificate
representing shares of Acme common stock shall have been converted.
No interest will accrue or be paid on any portion of the consideration to
be paid. Acme is entitled to cause the agent to deliver to it any funds that
have not been disbursed by the date that is 180 days following the effective
time of the merger. After that date, holders of certificates who have not
complied with the instructions to exchange their certificates will be entitled
to look to Acme for payment as general creditors thereof with respect to the
cash payable upon surrender of their certificates.
YOU SHOULD NOT SEND IN YOUR CERTIFICATES REPRESENTING SHARES OF ACME COMMON
STOCK UNTIL YOU RECEIVE A TRANSMITTAL LETTER.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth certain information regarding the beneficial
ownership of Acme's common stock, as of September 28, 2000, by (i) each person
known by Acme to be the beneficial owner of more than five percent of the
outstanding common stock, (ii) each of Acme's directors and executive officers,
and (iii) all directors and executive officers of Acme as a group. The nature of
beneficial ownership shown in the tables is, unless otherwise noted, shares for
which the owner has sole voting and sole investment power. Beneficial ownership
as set forth in these tables includes presently exercisable options to purchase
shares of Acme common stock. On the effective date of the merger, each
outstanding option to purchase common stock will be canceled and will be
converted into the right to receive the difference between the merger
consideration and the exercise price for those options. However, the options
listed in the following tables do not represent shares of common stock entitled
to vote at the special meeting. Only shares actually held by such persons as of
the record date, and not options to acquire common stock, will be counted for
purposes of voting at the special meeting.
OWNER OF MORE THAN 5% OF THE OUTSTANDING COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME AND ADDRESS OWNERSHIP OF CLASS
---------------- ---------- ----------
<S> <C> <C>
First Carolina Investors, Inc............................... 1,000,000(1) 19.71
1130 East Third Street, Suite 410
Charlotte, North Carolina
</TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME POSITION HELD OWNERSHIP OF CLASS
---- ------------- ---------- ----------
<S> <C> <C> <C>
Robert J. McKenna................ Chairman of the Board, President,
Chief Executive Officer and
Director 94,741(2) 1.64
Robert D. Batting................ Director 12,474(3) *
</TABLE>
39
<PAGE> 43
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME POSITION HELD OWNERSHIP OF CLASS
---- ------------- ---------- ----------
<S> <C> <C> <C>
Robert T. Brady.................. Director 16,774.11(4) *
Randall L. Clark................. Director 13,474.27(5) *
Terry M. Manon................... Director 12,474.11(6) *
Daniel K. Corwin................. Vice President and General
Manager -- Electronics Division 31,382(7) *
Nicolas T. Arena................. Vice President and General
Manager -- Power Distribution
Products Division 19,230(8) *
John E. Gleason.................. Vice President and General
Manager -- Aerospace Division 27,981(9) *
Michael A. Simon................. Corporate Controller and
Assistant Secretary 5,870(10) *
John B. Drenning................. Secretary 1,000 *
All directors and executive
officers as a group (10
persons)....................... 235,400.49 4.4
</TABLE>
---------------
* Less than one percent.
(1) This information is based solely upon a Schedule 13D filed by the
shareholder with the SEC in April 2000.
(2) Includes options to acquire 73,750 shares of Common Stock. Does not include
80,000 shares held in the Acme Electric Corporation's Retirement Plan for
employees of the corporation as to which shares Mr. McKenna has shared
voting and investment powers in his capacity as Chairman of the Pension
Committee.
(3) Includes options to acquire 9,705.29 shares of Common Stock.
(4) Includes options to acquire 15,009.11 shares of Common Stock and 300 shares
of Common Stock of which beneficial ownership is shared.
(5) Includes options to acquire 10,850.27 shares of Common Stock.
(6) Includes options to acquire 11,009.11 shares of Common Stock.
(7) Includes options to acquire 25,500 shares of Common Stock.
(8) Includes options to acquire 17,500 shares of Common Stock.
(9) Includes options to acquire 21,500 shares of Common Stock.
(10) Includes options to acquire 3,500 shares of Common Stock.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Acme has made "forward-looking statements" in this document (and in certain
documents incorporated by reference in this proxy statement) within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and are made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on the beliefs and assumptions of management of Acme, and on information
currently available to it. Forward-looking statements include expectations,
beliefs and other information concerning possible or assumed future results of
operation of Acme set forth under "Summary Term Sheet", "The
Merger -- Background of the Merger," "-- Reasons for the Merger and
Recommendation of Acme's Board of Directors", "-- Reasons of Mr. McKenna for
Voting Against the Merger", "-- Opinion of Ernst & Young LLP," "-- Certain
Projected Financial Data", and statements preceded by, followed by or that
40
<PAGE> 44
include the words "believes," "expects," "anticipates," "intends," "plans,"
"estimates," "budgets" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results of the combined company
following the merger may differ materially from those expressed in these
forward-looking statements. Many of the factors that will determine these
results and values are beyond Acme's ability to control or predict. You are
cautioned not to put undue reliance on any forward-looking statements.
SHAREHOLDER PROPOSALS
In accordance with Acme's bylaws, proposals submitted by Acme shareholders
for presentation at the Acme 2000 annual meeting, to be held if the merger does
not occur, should have been received by Acme no later than May 18, 2000 in order
to be eligible for inclusion in the proxy statement and proxy form relating to
the 2000 annual meeting. Acme has not received any shareholder proposal.
OTHER BUSINESS
As of the date of this proxy statement, the Acme board does not know of any
other matters that will be presented for consideration at the special meeting
other than as described in this proxy statement. However, if any other matter is
properly presented at the special meeting or any adjournments of postponements
thereof, the enclosed form of proxy will be deemed to confer authority to the
individuals named as proxies to vote your shares represented by such proxy with
respect to any additional matters that are within the purposes set forth in the
notice of the special meeting as determined by a majority of the Acme board.
WHERE CAN YOU FIND MORE INFORMATION
Acme files annual, quarterly and current reports, proxy statements and
other information with the U.S. Securities and Exchange Commission (the
"Commission") as it is currently subject to the informational requirements of
the Securities Exchange Act of 1934. You may read and copy any reports,
statements or other information that we file at the Public Reference Section of
the Commission's principal office, Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 and at the Commission's regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please
call the Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Acme's public filings are also available to you from commercial
document retrieval services and at the Internet World Wide Web site maintained
by the Commission at "http:// www.sec.gov."
You should rely only on the information contained in this proxy statement
to vote your shares at the special meeting. We have not authorized anyone to
provide you with information that is different from what is contained in this
proxy statement. This proxy statement is dated October 11, 2000. You should not
assume that the information contained in the proxy statement is accurate as of
any date other than that date.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
AMONG
ACME ELECTRIC CORPORATION,
KEY COMPONENTS, LLC
AND
KCI MERGER CORP.
DATED AS OF MAY 26, 2000
<PAGE> 46
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I THE MERGER........................................................ 1
1.01 THE MERGER.................................................. 1
1.02 EFFECTIVE TIME.............................................. 1
1.03 CERTIFICATE OF INCORPORATION................................ 1
1.04 BY-LAWS..................................................... 1
1.05 DIRECTORS AND OFFICERS...................................... 1
1.06 FURTHER ASSURANCES.......................................... 2
1.07 SHAREHOLDERS' MEETING....................................... 2
ARTICLE II CONVERSION OR CANCELLATION OF SHARES; STOCK RIGHTS............... 3
2.01 CONVERSION OR CANCELLATION OF SHARES........................ 3
2.02 EXCHANGE OF CERTIFICATES; PAYING AGENT...................... 3
2.03 DISSENTERS' RIGHTS.......................................... 4
2.04 TRANSFER OF SHARES AFTER THE EFFECTIVE TIME................. 4
2.05 OPTIONS..................................................... 4
2.06 SHARES UNDER EMPLOYEE STOCK PURCHASE PLAN AND 401K PLAN..... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 5
3.01 ORGANIZATION; QUALIFICATION................................. 5
3.02 THE COMPANY'S CAPITALIZATION................................ 5
3.03 COMPANY EQUITY INVESTMENTS.................................. 6
3.04 AUTHORITY RELATIVE TO THIS AGREEMENT........................ 6
3.05 CONSENTS AND APPROVALS; NO VIOLATION........................ 6
3.06 SEC REPORTS; FINANCIAL STATEMENTS........................... 7
3.07 PROXY STATEMENT............................................. 7
3.08 UNDISCLOSED LIABILITIES..................................... 7
3.09 ABSENCE OF CERTAIN CHANGES OR EVENTS........................ 8
3.10 TITLE, ETC.................................................. 8
3.11 INTELLECTUAL PROPERTY....................................... 9
3.12 INSURANCE................................................... 9
3.13 EMPLOYEE BENEFIT PLANS...................................... 10
3.14 LEGAL PROCEEDINGS, ETC...................................... 12
3.15 TAXES....................................................... 12
3.16 MATERIAL AGREEMENTS......................................... 12
3.17 COMPLIANCE WITH LAW......................................... 13
3.18 INSIDER INTERESTS........................................... 13
3.19 OFFICERS, DIRECTORS AND EMPLOYEES........................... 13
3.20 ENVIRONMENTAL PROTECTION.................................... 13
3.21 BROKERS AND FINDERS......................................... 14
3.22 VOTING REQUIREMENTS......................................... 14
3.23 BOARD APPROVAL.............................................. 14
3.24 LABOR MATTERS............................................... 14
3.25 TERMINATION................................................. 15
3.26 NO OTHER REPRESENTATIONS OR WARRANTIES...................... 15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE PURCHASER... 15
4.01 CORPORATION ORGANIZATION.................................... 15
4.02 AUTHORIZED CAPITAL.......................................... 15
4.03 CORPORATION AUTHORITY....................................... 15
4.04 NO PRIOR ACTIVITIES......................................... 16
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
4.05 Governmental Filings; No Violations......................... 16
4.06 Brokers and Finders......................................... 16
4.07 Proxy Statement; Other Information.......................... 16
4.08 Ownership of Company Capital Stock.......................... 16
4.09 No Other Representations or Warranties...................... 17
ARTICLE V COVENANTS OF THE PARTIES.......................................... 17
5.01 CONDUCT OF BUSINESS OF THE COMPANY.......................... 17
5.02 NOTIFICATION OF CERTAIN MATTERS............................. 18
5.03 ACCESS TO INFORMATION....................................... 19
5.04 SHAREHOLDERS' MEETING....................................... 19
5.05 PROXY STATEMENT............................................. 19
5.06 FURTHER INFORMATION......................................... 19
5.07 FURTHER ASSURANCES.......................................... 19
5.08 INTERIM FINANCIAL STATEMENTS................................ 19
5.09 BEST EFFORTS................................................ 20
5.10 FILINGS..................................................... 20
5.11 PUBLIC ANNOUNCEMENTS........................................ 20
5.12 INDEMNITY; D&O INSURANCE.................................... 20
5.13 OTHER POTENTIAL BIDDERS..................................... 21
5.14 SHAREHOLDER LITIGATION...................................... 22
5.15 FINANCING COMMITMENTS....................................... 22
ARTICLE VI CONDITIONS TO THE MERGER......................................... 22
6.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER...................................................... 22
6.02 CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND THE
PURCHASER TO EFFECT
THE MERGER.................................................. 23
6.03 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER...................................................... 23
ARTICLE VII CLOSING......................................................... 23
7.01 TIME AND PLACE.............................................. 23
7.02 FILINGS AT THE CLOSING...................................... 24
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER................................. 24
8.01 TERMINATION................................................. 24
8.02 EFFECT OF TERMINATION....................................... 24
8.03 FEES AND EXPENSES........................................... 24
ARTICLE IX MISCELLANEOUS.................................................... 25
9.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.................. 25
9.02 AMENDMENT AND MODIFICATION.................................. 25
9.03 WAIVER OF COMPLIANCE; CONSENTS.............................. 25
9.04 COUNTERPARTS................................................ 26
9.05 GOVERNING LAW............................................... 26
9.06 NOTICES..................................................... 26
9.07 ENTIRE AGREEMENT, ASSIGNMENT, ETC........................... 26
9.08 VALIDITY.................................................... 27
9.09 HEADINGS.................................................... 27
9.10 SPECIFIC PERFORMANCE........................................ 27
EXHIBIT A -- AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE
COMPANY
EXHIBIT B -- BY-LAWS OF THE COMPANY
</TABLE>
<PAGE> 48
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this "Agreement"), dated
as of May 26, 2000, among Acme Electric Corporation, a New York corporation (the
"Company"), Key Components, LLC, a Delaware limited liability company (the
"Parent"), and KCI Merger Corp., a New York corporation (the "Purchaser").
WHEREAS, the respective Boards of Directors of the Parent and the Purchaser
have determined that it is in the best interests of their respective
shareholders for the Purchaser to merge with and into the Company (the "Merger")
upon the terms and subject to the conditions of this Agreement; and
WHEREAS, the Board of Directors of the Company (the "Board"), based upon
the unanimous recommendation of a special committee of independent directors of
the Company (the "Special Committee"), has determined that the Merger, upon the
terms and subject to the conditions of this Agreement, is advisable, fair and in
the best interests of the Company and its shareholders, has approved the Merger,
this Agreement and the other transactions contemplated hereby and has
recommended approval of the Merger and this Agreement by the shareholders of the
Company.
NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements herein contained, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. Subject to the terms and conditions of this Agreement and
the New York Business Corporation Law (the "BCL"), at the Effective Time, the
Parent shall cause the Purchaser to merge with and into the Company and the
separate corporate existence of the Purchaser shall thereupon cease. The Company
shall be the surviving corporation in the Merger (the Purchaser and the Company
are sometimes hereinafter referred to as the "Constituent Corporations" and the
Company is sometimes hereinafter referred to as the "Surviving Corporation") and
shall, following the Merger, be governed by the laws of the State of New York,
and the separate corporate existence of the Company, with all its rights,
privileges, immunities, powers and franchises, of a public as well as of a
private nature, shall continue unaffected by the Merger. From and after the
Effective Time, the Merger shall have the effects specified in the BCL.
1.02 Effective Time. At the Closing contemplated in Section 7.01, the
Company and the Parent will cause a Certificate of Merger (the "New York
Certificate of Merger") to be executed and filed by the Company and the
Purchaser with the Secretary of State of the State of New York as provided in
the BCL. The Merger shall become effective as of the date and at the time the
New York Certificate of Merger is duly filed with the Secretary of State of the
State of New York, and such time is hereinafter referred to as the "Effective
Time."
1.03 Certificate of Incorporation. At the Effective Time, the certificate
of incorporation of the Company, shall be amended and restated in its entirety
to read substantially as set forth on Exhibit A (the "Restated Certificate"),
and such amended and restated certificate of incorporation shall be the
certificate of incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the BCL.
1.04 By-Laws. At the Effective Time, the By-Laws of the Company shall be
amended and restated in their entirety to read substantially as set forth on
Exhibit B, and such amended and restated By-Laws shall be the By-Laws of the
Surviving Corporation, until duly amended in accordance with the terms thereof
and the BCL.
1.05 Directors and Officers. At the Effective Time, the directors of the
Purchaser immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, each of such directors to hold office, subject to the
applicable provisions of the Restated Certificate and By-Laws of the Surviving
Corporation, until their respective successors shall be duly elected or
appointed and qualified. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
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1.06 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the proper officers and directors of the Surviving Corporation are
hereby authorized on behalf of the respective Constituent Corporations to
execute and deliver, in the name and on behalf of the respective Constituent
Corporations, all such deeds, bills of sale, assignments and assurances and do,
in the name and on behalf of the Constituent Corporations, all such other acts
and things necessary, desirable or proper to vest, perfect or confirm its right,
title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of the Constituent Corporations and otherwise
to carry out the purposes of this Agreement.
1.07 Shareholders' Meeting.
(a) As soon as practicable following delivery by the Parent to the
Company of the financing commitment letters contemplated by Section 5.15
(the "Financing Commitments"), the Company, acting through the Board,
shall, in accordance with the Certificate of Incorporation and By-Laws of
the Company and with applicable law:
(i) duly call, give notice of, convene and hold a special meeting
of its shareholders (the "Shareholders' Meeting"), to be held as soon as
practicable for the purpose of approving and adopting this Agreement and
the Merger; and
(ii) file with the Securities and Exchange Commission ("SEC") a
preliminary Proxy Statement and, after consultation with the Parent and
the Purchaser, respond promptly to any comments made by the SEC with
respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its shareholders at the
earliest practicable time after responding to all such comments to the
satisfaction of the staff of the SEC.
(b) Subject to its fiduciary obligations under applicable law, the
Board will include in the Proxy Statement (as defined in Section 3.07) the
recommendation of the Board that shareholders of the Company vote in favor
of the approval and adoption of this Agreement and the Merger and a
statement that the cash consideration to be received by the shareholders of
the Company pursuant to the Merger is fair to such shareholders.
Without limiting the generality of the foregoing, the Company agrees,
except as provided in this Section 1.07, that its obligations pursuant to
this Section 1.07 shall not be affected by either the commencement, public
proposal, public disclosure or other communication to the Company of any
offer to acquire some or all of the Shares (as defined below) or all or any
substantial portion of the assets of the Company or any change in the
recommendation of the Board.
(c) Upon receipt of the Financing Commitments, the Company, the Parent
and the Purchaser, as the case may be, shall promptly file any other
filings required under the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder (the "Exchange Act") or any other
Federal or state securities or corporate laws relating to the Merger and
the transactions contemplated herein (the "Other Filings"). Each of the
parties hereto shall notify the other parties hereto promptly of the
receipt by it of any comments from the SEC or its staff and of any request
of the SEC for amendments or supplements to the Proxy Statement or by the
SEC or any other governmental officials with respect to any Other Filings
or for additional information and will supply the other parties hereto with
copies of all correspondence between it and its representatives, on the one
hand, and the SEC or the members of its staff or any other governmental
officials, on the other hand, with respect to the Proxy Statement, any
Other Filings or the Merger. The Company, the Parent and the Purchaser each
shall use its best efforts to obtain and furnish the information required
to be included in the Proxy Statement, any Other Filings or the Merger. If
at any time prior to the time of approval of this Agreement by the
Company's shareholders there shall occur any event that should be set forth
in an amendment or supplement to the Proxy Statement, the Company shall
promptly prepare and mail to its shareholders such amendment or supplement.
The Company shall not mail the Proxy
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Statement or, except as required by the Exchange Act or the rules and
regulations promulgated thereunder, any amendment or supplement thereto, to
the Company's shareholders unless the Company has first obtained the
consent of the Parent to such mailing (which consent shall not be
unreasonably withheld or delayed).
ARTICLE II
CONVERSION OR CANCELLATION OF SHARES; STOCK RIGHTS
2.01 Conversion or Cancellation of Shares. At the Effective Time, by virtue
of the Merger and without any action on the part of the holders thereof:
(a) Each share of Common Stock, par value $1.00 per share of the
Company (the "Shares"), issued and outstanding immediately prior to the
Effective Time (other than Shares held by shareholders exercising appraisal
rights pursuant to Sections 623 and 910 of the BCL (the "Dissenting
Shareholders"), and any shares held in the treasury of the Company) shall
be converted into and represent the right to receive, without interest, an
amount in cash equal to $9.00 (the "Merger Consideration") upon surrender
of the certificate or certificates that, immediately prior to the Effective
Time, represented issued and outstanding Shares (the "Certificates"). As of
the Effective Time, all such Shares shall no longer be outstanding, shall
be automatically canceled and shall cease to exist, and each holder of a
Certificate representing any such Shares shall thereafter cease to have any
rights with respect to such Shares, except the right to receive the Merger
Consideration without interest for such Shares upon the surrender of such
Certificate or Certificates in accordance with Section 2.02.
(b) Each Share held in the Company's treasury immediately prior to the
Effective Time shall no longer be outstanding, shall be canceled without
payment of any consideration therefor and shall cease to exist, and each
holder of a Certificate representing any such Shares shall thereafter cease
to have any rights with respect to such Shares.
(c) Each share of Common Stock, no par value per share, of the
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and become one fully-paid and non-assessable share
of Common Stock, no par value per share, of the Surviving Corporation.
2.02 Exchange of Certificates; Paying Agent.
(a) Not less than ten (10) days prior to the Closing, the Parent shall
select a bank or trust company to act as paying agent (the "Paying Agent")
for the payment of the Merger Consideration specified in Section 2.01 upon
surrender of Certificates converted into the right to receive cash pursuant
to the Merger. At the Effective Time, the Parent shall pay to, or cause the
Purchaser or the Surviving Corporation to pay to, the Paying Agent in
immediately available funds an amount necessary for the payment of the
aggregate Merger Consideration (the "Funds") upon surrender of Certificates
pursuant to Section 2.01, it being understood that any and all interest
earned on the Funds shall be paid over by the Paying Agent as the Parent
shall direct.
(b) Promptly after the Effective Time, the Paying Agent shall mail to
each person who was, at the Effective Time, a holder of record of Shares, a
letter of transmittal and instructions for use in effecting the surrender
of Certificates representing Shares, in exchange for payment in cash
therefor. The letter of transmittal shall specify that delivery shall be
effected, and risk of loss and title shall pass, only upon proper delivery
to and receipt of such Certificates by the Paying Agent and shall be in
such form and have such provisions as the Parent shall reasonably specify.
Upon surrender to the Paying Agent of such Certificates, together with the
letter of transmittal, duly executed and completed in accordance with the
instructions thereto and such other documents as may be reasonably required
by the Paying Agent, the Paying Agent shall promptly pay to the persons
entitled thereto, out of the Funds, a check in the amount to which such
persons are entitled pursuant to Section 2.01(a), after giving effect to
any required tax withholdings, and such Certificate shall forthwith be
canceled. No interest will be paid or will accrue on the amount payable
upon the surrender of any such Certificates. If payment is to be made to a
person other than the registered
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holder of the Certificates surrendered, it shall be a condition of such
payment that the Certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the Certificates
surrendered or establish to the satisfaction of the Surviving Corporation
or the Paying Agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.02, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the amount of cash, without interest, into
which the Shares theretofore represented by such Certificate shall have
been converted pursuant to Section 2.01. No interest shall accrue or be
paid on any portion of the Merger Consideration.
(c) One hundred eighty days following the Effective Time, the
Surviving Corporation shall be entitled to cause the Paying Agent to
deliver to it any Funds (including any interest, dividends, earnings or
distributions received with respect thereto which shall be paid as directed
by the Parent) made available to the Paying Agent by the Parent which have
not been disbursed, and thereafter holders of Certificates who have not
theretofore complied with the instructions for exchanging their
Certificates shall be entitled to look only to the Surviving Corporation
for payment as general creditors thereof with respect to the cash payable
upon due surrender of their Certificates.
(d) The Surviving Corporation shall pay all charges and expenses of
the Paying Agent.
(e) Notwithstanding anything to the contrary in this Section 2.02,
none of the Paying Agent, the Parent, the Company, the Surviving
Corporation or the Purchaser shall be liable to a holder of a Certificate
formerly representing Shares for any amount properly delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If Certificates are not surrendered prior to two years after the
Effective Time (or immediately prior to such earlier date on which any
payment pursuant to this Article II would otherwise escheat or become the
property of any Federal, state or local government agency or authority,
court or commission), unclaimed funds payable with respect to such
Certificates shall, to the extent permitted by applicable law, become the
property of the Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
2.03 Dissenters' Rights. Shares that have not been voted in favor of the
approval and adoption of the Merger and with respect to which dissenters' rights
shall have been demanded and perfected in accordance with Sections 623 and 910
of the BCL (the "Dissenting Shares") and not withdrawn shall not be converted
into the right to receive cash at or after the Effective Time, but such Shares
shall become the right to receive such consideration as may be determined to be
due to holders of Dissenting Shares pursuant to the laws of the State of New
York unless and until the holder of such Dissenting Shares withdraws such
holders' demand for such appraisal or becomes ineligible for such appraisal. If
a holder of Dissenting Shares shall withdraw such holders' demand for such
appraisal or shall become ineligible for such appraisal (through failure to
perfect or otherwise), then, as of the Effective Time or the occurrence of such
event, whichever last occurs, such holder's Dissenting Shares shall
automatically be converted into and represent the right to receive the Merger
Consideration, without interest, as provided in Section 2.01(a). The Company
shall give the Parent (i) prompt notice of any demands for appraisal of Shares
received by the Company and (ii) the opportunity to participate in and direct
all negotiations and proceedings with respect to any such demands. The Company
shall not, without the prior written consent of the Parent (which shall not be
unreasonably withheld or delayed), make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
2.04 Transfer of Shares After the Effective Time. No transfers of Shares
shall be made in the stock transfer books of the Surviving Corporation at or
after the Effective Time. If, after the Effective Time, Certificates formerly
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Merger Consideration set forth in Section 2.01.
2.05 Options. With respect to options to purchase shares of Common Stock of
the Company (the "Options") outstanding pursuant to the Miranda Corporation's
1989 and 1998 Stock Option Plans and the Directors' Stock Option Plan (the
"Stock Option Plans"), the Board (or if appropriate, any committee administering
the Stock Option Plans) shall, as soon as practicable after the date hereof,
adopt such resolutions or
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take such other actions as may be required to provide that each Option
outstanding as of the date of this Agreement shall be accelerated so as to be
fully exercisable prior to the Effective Time, subject to the condition that the
holder of each such Option shall surrender all of such holder's outstanding and
unexercised Options (whether or not presently exercisable) in consideration of
the payment at the Effective Time of an amount of cash per share subject to each
such Option equal to the difference between the exercise price of such Option
and the Merger Consideration. At or prior to the Effective Time, the Company
shall have procured the surrender of all outstanding Options or the consent of
the holder of the Option to acquire upon payment of the exercise price an amount
of cash equal to the Merger Consideration in lieu of each Share formerly covered
thereby, such consent to be subject to consummation of the Merger.
2.06 Shares Under Employee Stock Purchase Plan and 401K Plan. With respect
to orders to purchase shares of Common Stock of the Company entered pursuant to
the operation of the Acme Electric Employee Stock Purchase Plan or the Savings
and Protection Plan for Employees of Acme Electric Corporation or the Savings
and Protection Plan for New York Hourly Employees (the "Purchase Plans"), which
have not been filled as of the Effective Time, the Company's Board (or if
appropriate, any committee administering the Purchase Plans) shall, as soon as
practicable after the date hereof, adopt such resolutions or take such other
actions as may be required to provide that each outstanding order to purchase
shares of Common Stock under the Purchase Plans which is unfilled at the
Effective Time, shall be canceled in consideration of the payment at the
Effective Time of an amount in cash equal to the number of shares to be acquired
pursuant to the order multiplied by the Merger Consideration less the aggregate
unpaid purchase price for such shares under the Purchase Plans. At or prior to
the Effective Time, the Company shall procure the consents of any persons
holding such orders to payment of the foregoing cash consideration in lieu of
receipt of shares covered by the order.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Parent and the Purchaser
that:
3.01 Organization; Qualification. The Company and the Subsidiaries (as
defined in Section 3.03) are corporations duly organized, validly existing and
in good standing under the laws of the jurisdiction of their incorporation, and
have all requisite corporate power and authority to own, lease and operate their
properties and carry on their business as now being conducted. The Company is
duly qualified to do business and is in good standing in each jurisdiction in
which the nature of the Company's business or the location of its properties
makes such qualification necessary, except for any such failure to qualify or be
in good standing as shall not have a Material Adverse Effect (as defined in
Section 3.05). The Company has heretofore made available to the Parent, complete
and correct copies of the Certificate of Incorporation and By-Laws of the
Company, as currently in effect.
3.02 The Company's Capitalization. The authorized capital stock of the
Company consists solely of 8,000,000 Shares and 500,000 shares of Preference
Stock, par value $10.00 per share. As of the date of this Agreement, there were
5,077,587 Shares issued and outstanding and 699 Shares held in the Company's
treasury. There are no shares of Preference Stock issued and outstanding. All
outstanding Shares have been duly authorized and validly issued, and, except as
provided in Section 630 of the BCL, are fully paid, nonassessable and were
issued free of preemptive rights. Except for the Options and rights under the
Purchase Plans described in Section 2.05 and Section 2.06 hereof and except as
set forth in Schedule 3.02 of the Company Disclosure Letter delivered to Parent
as of the date hereof (the "Company Disclosure Letter"), there are no
subscriptions, options, warrants, calls, rights, agreements or commitments
relating to the issuance, sale, delivery or transfer by the Company (including
any right of conversion or exchange under any outstanding security or other
instrument) of its Shares. Except as contemplated by this Agreement, there are
no outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any outstanding Shares. Schedule 3.02 of the Company
Disclosure Letter contains a complete and accurate list of all holders of
Options and any other options or rights of
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any kind to purchase or acquire shares of the Common Stock of the Company,
together with the number of such options and the terms of such options held by
each such holder.
3.03 Company Equity Investments. Schedule 3.03 of the Company Disclosure
Letter sets forth, as of the date of this Agreement: (i) the name of each
subsidiary, the jurisdiction of its incorporation and each jurisdiction in which
it is qualified to do business as a foreign corporation (the "Subsidiaries");
(ii) the name of each corporation, partnership, joint venture or other person
(other than Subsidiaries) in which the Company, directly or indirectly, has, or
pursuant to any agreement or agreements will have the right to acquire by any
means, an equity interest or investment exceeding 10% of the equity capital
thereof. Except as set forth in Schedule 3.03 of the Company Disclosure Letter,
the Company does not own, directly or indirectly, or have the right to acquire,
any equity security of another entity and has not made any loan or advance to
any other entity.
3.04 Authority Relative to this Agreement. The Company has full corporate
power and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly adopted by the Board, and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board and, except for the approval of
the Merger by the shareholders of the Company in accordance with the BCL, no
other corporate actions on the part of the Company are necessary to authorize
this Agreement or the Merger. This Agreement has been duly and validly executed
and delivered by the Company and, assuming due authorization, execution and
delivery by the Parent and the Purchaser, constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
3.05 Consents and Approvals; No Violation. Except as set forth in Schedule
3.05 of the Company Disclosure Letter, and except for any required approval of
the Merger by the shareholders of the Company and the filing of the New York
Certificate of Merger in accordance with the BCL, neither the execution,
delivery and performance of this Agreement by the Company nor the consummation
by it of the transactions contemplated hereby will (i) conflict with or result
in any breach of any provision of the Certificate of Incorporation or By-Laws of
the Company or the Subsidiaries, (ii) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, except (A) in connection with the Hart-Scott-Rodino
Antitrust of 1976, as amended (the "HSR Act"), if applicable, (B) in connection
with applicable requirements of the BCL, (C) in connection with the Exchange
Act, (D) where the failure to obtain such consent, approval, authorization or
permit, or to make such filing or notification, would not have a Material
Adverse Effect, and (E) for any requirements which became applicable to the
Company or the Subsidiaries as a result of the specific regulatory status of the
Parent or the Purchaser or as a result of any other facts that specifically
relate to the business or activities in which the Parent or the Purchaser is or
proposes to be engaged; (iii) constitute a breach or result in a default under,
or give rise to any right of termination, amendment, cancellation or
acceleration under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, contract, agreement or other instrument or
obligation of any kind to which the Company or the Subsidiaries is a party or by
which the Company or the Subsidiaries or any of their assets may be bound,
except for any such breach, default or right as to which requisite waivers or
consents have been obtained or which, in the aggregate, would not have a
Material Adverse Effect; or (iv) assuming compliance with the BCL and the HSR
Act, violate any order, writ, injunction, judgment, decree, law, statute, rule,
regulation or governmental permit or license applicable to the Company or the
Subsidiaries or any of their assets, which violation would have a Material
Adverse Effect.
For purposes of this Agreement, "Material Adverse Effect" means any event,
change, occurrence, effect, fact or circumstance having, or which would
reasonably be expected to have, a material adverse effect on (x) the business,
assets, condition (financial or otherwise) or results of operation of the
Company and the Subsidiaries, if any, taken as a whole or (y) the ability of the
Company to consummate the transactions contemplated by this Agreement.
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3.06 SEC Reports; Financial Statements.
(a) Since January 1, 1995, the Company has filed with the SEC all
forms, reports, schedules, registration statements and definitive proxy
statements (the "SEC Reports") required to be filed by it with the SEC
pursuant to the federal securities laws and SEC rules and regulations. As
of their respective dates, the SEC Reports complied with the requirements
of the Securities Act of 1933, as amended (the "Securities Act") and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such SEC Reports. As of their respective dates and
as of the date any information from such SEC Reports has been incorporated
by reference, the SEC Reports including, without limitation, any financial
statements or schedules included therein, did not at the time filed (or if
amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company has filed all contracts,
agreements and other documents or instruments required to be filed as
exhibits to the SEC Reports.
(b) The consolidated balance sheets of the Company as of June 30, 1999
and 1998 and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the two years then ended (including the
related notes and schedules thereto) contained in the Company's Form 10-K
for the year ended June 30, 1999 present fairly, in all material respects,
the consolidated financial position and the consolidated results of
operations and cash flows of the Company and its consolidated Subsidiaries
as of the dates or for the periods presented therein in conformity with
United States generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved and the published rules and
regulations of the SEC with respect thereto, except as otherwise noted
therein, including in the related notes.
(c) The consolidated balance sheets and the related statements of
earnings and cash flows (including, in each case, the related notes
thereto) of the Company contained in the Form 10-Q for the quarterly period
ended April 1, 2000 (the "Quarterly Financial Statements") have been
prepared in accordance with the requirements for interim financial
statements contained in Regulation S-X. The Quarterly Financial Statements
reflect all adjustments necessary to present fairly in accordance with GAAP
(except as indicated), in all material respects, the consolidated financial
position, results of operations and cash flows of the Company for all
periods presented therein. The balance sheet of the Company as of April 1,
2000 is hereinafter referred to as the "Company Balance Sheet."
3.07 Proxy Statement. None of the information to be supplied by and
relating to the Company for inclusion or incorporation by reference in the forms
of proxy in connection with the vote of the Company's shareholders with respect
to the Merger and this Agreement, together with any amendments thereof or
supplements thereto, in each case in the form or forms mailed to the Company's
shareholders (collectively the "Proxy Statement") will, at the time of the
mailing of the Proxy Statement and at the time of the Shareholders' Meeting,
contain any untrue statements of a material fact required to be stated therein
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. With respect to the information relating to the
Company, the Proxy Statement will comply as to form in all material respects
with the requirements of the Exchange Act. For purposes of this Section 3.07,
any statement which is made or incorporated by reference in the Proxy Statement
shall be deemed modified or superseded to the extent any later filed document
incorporated by reference in the Proxy Statement or any statement included in
the Proxy Statement modifies or supersedes such earlier statement.
3.08 Undisclosed Liabilities. Except as disclosed in Schedule 3.08 of the
Company Disclosure Letter, or in the SEC Reports and liabilities incurred in the
ordinary course of business consistent with past practice since the date of the
Company Balance Sheet, there are no liabilities of the Company and the
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, due,
to become due, determined, determinable or otherwise, having or which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.
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3.09 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet and except with respect to the transactions contemplated by this
Agreement (i) the business of the Company and the Subsidiaries have been
conducted in the ordinary course consistent with past practice, (ii) there has
not been any change in the business of the Company and the Subsidiaries which
has had, or is expected to have, a Material Adverse Effect, and (iii) the
Company and the Subsidiaries have not taken any action described in Section
5.01.
3.10 Title, Etc.
(a) The SEC Reports set forth a list of all of the land, which
includes the buildings, structures and other improvements located thereon
(the "Real Property"), which is owned in fee or leased by the Company or
the Subsidiaries. The Company and the Subsidiaries have, with respect to
personal property, good, and, with respect to Real Property, good,
marketable and insurable, title to all of the properties and assets which
they purport to own and which are material to the business, operation or
condition (financial or otherwise) of the Company and the Subsidiaries,
taken as a whole, free and clear of all mortgages, security interests,
liens, claims, charges or other encumbrances of any nature whatsoever,
except for (i) any liens, encumbrances or defects reflected in the Company
Balance Sheet; (ii) any liens, encumbrances or defects which do not,
individually or in the aggregate, materially detract from the fair market
value (free of such liens, encumbrances or defects) of the property or
assets subject thereto or materially interfere with the current use by the
Company or the Subsidiaries of the property or assets subject thereto or
affected thereby or otherwise have a Material Adverse Effect; (iii) any
liens or encumbrances for taxes not delinquent or which are being contested
in good faith, provided that adequate reserves for the same have been
established on the Company Balance Sheet; (iv) any liens or encumbrances
for current taxes and assessments not yet past due; (v) any inchoate
mechanic's and materialmen's liens and encumbrances for construction in
progress; (vi) any workmen's, repairmen's, warehousemen's and carriers'
liens and encumbrances arising in the ordinary course of business, so long
as such liens have not been filed; (vii) any liens of the type referred to
in clause (vi) above that have been filed, so long as such liens do not
aggregate in excess of $25,000; (viii) liens securing obligations referred
to in Section 5.01(b); and (ix) with respect to Real Property, any liens,
encumbrances or defects which are matters of record, including but not
limited to, easements, quasi-easements, rights of way, land use ordinances
and zoning plans.
(b) Schedule 3.10 of the Company Disclosure Letter sets forth a list
of all of the leases and subleases under which, as of the date hereof, the
Company or its Subsidiaries has the right to occupy space (the "Real
Property Leases"). The Company has heretofore delivered or made available
to the Parent a true, correct and complete copy of all of the Real Property
Leases, including all amendments thereto. All Real Property Leases and
material leases pursuant to which the Company or the Subsidiaries leases
personal property from others are, in all material respects, valid, binding
and enforceable against the Company in accordance with their terms, except
to the extent that enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of
equity, regardless of whether such enforcement is considered in a
proceeding in equity or at law; neither the Company nor its Subsidiaries
has received written or, to the Company's knowledge (as defined below),
oral notice of any default by the Company or its Subsidiaries under any
Real Property Lease which would have a Material Adverse Effect; there are
no existing defaults, or any condition or event which with the giving of
notice or lapse of time would constitute a default, by the Company or its
Subsidiaries thereunder which would have a Material Adverse Effect; and,
with respect to the Company's or its Subsidiaries' obligations thereunder,
to the Company's knowledge, no uncured default or event or condition on the
part of any landlord exists under any Real Property Lease which with the
giving of notice or the lapse of time would constitute a default thereunder
which would have a Material Adverse Effect. For the purposes of this
Agreement, the phrase "to the Company's knowledge" shall mean the actual
knowledge of Robert J. McKenna, Michael A. Simon, Daniel K. Corwin, Nicola
T. Arena, John E. Gleason and Jorge A. Luna.
(c) All of the land, buildings, structures and other improvements
occupied by the Company or its Subsidiaries material to the conduct of its
business are included in the Real Property and the Real Property Leases.
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(d) Except as contained in the Real Property Leases, neither the
Company nor its Subsidiaries owns or holds, nor is obligated under or a
party to, any option, right of first refusal or other contractual right to
purchase, acquire, sell or dispose of the Real Property and the Real
Property Leases or any portion thereof or interest therein.
(e) To the Company's knowledge, the Company has no ongoing or present
material obligations or liabilities with respect to the Real Property
formerly owned, leased or occupied by the Company or its Subsidiaries.
3.11 Intellectual Property.
(a) The Company and the Subsidiaries, directly or indirectly, own, or
are licensed or otherwise possess legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights and any
applications therefor, technology, know-how and tangible or intangible
proprietary information or material that are material to the business of
the Company and the Subsidiaries as presently conducted (the "Company
Intellectual Property Rights").
(b) Either the Company or the Subsidiaries is the sole and exclusive
owner of, or the exclusive or non-exclusive licensee of, with all right,
title and interest in and to (free and clear of any liens or encumbrances),
the Company Intellectual Property Rights, and, in the case of the Company
Intellectual Property Rights owned by the Company or the Subsidiaries, has
sole and exclusive rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to the use thereof or
the material covered thereby in connection with the services or products in
respect of which the Company Intellectual Property Rights are being used.
Except as described in the SEC Reports, no claims with respect to the
Company Intellectual Property Rights have been asserted or, to the
Company's knowledge, are threatened by any person that are reasonably
likely to have a Material Adverse Effect. All registered trademarks,
service marks and copyrights held by the Company and the Subsidiaries which
are material to the business, and to the Company's knowledge, all other
registered trademarks, service marks and copyrights, are valid and
subsisting. To the Company's knowledge, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual
Property Rights by any third party, including any employee or former
employee of the Company or the Subsidiaries that would have a Material
Adverse Effect. No Intellectual Property Right is subject to any
outstanding decree, order, judgment, or stipulation restricting in any
manner the licensing thereof by the Company or any Subsidiaries, except to
the extent any such restriction would not have a Material Adverse Effect.
Except as set forth in Schedule 3.11(b) of the Company Disclosure Letter,
neither the Company nor the Subsidiaries has entered into any agreement
(other than exclusive distribution agreements) under which the Company or
the Subsidiaries is restricted from selling, licensing or otherwise
distributing any of its products to any class of customers, in any
geographic area, during any period of time or in any segment of the market,
except to the extent any such restriction would not have a Material Adverse
Effect.
(c) The Company and the Subsidiaries have taken all measures the
Company reasonably believes were necessary to make their computer systems,
software, hardware, firmware, middleware and other information technology
(collectively, "Information Technology") Year 2000 Ready (as defined
below). The Company and the Subsidiaries have previously made available to
the Parent copies of all year 2000 warranties that the Company or the
Subsidiaries has provided, and currently provides, to customers. As used in
this Agreement, "Year 2000 Ready" shall mean that Information Technology is
designed to be used prior to, during and after the calendar year 2000 A.D.
and such Information Technology will accurately receive, provide and
process date/time data (including, without limitation, calculating,
comparing and sequencing) from, into and between the twentieth and
twenty-first centuries A.D., and leap year calculations and will not
malfunction, cease to function or provide invalid or incorrect results as a
result of date/time data (including, without limitation, to the extent that
other Information Technology used in combination with such Information
Technology properly exchanges date/time data with it).
3.12 Insurance. Schedule 3.12 of the Company Disclosure Letter identifies
all material property, general liability and casualty insurance policies which
currently insure the Company and the Subsidiaries. Such policies
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are adequate in the view of the management of the Company for the assets and
operations of the Company and the Subsidiaries as currently conducted.
3.13 Employee Benefit Plans.
(a) Schedule 3.13 of the Company Disclosure Letter sets forth a
complete and correct list of all "employee benefit plans", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and any other pension plans or employee benefit
arrangements or payroll practices (including, without limitation, severance
pay, vacation pay, company awards, salary continuation for disability, sick
leave, deferred compensation, bonus or other incentive compensation, stock
option or stock purchase arrangements or policies) maintained, or
contributed to, by the Company, the Subsidiaries or any trade or business
(whether or not incorporated) which is treated with the Company or the
Subsidiaries as a single employer under Section 414(b), (c), (m) or (o) of
the Code ("ERISA Affiliate") with respect to employees of the Company, the
Subsidiaries or their ERISA Affiliates ("Company Benefit Plans"). Each
Company Benefit Plan is in writing, and the Company has previously
furnished or made available to the Parent a true and complete copy of each
Company Benefit Plan document, including all amendments thereto, and a true
and complete copy of each material document prepared in connection with
each such Company Benefit Plan, including, without limitation, if
applicable, (i) a copy of each current trust or other funding arrangement,
(ii) the most recent summary plan description and any summary of material
modifications issued subsequent to such summary plan description, (iii) the
three most recently filed Form 5500's, including all attachments thereto,
(iv) the most recently received Internal Revenue Service ("IRS")
determination letter for each such Company Benefit Plan, and (v) the most
recently prepared actuarial report and financial statement in connection
with each such Company Benefit Plan. Neither the Company nor the
Subsidiaries have any express or implied commitment (i) to create or incur
liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement
to provide compensation or benefits to any individual or (iii) to modify,
change or terminate any Plan, other than with respect to a modification,
change or termination required by ERISA, the Code or other applicable law.
(b) None of the Company, the Subsidiaries or any ERISA Affiliate has
incurred any liability under, arising out of or by operation of Title IV of
ERISA that has not been satisfied in full (other than liability for
premiums to the Pension Benefit Guaranty Corporation (the "PBGC") arising
in the ordinary course), including, without limitation, any liability in
connection with the termination or reorganization of any employee pension
benefit plan subject to Title IV of ERISA and no fact or event exists which
could give rise to any such liability. No complete or partial termination,
as defined in Section 411(d) of the Code has occurred within the six years
preceding the date hereof with respect to any Company Benefit Plan, which
was intended to be a plan qualified under Section 401 of the Code.
(c) Within the six years preceding the date hereof, there has been no
"reportable event" as that term is defined in Section 4043 of ERISA and the
regulations thereunder with respect to any of the Company Benefit Plans
subject to Title IV of ERISA which would require the giving of notice, or
for which notice has been waived, or any event requiring notice to be
provided under Section 4063(a) of ERISA.
(d) Within the six years preceding the date hereof, the Company, the
Subsidiaries or any ERISA Affiliate have not sponsored, funded or
contributed to any benefit plan that is a multiple employer plan subject to
Sections 4063 and 4064 of ERISA or a multiemployer plan as defined in
Section 3(37) of ERISA. Within the six years preceding the date hereof, no
Company Benefit Plan has incurred any "accumulated funding deficiency" as
such term is defined in Section 412 of the Code or Section 302 of ERISA.
None of the Company, the Subsidiaries or any ERISA Affiliate or any
organization to which any is a successor or parent corporation, has
divested any business or entity maintaining or sponsoring a defined benefit
pension plan having unfunded benefit liabilities (within the meaning of
Section 4001(a)(18) of ERISA) or transferred any such plan to any entity
other than the Company, the Subsidiaries or any ERISA Affiliate during the
five-year period ending on the Effective Time.
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(e) Each of the Company Benefit Plans intended to qualify under
Section 401(a) of the Code ("Qualified Plans") (i) has received a favorable
determination letter from the Internal Revenue Service that such Plan is so
qualified or (ii) is a standardized prototype plan the form of which has
been approved by the Internal Revenue Service, and, except as disclosed on
Schedule 3.13 of the Company Disclosure Letter, nothing has occurred with
respect to the form or operation of any such Plan which, either
individually or in the aggregate, would cause the loss of such
qualification or the imposition of any liability, penalty or tax under
ERISA or the Code, which loss or imposition would have a Material Adverse
Effect.
(f) None of the Company, the Subsidiaries nor any ERISA Affiliate has
engaged in a non-exempt prohibited transaction (within the meaning of
Section 406 of ERISA or Section 4975 of the Code) with respect to any
Company Benefit Plan. Neither the Company nor any Subsidiaries is currently
liable or has previously incurred any liability within the six years
preceding the date hereof for any tax or penalty arising under Subtitle D,
Chapter 43 of the Code or Section 502 of ERISA which liability would have a
Material Adverse Effect, and, to the Company's knowledge, no fact or event
exists which could give rise to any such liability. Neither the Company nor
any ERISA Affiliate has been required to post any security under Section
307 of ERISA or Section 401(a)(29) of the Code; and no fact or event exists
which could give rise to any lien or requirement to post any such security.
(g) To the Company's knowledge, all contributions and premiums
required by law or by the terms of any Company Benefit Plan or any
agreement relating thereto have been timely made (without regard to any
waivers granted with respect thereto).
(h) The liabilities of each Company Benefit Plan that has been
terminated or otherwise wound up have been fully discharged in compliance
with applicable law.
(i) There has been no violation of ERISA with respect to the filing of
applicable returns, reports, documents and notices regarding any of the
Company Benefit Plans with the Secretary of Labor or the Secretary of the
Treasury or the furnishing of such notices or documents to the participants
or beneficiaries of the Company Benefit Plans which, either individually or
in the aggregate, could result in a Material Adverse Effect.
(j) There are no pending legal proceedings which have been asserted or
instituted against any of the Company Benefit Plans, the assets of any such
Plans or the Company or any ERISA Affiliate or the plan administrator or
any fiduciary of the Company Benefit Plans with respect to the operation of
such plans (other than ordinary and usual benefits claims).
(k) Each of the Company Benefit Plans has been maintained, in all
material respects, in accordance with its terms and all provisions of
applicable laws and regulations. All amendments and actions required to
bring each of the Company Benefit Plans into conformity in all material
respects with all of the applicable provisions of ERISA and other
applicable laws and regulations have been made or taken except to the
extent that such amendments or actions are not required by law to be made
or taken until a date after the Closing Date.
(l) Except as set forth on Schedule 3.13 of the Company Disclosure
Letter, the Company and the Subsidiaries have never maintained a welfare
benefit plan providing continuing benefits after the termination of
employment (other than as required by Section 4980B of the Code and at the
former employee's own expense), and the Company, the Subsidiaries and each
of their ERISA Affiliates have complied in all material respects with the
notice and continuation requirements of Section 4980B of the Code and the
regulations thereunder.
(m) Other than as set forth in Schedule 3.13 of the Company Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment
compensation, retention bonus or golden parachute payment) becoming due to
any director, independent contractor or employee of the Company or the
Subsidiaries, (ii) increase any benefits otherwise payable under any
Company Benefit Plan or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
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(n) The Company and the Subsidiaries are in compliance in all material
respects with applicable laws and collective bargaining agreements with
respect to all benefit plans contracts and arrangements covering non-U.S.
Business Employees ("Non-U.S. Benefit Plans") . The Company and the
Subsidiaries have no unfunded liabilities in violation of local law. All
benefits payable under each of the Non-U.S. Benefit Plans are provided in
accordance with the terms of the governing provisions of the relevant
Non-U.S. Benefit Plan. The Company and the Subsidiaries are not aware of
any failure to comply with any applicable law which would or is reasonably
likely to result in the loss of tax approval or qualification of any
Non-U.S. Benefit Plans.
3.14 Legal Proceedings, Etc. Except as set forth in Schedule 3.14 of the
Company Disclosure Letter, (i) there is no claim, action, proceeding or
investigation pending or, to the Company's knowledge, threatened against the
Company or the Subsidiaries before any court or governmental or regulatory
authority or body with respect to which there is reasonable likelihood of a
determination which would have a Material Adverse Effect alone or in the
aggregate, and (ii) the Company and the Subsidiaries are not subject to any
outstanding order, writ, judgment, injunction or decree of any court or
governmental or regulatory authority or body including, but not limited to, the
SEC.
3.15 Taxes. The Company and the Subsidiaries have duly filed all material
foreign, federal, state and local income, franchise, excise, real and personal
property and other Tax (as defined below) returns and reports (including, but
not limited to, those filed on a consolidated, combined or unitary basis)
required to have been filed by the Company and the Subsidiaries prior to the
date hereof. All of the foregoing returns and reports are true and correct in
all material respects, and the Company and the Subsidiaries have paid or, prior
to the Effective Time will pay, all Taxes, interest and penalties (whether or
not shown on such returns or reports) as due or (except to the extent the same
are contested in good faith) claimed to be due to any federal, state, local or
other taxing authority. The Company has paid and will pay all installments of
estimated taxes due on or before the Effective Time. All taxes and state
assessments and levies which the Company and the Subsidiaries are required by
law to withhold or collect have been withheld or collected and have been paid to
the proper governmental authorities or are held by the Company for such payment.
The Company and the Subsidiaries have paid or made adequate provision in
accordance with GAAP in the financial statements of the Company for all Tax
payable in respect of all periods ending on or prior to the date of this
Agreement and will have made or provided for all Taxes payable in respect of all
periods ending on or prior to the Closing Date. As of the date hereof, all
deficiencies proposed as a result of any audits have been paid or settled. The
Company and the Subsidiaries have paid, collected or withheld, or caused to be
paid, collected or withheld, all amounts of Tax required to be paid, collected
or withheld, other than such Taxes for which adequate reserves in the financial
statements have been established or which are being contested in good faith. The
Company has not given nor been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other entity) of any
statute of limitations relating to the payment of Taxes. No claim has ever been
made by an authority in a jurisdiction in which the Company has not filed Tax
returns that it is or may be subject to taxation by that jurisdiction. There are
no claims or assessments pending against the Company or the Subsidiaries for any
alleged deficiency in any Tax, and the Company has not been notified in writing,
of any proposed Tax claims or assessments against the Company or the
Subsidiaries. There is no existing tax sharing agreement that may or will
require that any payment be made by or to the Company on or after the Closing
Date. The Company has never been part of an affiliated group filing consolidated
federal (or other) income tax returns (other than as a parent of such affiliated
group) and has no liability for Taxes of any other entity (i) under Treasury
Regulation 1.1502-6 (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract, or (iv) otherwise. "Tax or
Taxes" shall mean all taxes, levies or other assessments of whatever kind,
including, without limitation, income, excise, property, sales, transfer, gross
receipts, employment, withholding, import and franchise taxes and customs duties
imposed by the United States, or any state, county, local or foreign government,
or subdivision or agency thereof, and including any interest, penalties or
additions attributable thereto.
3.16 Material Agreements. The Company has made available to the Parent true
and accurate copies of any material note, bond, mortgage, indenture, contract,
lease, license, agreement, understanding, instrument, bid or proposal that is
required to be described in or filed as an exhibit to any SEC Report (the
"Company Material
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Contracts"). All such Company Material Contracts are valid and binding and are
in full force and effect and enforceable against the Company or the Subsidiaries
in accordance with their respective terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforcement is considered in a proceeding in equity or at law. Except as set
forth in Schedule 3.16 of the Company Disclosure Letter, no consent of any
person is needed in order that each such Company Material Contract shall
continue in full force and effect in accordance with its terms without penalty,
acceleration or rights of early termination by reason of the consummation of the
transactions contemplated by this Agreement, except for consents the absence of
which would not have a Material Adverse Effect, and neither the Company nor the
Subsidiaries is in material violation or breach of or default under any such
Company Material Contract; nor to the Company's knowledge is any other party to
any such Company Material Contract in violation or breach of or default under
any such Company Material Contract.
3.17 Compliance with Law. The Company and the Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
governmental entities necessary for them to own, lease or operate their
properties and assets and to carry on their businesses substantially as now
conducted, except for such permits, licenses, variances, exemptions, orders and
approvals the failure of which to hold would not have a Material Adverse Effect
(the "Company Permits"). The Company and the Subsidiaries are in material
compliance with applicable laws and the terms of the Company Permits. Except as
disclosed in the SEC Reports filed prior to the date of this Agreement, the
Company has not received any written, or to the Company's knowledge, oral notice
that the business operations of the Company and the Subsidiaries are being
conducted in violation of any law, ordinance or regulation of any governmental
entity.
3.18 Insider Interests. The SEC Reports set forth all material contracts,
agreements with and other obligations to officers, directors and employees or
shareholders of the Company and the Subsidiaries. Except as set forth in the SEC
Reports, no officer, director or shareholder of the Company or the Subsidiaries,
and no entity controlled by any such officer, director or shareholder, and no
relative or spouse who resides with any such officer, director or shareholder
(i) owns, directly or indirectly, any material interest in any person that is or
is engaged in business other than on an arm's-length basis as, a competitor,
lessor, lessee, customer or supplier of the Company or the Subsidiaries or (ii)
owns, in whole or in part, any tangible or intangible property material to the
conduct of the business that the Company or the Subsidiaries use in the conduct
of its business.
3.19 Officers, Directors and Employees. Schedule 3.19 of the Company
Disclosure Letter sets forth the name and current compensation of each officer,
director or employee of the Company and the Subsidiaries whose current annual
rate of compensation from the Company or the Subsidiaries (including bonuses but
excluding commission-only compensation) exceeds $100,000.
3.20 Environmental Protection. Notwithstanding anything in this Agreement
to the contrary, this Section 3.20 is the sole representation with respect to
environmental matters. Except as set forth in Schedule 3.20 of the Company
Disclosure Letter, the Company and the Subsidiaries have obtained all material
permits, certificates, licenses, approvals and other authorizations
(collectively "Environmental Permits") relating to health, safety, sanitation,
pollution or protection of the environment, including those relating to
emissions, discharges, releases of pollutants, contaminants or chemicals, or
industrial, toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water, ground water, or
land) or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants, contaminants
or chemicals, or industrial, toxic or hazardous substances or wastes. Except as
set forth in Schedule 3.20 of the Company Disclosure Letter, the Environmental
Permits are in full force and effect and the Company and the Subsidiaries are in
material compliance with all terms and conditions of the Environmental Permits.
Except as set forth in Schedule 3.20 of the Company Disclosure Letter, the
Company and the Subsidiaries are also in compliance with all other material
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in all applicable foreign,
federal, state or local environmental health and safety laws or contained in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, if any ("Pertinent
Environmental Laws"). Except as set forth in Schedule 3.20 of the Company
Disclosure Letter, to the Company's
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knowledge, there are no past or present events, conditions, circumstances,
activities, practices or incidents which, with the passage of time or the giving
of notice, or both, would constitute a violation of Pertinent Environmental Law
or contract, lease or agreement with any third party, or noncompliance with any
Environmental Permit, or which may prevent compliance or continued compliance
with Pertinent Environmental Laws, or which may give rise to any material common
law or legal liability, or otherwise form the basis of any claim, action,
demand, suit, proceeding or governmental investigation. Except as set forth in
Schedule 3.20 of the Company Disclosure Letter, there is no civil, criminal or
administrative action, suit, demand, claim, hearing, notice or demand letter,
notice of violation, investigation, or proceeding pending or, to the Company's
knowledge, threatened against the Company or the Subsidiaries relating in any
way to any Pertinent Environmental Laws. There are no agreements, consent
orders, decrees, judgments, license or permit conditions or other orders or
directives of any foreign, federal, state or local court, governmental agency or
authority which require any material change in the present use, operation or
condition of the Real Property or, pursuant to applicable Pertinent
Environmental Laws, any material work, repairs, construction, containment,
cleanup, investigation, removal or other remedial action or material capital
expenditure.
3.21 Brokers and Finders. Other than Ernst & Young LLP, neither the Company
nor any of its officers, directors or employees has employed any broker, finder
or investment banker or incurred any liability for any brokerage fees,
commissions, finders' fees or investment banking fees in connection with the
transactions contemplated herein.
3.22 Voting Requirements. The affirmative vote of the holders of at least
two-thirds of the total number of votes entitled to be cast by the holders of
the Shares outstanding as of the record date for the Company Special Meeting is
the only vote of the holders of any class or series of the Company's capital
stock or other securities necessary to approve this Agreement and the
transactions contemplated by this Agreement.
3.23 Board Approval. The Board, by resolutions duly adopted by unanimous
vote of those voting at a meeting duly called and held and not subsequently
rescinded or modified in any way (the "Company Board Approval"), has duly (i)
determined, subject to and conditioned upon receipt of the fairness opinion
required pursuant to Section 6.01(d) hereof, that this Agreement and the Merger
are fair to and in the best interests of the Company and its shareholders, (ii)
approved this Agreement and the Merger and (iii) subject to its fiduciary
obligations under applicable law, recommended that the shareholders of the
Company adopt this Agreement and approve the Merger and directed that this
Agreement and the transactions contemplated hereby be submitted for
consideration by the Company's shareholders at the Shareholders' Meeting. The
Company Board Approval constitutes adoption of this Agreement for purposes of
Section 902 of the BCL. No state takeover statute is applicable to the Merger or
the other transactions contemplated hereby.
3.24 Labor Matters. (a) Schedule 3.24 of the Company Disclosure Letter sets
forth a list of all of the collective bargaining agreements to which the Company
or the Subsidiaries is a party or is subject. The Company has heretofore
delivered or made available to the Parent true, correct and complete copies of
all the collective bargaining agreements listed in Schedule 3.24, and copies of
all grievances, grievance responses, grievance settlement agreements, and labor
arbitrator decisions and awards arising under any such collective bargaining
agreements or predecessor agreements within the three years preceding the date
hereof. Except to the extent set forth in Schedule 3.24, and except for such
matters as would not have or result in a Material Adverse Effect (a) the Company
and the Subsidiaries are in compliance with all applicable laws and regulations
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and employee safety and health, and all of the
provisions of the aforementioned collective bargaining agreements listed in
Schedule 3.24; (b) neither the Company nor the Subsidiaries has received
written, or to the Company's knowledge, oral notice of any unfair labor practice
charge or complaint pending before the National Labor Relations Board; (c) there
is no labor strike, work slowdown or stoppage currently pending or, to the
Company's knowledge threatened by any authorized representative of any union or
other representative of employees against or affecting the Company or the
Subsidiaries and none has occurred since 1995; (d) neither the Company nor the
Subsidiaries has received written, or to the Company's knowledge, oral notice
that any representation petition has been filed with the National Labor
Relations Board respecting the employees of the Company or the Subsidiaries; (e)
no labor grievance or arbitration proceeding arising out of or arising under any
of the aforementioned
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collective bargaining agreements is pending against the Company or the
Subsidiaries; (f) neither the Company nor the Subsidiaries is currently engaged
in collective bargaining negotiations; and (g) neither the Company nor the
Subsidiaries has received written, or to the Company's knowledge, oral notice of
any discrimination, harassment or retaliation allegations, charges or complaints
pending before the Equal Employment Opportunity Commission, New York State
Division of Human Rights or any other agency or Court, state or federal, or
threat of same. (b) Schedule 3.24 lists all individual employment agreements
between the Company or the Subsidiaries and one or more employees. The Company
has heretofore delivered to the Parent true, correct and complete copies of all
such employment agreements with its employees. All employment agreements to
which the Company or the Subsidiaries is a party are, in all material respects,
valid and binding.
3.25 Termination. The Company has simultaneously with the execution and
delivery of this Agreement terminated that certain Agreement and Plan of Merger
among the Company, Miranda Holdings, Inc. and Miranda Acquisition Corp. dated
April 26, 2000 and such is no longer in force or effect.
3.26 No Other Representations or Warranties. Except for the representations
and warranties contained in this Agreement, anything described in or listed in
the Company Disclosure Letter, neither the Company nor any other person makes
any representation or warranty to the Parent or the Purchaser, express or
implied, and the Company hereby disclaims any such representation or warranty,
whether by or on behalf of the Company or any of its officers, directors,
employees, agents or representatives or any other person, notwithstanding the
delivery or disclosure to the Parent or the Purchaser or any of its officers,
directors, employees, agents or representatives or any other person of any
document or other information by the Company or any of its officers, directors,
employees, agents or representatives or any other person. Any material document
delivered by the Company pursuant to this Agreement is a true, correct and
complete copy of such document, and has not been modified or amended unless such
amendment or modification is included with such document.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND THE PURCHASER
The Parent and the Purchaser represent and warrant to the Company that:
4.01 Corporation Organization. The Parent is a limited liability company
duly organized and validly existing and in good standing under the laws of the
State of Delaware , and the Purchaser is a corporation duly organized and
validly existing and in good standing under the laws of the State of New York.
The Parent and the Purchaser each has all requisite power and authority to own
its assets and carry on its business as now being conducted or proposed to be
conducted. Each of the Parent and the Purchaser has delivered to the Company
complete and correct copies of its Operating Agreement, Certificate or Articles
of Incorporation and By-Laws, as applicable, as in effect on the date hereof.
4.02 Authorized Capital. The authorized capital stock of the Purchaser
consists of 200 shares of Common Stock, no par value per share, of which one
share shall be outstanding as of the Effective Time. All of the issued and
outstanding shares of capital stock of the Purchaser are validly issued, fully
paid, nonassessable and free of preemptive rights and all liens.
4.03 Corporation Authority. Each of the Parent and the Purchaser has the
necessary power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by each of
the Parent and the Purchaser, the performance by the Parent and the Purchaser of
its obligations hereunder and the consummation by the Parent and the Purchaser
of the transactions contemplated hereby have been duly authorized by its Board
of Directors and no other corporate or limited liability company proceeding on
the part of the Parent or the Purchaser is necessary for the execution and
delivery of this Agreement by the Parent and the Purchaser and the performance
by the Parent and the Purchaser of its obligations hereunder and the
consummation by the Parent and the Purchaser of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of the
Parent and the Purchaser and, assuming the due authorization, execution and
delivery hereof by the Company, is a legal, valid and binding
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obligation of the Parent and the Purchaser, enforceable against the Parent and
the Purchaser in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
4.04 No Prior Activities. The Purchaser has not incurred, directly or
indirectly, any liabilities or obligations, except those incurred in connection
with its incorporation or with the negotiation of this Agreement and the
consummation of the transactions contemplated hereby and thereby. The Purchaser
has not engaged, directly or indirectly, in any business or activity of any type
or kind, or entered into any agreement or arrangement with any person or entity,
and is not subject to or bound by any obligation or undertaking, that is not
contemplated by or in connection with this Agreement and the transactions
contemplated hereby and thereby.
4.05 Governmental Filings; No Violations.
(a) Other than the filing of the New York Certificate of Merger in
accordance with the BCL, the Restated Certificate of Incorporation and the
HSR Filing, no notices, reports or other filings are required to be made by
the Parent or the Purchaser with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the Parent
or the Purchaser from, any governmental or regulatory authorities of the
United States, the several States or any foreign jurisdictions in
connection with the execution and delivery of this Agreement by the Parent
and the Purchaser and the consummation by the Parent and the Purchaser of
the transactions contemplated hereby, the failure to make or obtain any or
all of which could prevent, materially delay or materially burden the
transactions contemplated by this Agreement.
(b) Neither the execution and delivery of this Agreement by the Parent
or the Purchaser nor the consummation by the Parent or the Purchaser of the
transactions contemplated hereby nor compliance by the Parent or the
Purchaser with any of the provisions hereof will: (i) conflict with or
result in any breach of any provision of its Operating Agreement,
Certificate or Articles of Incorporation or By-Laws, as applicable, (ii)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or require any consent
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, contract, agreement or other instrument or
obligation to which the Parent or the Purchaser is a party or by which it
or any of its properties or assets may be bound, (iii) require the creation
or imposition of any lien upon or with respect to the properties of the
Parent or the Purchaser or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Parent or the
Purchaser or any of its properties or assets, excluding from the foregoing
clauses (iii) and (iv) violations, breaches or defaults which in the
aggregate, would not have a material adverse effect on the business,
financial condition or operations of the Parent or the Purchaser or which
would not prevent, materially delay or materially burden the transactions
contemplated by this Agreement.
4.06 Brokers and Finders. Neither the Parent, the Purchaser nor any of its
officers, directors or employees has employed any broker, finder or investment
banker or incurred any liability for any brokerage fees, commissions, finders
fees or investment banking fees in connection with the transactions contemplated
herein.
4.07 Proxy Statement; Other Information. None of the information to be
supplied by and relating to the Parent or the Purchaser for inclusion or
incorporation in the Proxy Statement or any schedules required to be filed with
the SEC in connection therewith and described therein as being supplied by the
Parent or the Purchaser will, at the respective times that the Proxy Statement
or any amendments or supplements thereto or any such schedules are filed with
the SEC, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.08 Ownership of Company Capital Stock. As of the date of this Agreement,
neither the Parent, the Purchaser nor any of their respective affiliates or
associates (as such terms are defined under the Exchange Act) (i) beneficially
owns, directly or indirectly, or (ii) is a party to any agreement, arrangement
or understanding for
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the purpose of acquiring, holding, voting or disposing of, in case of either
clause (i) or (ii), shares of capital stock of the Company.
4.09 No Other Representations or Warranties. Except for the representations
and warranties contained in this Agreement, or any other document delivered
pursuant to this Agreement, neither the Parent or the Purchaser nor any other
person makes any representations or warranty to the Company, express or implied,
and the Parent and the Purchaser hereby disclaim any such representation or
warranty, whether by the Parent or the Purchaser or any of its or their
officers, directors, employees, agents or representatives or any other person,
notwithstanding the delivery or disclosure to the Company or any of its
officers, directors, employees, agents or representatives or any other person of
any document or other information by the Parent and the Purchaser or any of
their officers, directors, employees, agents or representatives or any other
person. Any document delivered by the Parent or the Purchaser pursuant to this
Agreement is a true, correct and complete copy of such document, and has not
been modified or amended unless such amendment or modification is included with
such document.
ARTICLE V
COVENANTS OF THE PARTIES
5.01 Conduct of Business of the Company. Except as contemplated by this
Agreement or as set otherwise agreed by the Parent in writing, during the period
from the date of this Agreement to the Effective Time, each of the Company and
the Subsidiaries will conduct its business and operations only in the ordinary
and usual course of business consistent with past practice and will seek to
preserve intact the current business organization, and preserve its
relationships with customers, suppliers and others having business dealings with
the Company to the end that the goodwill and ongoing business shall be
unimpaired in all material respects at the Effective Time. Without limiting the
generality of the foregoing, and, except as contemplated in this Agreement,
prior to the Effective Time, without the advance written consent of the Parent,
neither the Company nor any of the Subsidiaries will:
(a) Except to the extent required by applicable law, amend its
Certificate of Incorporation or By-Laws;
(b)(i) Create, incur or assume any indebtedness for money borrowed,
including obligations in respect of capital leases or other capital
expenditures, except indebtedness for borrowed money incurred in the
ordinary course of business, provided that the proceeds thereof are not
distributed to the shareholders of the Company; or (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person;
provided, however, that the Company may endorse negotiable instruments in
the ordinary course of business consistent with past practice;
(c) Declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of any of its capital stock;
(d) Issue, sell, grant, purchase or redeem, or issue or sell any
securities convertible into, or options with respect to, or warrants to
purchase or rights to subscribe to, or subdivide or in any way reclassify,
any shares of its capital stock, except in any case above pursuant to
Section 2.05 with respect to the Options or pursuant to Section 2.06 with
respect to the Purchase Plans; provided, however, that from and after the
date hereof, the Company will permit no further orders for shares under the
Purchase Plans;
(e) Other than funding in the aggregate amount of $25,000 in
connection with those certain Supplemental Executive Compensation
Agreements between the Company and each of Robert McKenna and Daniel
Corwin, (i) Increase the rate of compensation payable or to become payable
by the Company to its directors, officers or employees, whether by salary
or bonus, other than in the ordinary course of business consistent with
past practice or (ii) increase the rate or term of, or otherwise alter, any
bonus, insurance, pension, severance or other employee benefit plan,
payment or arrangement made to, for or with any such directors, officers or
employees other than renewals of contractual arrangements made in the
ordinary course of business consistent with past practice;
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(f) Enter into any agreement, commitment or transaction (other than
borrowings permitted by Section 5.01(b)), except agreements, commitments or
transactions in the ordinary course of business consistent with past
practice;
(g) Sell, transfer, mortgage, pledge, grant any security interest or
permit the imposition of any lien or other encumbrance on any asset other
than in the ordinary course of business consistent with past practice and
except pursuant to the Credit Agreement (other than with respect to the
assets constituting the Company's aerospace division);
(h) Waive any right under any contract or other agreement identified
in the Company Disclosure Letter if such waiver would have a Material
Adverse Effect;
(i) Except as required by GAAP, the SEC or applicable law, make any
material change in its accounting methods or practices or make any material
change in depreciation or amortization policies or rates adopted by it for
accounting purposes or, other than normal writedowns or writeoffs
consistent with past practices, make any writedowns of inventory or
writeoffs of notes or accounts receivable;
(j) Make any loan or advance to any of its shareholders, officers,
directors, employees (other than advances to field sales personnel,
vacation advances, relocation advances and travel advances in each case
made in the ordinary course of business in a manner consistent with past
practice) or make any other loan or advance to any other person or group
otherwise than in the ordinary course of business consistent with past
practice;
(k) Terminate or fail to renew any contract including, all current
insurance policies, or other agreements (excluding customer leases or
contracts), the termination or failure of which to renew would have a
Material Adverse Effect;
(l) Enter into any collective bargaining agreement;
(m) Take, agree to take, or knowingly permit to be taken any action,
or do or, with respect to anything within the Company's control, knowingly
permit to be done anything in the conduct of its business which would be
contrary to or in breach of any of the terms or provisions of this
Agreement, or which would cause any of the representations of the Company
to be or become untrue in any material respect;
(n) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof, or any
assets that are material, individually or in the aggregate, to the Company
and the Subsidiaries taken as a whole;
(o) make any Tax election that would reasonably be expected to have a
Material Adverse Effect or settle or compromise any material Tax liability;
(p) settle or compromise any claim (including arbitration) or
litigation involving payments by the Company in excess of $50,000
individually, or $100,000 in the aggregate, which is not subject to
insurance reimbursement without the prior written consent of the Parent; or
(q) Agree to do any of the foregoing.
5.02 Notification of Certain Matters. The Company shall give prompt notice
to the Parent of: (a) any written, or to the Company's knowledge, oral notice or
other communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement; (b) any written, or to the Company's knowledge, oral notice or
other communication from any regulatory authority in connection with the
transactions contemplated by this Agreement; and (c) any claims, actions,
proceedings or investigations commenced or, to the best of its knowledge,
threatened or involving the Company or the Subsidiaries, or any of their
respective properties or assets, which, if pending on the date hereof, would
have been required to have been disclosed in the Company Disclosure Letter
pursuant to the provisions of Section 3.14; and (d) the occurrence of any event
having, or which insofar as can be reasonably foreseen would have, a Material
Adverse Effect.
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5.03 Access to Information. Between the date of this Agreement and the
Effective Time, the Company will during ordinary business hours and upon
reasonable advance notice, (i) give the Parent and the Parent's authorized
representatives access the Parent shall reasonably request to all of its books,
records (including, without limitation, the workpapers of the Company's outside
accountants), contracts, commitments, plants, offices and other facilities and
properties, and its personnel, representatives, accountants and agents
(including prospective lenders); (ii) permit the Parent to make such inspections
thereof as it may reasonably request (including, without limitation, observing
the Company's physical inventory of its assets), (iii) cause its officers and
advisors to furnish to the Parent its financial and operating data and such
other existing information with respect to its business, properties, assets,
liabilities and personnel (including, without limitation, title insurance
reports, real property surveys and environmental reports, if any), as the Parent
may from time to time reasonably request, (iv) take such actions as the Parent
reasonably deems appropriate to verify the existence and condition of equipment
leased by the Company to its customers, and (v) permit the Parent's accountants
to conduct such confirmation and testing procedures with respect to the
Company's receivables as the Parent reasonably deems appropriate; provided,
however, that any such investigation shall be conducted in such a manner as not
to interfere unreasonably with the operation of the business of the Company. Any
and all information disclosed by or on behalf of the Company to the Parent or
the Parent's authorized representatives in accordance with this Section 5.03
shall be subject to the terms of the Confidentiality Agreement, dated May 3,
2000, between the Company and Key Components, Inc. (the "Confidentiality
Agreement").
5.04 Shareholders' Meeting. Subject to the requirements of Section 5.15,
the Company shall take all action necessary, in accordance with applicable law
and its Certificate of Incorporation and By-Laws, to convene the Shareholders'
Meeting as promptly as reasonably practicable after the date on which the
definitive Proxy Statement has been mailed to the Company's shareholders for the
purpose of considering and taking action upon the Merger and this Agreement.
Subject to the fiduciary obligations of the Board under applicable law and as
otherwise contemplated by this Agreement, the Company shall, through the Board,
recommend to its shareholders approval of the Merger and this Agreement.
5.05 Proxy Statement. The Parent and the Company shall, as promptly as
possible, prepare and, subject to the requirements of Section 5.15, file with
the SEC the Proxy Statement, and forms of proxy in connection with the vote of
the Company's shareholders with respect to the Merger and this Agreement and any
required Other Filings. The Company and the Parent shall each use all reasonable
efforts to cause the Proxy Statement to be mailed to shareholders of the Company
at the earliest practicable date contemplated by Section 1.07. If at any time
prior to the Effective Time any event with respect to the Company should occur
and is required to be described in an amendment of, or a supplement to, the
Proxy Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the shareholders of the Company.
5.06 Further Information. The Company and the Parent shall give prompt
written notice to the other of (i) any representation or warranty made by it
contained in this Agreement becoming untrue or inaccurate in any material
respect (including the Company, the Parent or the Purchaser receiving knowledge
of any fact, event or circumstance which may cause any representation qualified
as to knowledge to be or become untrue in any material respect) or (ii) the
failure by it to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this Merger
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.07 Further Assurances. Consistent with the terms and conditions hereof,
each party hereto will execute and deliver such instruments and take such other
action as the other parties hereto may reasonably require in order to carry out
this Agreement and the transactions contemplated hereby and thereby.
5.08 Interim Financial Statements. Within 45 days after the end of each
fiscal quarter and 90 days after the end of any fiscal year after the date of
this Agreement, and until the Effective Time, the Company will deliver to the
Parent its Form 10-Q's or 10-K's, as the case may be, for such quarter or year.
The financial statements contained therein shall fairly present in all material
respects their respective financial condition, results of
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operations and cash flows and changes in financial position as at the date or
for the periods indicated in accordance with GAAP consistently applied in
accordance with past practice, shall be prepared in conformity with the
requirements of Regulation S-X under the Exchange Act and shall be accompanied
by a certificate of the principal financial officer (or independent certified
public accountant in the case of year end financials) of the Company to such
effect.
5.09 Best Efforts. Subject to the terms and conditions of this Agreement,
each of the parties hereto will use their commercially reasonable best efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and shall use its commercially reasonable best efforts to satisfy the conditions
to the transactions contemplated hereby and to obtain all waivers, permits,
consents and approvals and to effect all registrations, filings and notices with
or to third parties or governmental or public bodies or authorities which are
necessary or desirable in connection with the transactions contemplated by this
Agreement, including, but not limited to, filings to the extent required under
the Exchange Act and HSR Act. If at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers or directors of each of the parties hereto shall
take such action. Without limiting the generality of the foregoing, the Company,
the Parent and the Purchaser will defend against any lawsuit or proceeding,
whether judicial or administrative, challenging this Agreement or the
consummation of any of the transactions contemplated hereby. From time to time
after the date hereof, without further consideration, the Company will, at its
own expense, execute and deliver such documents to the Parent as the Parent may
reasonably request in order to consummate such transactions. From time to time
after the date hereof, without further consideration, the Parent will, at its
own expense, execute and deliver such documents to the Company as the Company
may reasonably request in order to consummate the Merger.
5.10 Filings. The Company and the Parent will file, or cause to be filed,
as promptly as possible, with the United States Federal Trade Commission (the
"FTC") and the Antitrust Division of the United States Department of Justice
(the "Department of Justice") pursuant to the HSR Act the notification required
by the HSR Act, including all requisite documents, materials and information
therefor, and request early termination of the waiting period under the HSR Act.
Each of the Company and the Parent shall furnish to the other such necessary
information and reasonable assistance as the other may request in connection
with its preparation of any filing or submission which is necessary under the
HSR Act. The Company and the Parent shall each keep the other apprised of the
status of any inquiries or requests for additional information made by any
governmental authority and shall comply promptly with any such inquiry or
request.
5.11 Public Announcements. The initial press release relating to the
transactions contemplated hereby shall be a joint press release, and thereafter
the Company and the Parent shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated hereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law or any listing agreement with a national securities exchange or
with National Association of Securities Dealers, Inc.
5.12 Indemnity; D&O Insurance.
(a) The Parent shall cause all rights to indemnification by the
Company now existing in favor of each present and former director or
officer of the Company (hereinafter referred to in this Section as the
"Indemnified Parties") as provided in the Company's Certificate of
Incorporation, By-Laws or indemnification agreements to survive the Merger
and to continue in full force and effect as rights to indemnification by
the Surviving Corporation for a period of at least six years following the
Effective Time.
(b) Subject to the terms set forth herein, the Surviving Corporation
shall indemnify and hold harmless, to the fullest extent permitted under
applicable law (and shall also advance expenses as incurred by an
Indemnified Party to the extent permitted under applicable law, provided
the person to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such person is not
entitled to indemnification), each Indemnified Party against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection
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with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
any action, alleged action, omission or alleged omission occurring on or
prior to the Effective Time in their capacity as director or officer
(including, without limitation, any claims, actions, suits, proceedings and
investigations which arise out of or relate to the transactions
contemplated by this Agreement) for a period of six years after the
Effective Time, provided that, in the event any claim or claims are
asserted or made within such six year period, all rights to indemnification
in respect of any such claim or claims shall continue until final
disposition of any and all such claims.
(c) Any Indemnified Party wishing to claim indemnification under this
Section 5.12, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Surviving Corporation thereof, but
the failure to so notify shall not relieve the Surviving Corporation of any
obligation to indemnify such Indemnified Party or of any other obligation
imposed by this Section 5.12 unless and to the extent that such failure
materially prejudices the Parent or the Surviving Corporation; it being
understood that it shall be deemed to materially prejudice the Parent or
the Surviving Corporation, as the case may be, if, as a result of such
failure to notify, the Parent or the Surviving Corporation is not given an
opportunity to assume the defense of such claim, action, suit, proceeding
or investigation within a reasonably prompt time after such claim, action,
suit, proceeding or investigation is asserted or initiated. In the event of
any such claim, action, suit, proceeding or investigation, (i) the
Surviving Corporation or the Parent shall have the right to assume the
defense thereof and shall not be liable to such Indemnified Party for any
legal expenses of other counsel or any other expenses subsequently incurred
by such Indemnified Party in connection with the defense hereof, except
that if the Parent or Surviving Corporation elects not to assume such
defense or counsel for the Indemnified Party advises that there are issues
which raise conflicts of interest between the Parent or Surviving
Corporation and the Indemnified Party, the Indemnified Party may retain
counsel satisfactory to it, and the Surviving Corporation shall pay all
reasonable fees and expenses of such counsel for the Indemnified Party
promptly as statements therefor are received; provided, however, that in no
event shall the Parent or Surviving Corporation be required to pay fees and
expenses, including disbursements and other charges, for more than one firm
of attorneys in any one legal action or group of related legal actions
unless (A) counsel for the Indemnified Party advises that there are issues
which raise conflicts of interest that require more than one firm of
attorneys, or (B) local counsel of record is needed in any jurisdiction in
which any such action is pending, (ii) the Parent and the Indemnified Party
shall cooperate in the defense of any such matter, and (iii) the Parent and
the Surviving Corporation shall not be liable for any settlement effected
without the prior written consent of one of them (which consent shall not
be unreasonably withheld); and provided, further, that the Parent and
Surviving Corporation shall not have any obligation hereunder to any
Indemnified Party if and to the extent a court of competent jurisdiction
ultimately determines, and such determination shall have become final, that
the indemnification of such Indemnified Party in the manner contemplated
hereby is prohibited by applicable law.
(d) For a period of not less than six years after the Effective Time,
the Parent shall cause the Surviving Corporation to use its best reasonable
efforts to maintain, if available for an annual premium not in excess of
$70,000, officers' and directors' liability insurance covering the
Indemnified Parties who are presently covered by the Company's officers'
and directors' liability insurance, (copies of which have been delivered to
the Parent), with respect to acts or omissions occurring at or prior to the
Effective Time, on terms no less favorable than those in effect on the date
hereof or at the Effective Time, or if such insurance coverage is not
available for an annual premium not in excess of $70,000 to obtain the
amount of coverage that is available for an annual premium of $70,000.
(e) The covenants contained in this Section 5.12 shall survive the
Effective Time until fully discharged and are intended to benefit each of
the Indemnified Parties.
5.13 Other Potential Bidders. The Company, its affiliates and their
respective officers, directors, employees, investment bankers, attorneys and
other representatives and agents shall immediately cease any existing
discussions or negotiations, if any, with any parties conducted heretofore with
respect to the acquisition of or an investment in the Company (other than with
respect to the assets constituting the Company's aerospace division),
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whether in the form of a merger, amalgamation, consolidation, share exchange,
recapitalization, business combination, purchase of stock, acquisition of
assets, joint venture, strategic alliance or otherwise (an "Acquisition
Proposal"). Neither the Company nor any of its affiliates, nor any of its or
their respective officers, directors, employees, representatives or agents,
shall, directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than the Parent
and the Purchaser, any affiliate or associate of the Parent and the Purchaser or
any designees of the Parent and the Purchaser) concerning any Acquisition
Proposal, or take any other action to facilitate the making of a proposal that
constitutes or could reasonably be expected to lead to an Acquisition Proposal;
provided, however, that if at any time prior to the Effective Time, the Company
receives an unsolicited written, bona fide Acquisition Proposal from a third
party, the Board may, but only if, in the good faith judgment of the Board,
based as to legal matters, on the advice of legal counsel, the Board determines
that the failure to do so would be inconsistent with the discharge of its
fiduciary duties to the Company's shareholders under applicable law, proceed
with discussions regarding such Acquisition Proposal and (a) furnish information
and access, in each case only in response to unsolicited requests therefor, to
any corporation, partnership, person or other entity or group pursuant to
confidentiality agreements that do not prohibit or restrict disclosure of any
matter to the Parent, and (b) participate in discussions and negotiate with such
entity or group concerning any Acquisition Proposal. Notwithstanding the
foregoing, the Company shall immediately advise the Parent and the Purchaser
orally and in writing of the receipt of any Acquisition Proposal, the material
terms and conditions thereof and the identity of the person making such proposal
and shall immediately provide the Parent and the Purchaser with a copy of the
same and any related materials. Without limiting the foregoing, it is understood
that any violation of the preceding restrictions set forth in this Section 5.13
by any executive officer of the Company or any of the Subsidiaries, shall be
deemed to be a breach of this Section 5.13 by the Company. The Company shall use
its best efforts to ensure that the officers, directors and employees of the
Company and the Subsidiaries and any investment banker or other advisor or
representatives retained by the Company are aware of the restrictions set forth
in the preceding sentences, and the Company hereby represents that the Board has
adopted resolutions directing the officers, directors and employees of the
Company and the Subsidiaries to comply with such restrictions. The Company
promptly shall advise the Parent orally and in writing of any Acquisition
Proposal and any inquiries or developments with respect thereto.
5.14 Shareholder Litigation. In connection with any litigation which may be
brought against the Company or its directors relating to the transactions
contemplated by this Agreement, the Company shall keep the Parent and the
Purchaser and any counsel which either the Parent or the Purchaser may retain at
its own expense, informed of the status of such litigation.
5.15 Financing Commitments. On or before June 9, 2000, the Parent and the
Purchaser shall deliver executed copies of commitment letters from one or more
financing sources committing, subject to the terms and conditions of such
commitment letters, to provide financing in an amount sufficient to consummate
the Merger and the other transactions contemplated by this Agreement. The Parent
and the Purchaser agree to keep the Company reasonably informed, from
time-to-time, as to their progress in obtaining the Financing Commitments.
ARTICLE VI
CONDITIONS TO THE MERGER
6.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to this Agreement to consummate the Merger
shall be subject to the following conditions, to the extent not waived at or
prior to the Closing:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote or consent of the shareholders of the Company;
(b) Any waiting period (and any extension thereof) applicable to the
Merger under the HSR Act shall have expired or been terminated;
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(c) No order, statute, rule, regulation, execution order, stay,
decree, judgment, or injunction shall have been enacted, entered, issued,
promulgated or enforced by any court or governmental authority which
prohibits or restricts the consummation of the Merger; and
(d) The Company shall have received a signed written opinion from
Ernst & Young LLP that the Merger is fair to the Company's shareholders
from a financial point of view, and the Company shall have delivered a true
and complete copy of such opinion to the Purchaser.
6.02 Conditions to the Obligations of the Parent and the Purchaser to
Effect the Merger. The obligation of the Purchaser and the Parent to effect the
Merger shall be further subject to satisfaction of the following conditions,
unless waived by the Parent:
(a) the Company shall have performed and complied in all material
respects with the agreements and obligations contained in this Agreement
required to be performed and complied with by it at or prior to the
Effective Time, the representations and warranties of the Company set forth
in this Agreement qualified as to materiality shall be true and correct,
and those not so qualified shall be true and correct in all material
respects, in each case as of the date hereof and at the Effective Time as
though made as of the Effective Time, except to the extent such
representations and warranties expressly relate to an earlier date (in
which case such representations and warranties qualified as to materiality
shall be true and correct, and those not so qualified shall be true and
correct in all material respects, as of such earlier date) and the Parent
and the Purchaser shall have received a certificate of an authorized
officer of the Company to that effect;
(b) there shall have been no material adverse change in the business,
operations, condition (financial or otherwise) or results of operations of
the Company and the Subsidiaries, taken as a whole;
(c) the Parent and the Purchaser shall have obtained funding pursuant
to and in accordance with the Financing Commitments;
(d) the Company shall not have received notices of election to dissent
pursuant to Section 623(a) of the BCL from shareholders who, in the
aggregate, own 10% or more of the Shares;
(e) the Parent and the Purchaser shall have received Phase I
Environmental Reports for all of the Company's properties and facilities,
each of such reports (which shall be dated no earlier than sixty (60) days
prior to the Effective Time) shall be reasonably satisfactory to the Parent
and the Purchaser and such reports shall not recommend further
investigation or remediation of the property owned or leased by the Company
which would cost in excess of $250,000; and
(f) the Company shall have terminated its Rights Agreement, dated
November 9, 1993, by and between the Company and American Stock Transfer
and Trust Company.
6.03 Conditions to the Obligations of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be further subject to the
Parent and the Purchaser having performed and complied in all material respects
with the agreements and obligations contained in this Agreement required to be
performed and complied with by each of them at or prior to the Effective Time,
and the representations and warranties of the Parent and the Purchaser contained
in this Agreement shall be true when made and at and as of the Effective Time
(except for representations and warranties made as of a specified date, which
need only be true as of such date) as if made at and as of such time, and the
Company shall have received a certificate of an authorized officer of the Parent
and the Purchaser to that effect.
ARTICLE VII
CLOSING
7.01 Time and Place. The closing of the Merger (the "Closing") shall take
place at the offices of Hodgson, Russ, Andrews, Woods & Goodyear LLP, Buffalo,
New York, at 10:00 a.m. local time on a date to be specified by the parties
which shall be no later than the third business day after the date on which the
last of the closing conditions set forth in Article VII is satisfied or waived
(if waivable) unless another time, date or place is agreed
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upon in writing by the parties hereto. The date on which the Closing actually
occurs is herein referred to as the "Closing Date."
7.02 Filings at the Closing. At the Closing, the Purchaser shall cause the
New York Certificate of Merger to be filed and recorded with the Secretary of
State of the State of New York in accordance with the provisions of Section 904
or 905 of the BCL, and shall take any and all other lawful actions and do any
and all other lawful things necessary to cause the Merger to become effective.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
8.01 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time: (a) by mutual written consent
of the Parent, the Purchaser and the Company; (b) by the Parent and the
Purchaser or the Company if (i) any court of competent jurisdiction in the
United States or other United States governmental body shall have issued an
order, decree or ruling or taken any other final action restraining, enjoining
or otherwise prohibiting the Merger and such order, decree, ruling or other
action is or shall have become nonappealable or (ii) the Merger shall not have
been consummated by October 2, 2000; (c) by the Company if prior to the
Effective Time, a corporation, partnership, person or other entity or group
shall have made an Acquisition Proposal that the Board by a majority vote,
determines in its good faith judgment and in the discharge of its fiduciary
duties, is more favorable to the Company's shareholders than the Merger; (d) by
the Parent and the Purchaser prior to the Effective Time, if (i) there shall
have been a breach of any representation or warranty on the part of the Company
such that the condition with respect to representations and warranties set forth
in Section 6.02(a) shall not be satisfied, (ii) there shall have been a breach
of any covenant or agreement on the part of the Company such that the condition
with respect to covenants and agreements set forth in Section 6.02(a) shall not
be satisfied, or (iii) the Board shall have withdrawn or modified its approval
or recommendation of this Agreement or the Merger or shall have recommended
another offer, or shall have adopted any resolution to effect any of the
foregoing and on or prior to such date an entity or group (other than the Parent
or the Purchaser) shall have made and not withdrawn an Acquisition Proposal; or
(e) by the Company if (i) there shall have been a breach of any representation
or warranty on the part of the Parent or the Purchaser such that the condition
with respect to representations and warranties set forth in Section 6.03 shall
not be satisfied or (ii) there shall have been a breach of any covenant or
agreement on the part of the Parent or the Purchaser such that the condition
with respect to covenants and agreements set forth in Section 6.03 shall not be
satisfied.
8.02 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 8.01, this Agreement shall forthwith
become void and have no effect, without any liability on the part of any party
hereto or its affiliates, directors, officers or shareholders, other than the
provision of this Section 8.02 and 8.03 hereof. Nothing contained in this
Section 8.02 shall relieve any party from liability for any breach of this
Agreement.
8.03 Fees and Expenses.
(a) In the event the Company terminates this Agreement pursuant to
Section 8.01(c) or the Parent or the Purchaser terminates this Agreement
pursuant to Section 8.01(d) or the conditions set forth in either Section
6.01(a) or 6.02(d) are not satisfied, the Company shall reimburse the
Parent, the Purchaser and their affiliates (not later than one business day
after submission of statements therefor) for all out-of-pocket fees and
expenses, incurred by any of them or on their behalf in connection with the
Merger and the consummation of all transactions contemplated by this
Agreement (including, without limitation, attorneys' fees, fees payable to
financing sources, investment bankers, counsel to any of the foregoing, and
accountants and filing fees and printing costs) (the "Expense Reimbursement
Amount").
(b) In addition, in the event the Company terminates this Agreement
pursuant to Section 8.01(c) or in the event the Parent or the Purchaser
terminates this Agreement pursuant to Section 8.01(d)(iii), the Parent and
the Purchaser would suffer direct and substantial damages, which damages
cannot be determined with reasonable certainty. To compensate the Parent
and the Purchaser for such damages, the Company shall pay
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to the Purchaser, immediately upon such termination, by wire transfer of
immediately available funds to an account designated by the Purchaser, the
amount of $2,500,000 as liquidated damages, as well as all amounts to which
the Parent and the Purchaser would be entitled pursuant to Section 8.03(a).
It is specifically agreed that the amount to be paid pursuant to this
Section 8.03(b) represents liquidated damages and not a penalty.
(c)(i) In the event the Company terminates this Agreement pursuant to
(A) Section 8.01(b)(i) (to the extent such nonappealable order, decree,
ruling or other final action restraining, enjoining or otherwise
prohibiting the Merger results from the Parent and/or the Purchaser being a
party to this Agreement or to the Merger and would not have resulted from
any other person or persons being a party to this Agreement or to the
Merger), (B) Section 8.01(b)(ii) (to the extent the failure to consummate
the Merger results from the conditions to the Merger set forth in Sections
6.01(b), 6.02(c) or 6.03 not being satisfied or, in the case of Section
6.03, waived prior to October 2, 2000), or (C) Section 8.01(e)(i) or (ii)
(collectively, the "Purchaser Related Terminations"), the Company would
suffer direct and substantial damages, which damages cannot be determined
with reasonable certainty. To compensate the Company for such damages, the
Parent will pay or cause to be paid to the Company, immediately upon such
termination, by wire transfer of immediately available funds to an account
designated by the Company, the amount of $2,500,000 as liquidated damages.
It is specifically agreed that the amount to be paid pursuant to this
Section 8.01(c)(i) represents liquidated damages and not a penalty.
(ii) In addition to the amounts payable by the Parent pursuant to
Section 8.03(c)(i), in the event of a Purchaser Related Termination, the
Parent shall reimburse the Company and its affiliates (not later than one
business day after the submission of statements therefor) for all
out-of-pocket fees and expenses, incurred by any of them or on their behalf
in connection with the Merger and the consummation of all transactions
contemplated by this Agreement and the Agreement and Plan of Merger among
the Company, Miranda Holdings, Inc. and Miranda Acquisition Corp., dated
April 26, 2000 (except for the liquidated damages amount contemplated by
Section 8.03(b) thereof) (including, without limitation, attorneys' fees,
fees payable to financing sources, investment bankers, counsel to any of
the foregoing, and accountants and filing fees and printing costs).
(d) Except as specifically provided in this Section 8.03 each party
shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE IX
MISCELLANEOUS
9.01 Survival of Representations and Warranties. The representations and
warranties made herein shall not survive beyond the earlier of termination of
this Agreement or the Effective Time. This Section 9.01 shall not limit any
covenant or agreement of the parties hereto which by its terms contemplates
performance after the Effective Time.
9.02 Amendment and Modification. Subject to applicable law, this Agreement
may be amended, modified or supplemented only by written agreement of the Parent
(for itself and the Purchaser) and the Company at any time prior to the
Effective Time with respect to any of the terms contained herein executed by
duly authorized officers of the respective parties except that after approval of
the Merger by the shareholders, the Merger Consideration to be paid pursuant to
this Agreement to the holders of Shares shall in no event be decreased and the
form of consideration to be received by the holders of such Shares in the Merger
shall in no event be altered without the approval of such holders.
9.03 Waiver of Compliance; Consents. At any time prior to the Effective
Time, the parties hereto may extend the time for performance of any of the
obligations or other acts or waive any inaccuracies in the representations and
warranties contained herein or in the documents delivered pursuant hereto. Any
failure of the Parent (for itself and the Purchaser), on the one hand, or the
Company, on the other hand, to comply with any obligation, covenant, agreement
or condition herein may be waived in writing by the Parent (for itself and the
Purchaser) or the Company, respectively, but such waiver or failure to insist
upon strict compliance with such
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obligation, covenant, agreement or condition shall not operate as a waiver of or
estoppel with respect to any subsequent or other failure. Whenever this
Agreement requires or permits consent by or on behalf of any party hereto, such
consent shall be given in writing in a manner consistent with the requirements
for a waiver of compliance as set forth in this Section 10.03.
9.04 Counterparts. This Agreement may be executed in any number of
counterparts (including execution of counterparts by facsimile) each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
9.05 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to its
conflicts of laws rules.
9.06 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed) or mailed by registered or certified mail (return receipt requested)
or by overnight courier service to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) If to the Company, to:
Acme Electric Corporation
400 Quaker Road
East Aurora, New York 14052
Telephone: (716) 655-3800
Telecopy: (716) 687-1594
Attention: Robert McKenna
with a copy to:
Hodgson, Russ, Andrews, Woods & Goodyear LLP
1800 One M&T Plaza
Buffalo, New York 14203
Telephone: (716) 848-1550
Telecopy: (716) 849-0349
Attention: John B. Drenning, Esq.
(b) if to the Parent or the Purchaser, to:
Key Components, LLC
200 White Plains Road
Tarrytown, New York 10591
Attn: Alan L. Rivera, Vice President
Telephone: (914) 332-8088
Telecopy: (914) 332-1441
with a copy to:
RubinBaum LLP
30 Rockefeller Plaza, 29th Floor
New York, New York 10112
Telephone: (212) 698-7864
Telecopy: (212) 698-7825
Attention: Michael J. Emont, Esq.
9.07 Entire Agreement, Assignment, Etc. This Agreement, which hereby
incorporates the Company Disclosure Letter, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof and,
except for Section 5.12, is not intended to confer upon any other person any
rights or remedies hereunder. This Agreement supersedes all prior agreements and
understanding of the parties with respect to the subject matter hereof other
than the Confidentiality Agreement. This Agreement and all of the provisions
hereof
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shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interest or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties hereto except that
the Parent shall have the right to assign the rights of the Purchaser to any
other (directly or indirectly) wholly-owned Subsidiaries of the Parent without
the prior written consent of the Company.
9.08 Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
9.09 Headings. The Articles and Section headings contained in this
Agreement are solely for the purpose of reference, are not part of the Agreement
of the parties and shall not effect in any way the meaning or interpretation of
this Agreement.
9.10 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to seek an injunction
or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first above
written.
ACME ELECTRIC CORPORATION
By: /s/ Robert T. Brady
--------------------------------------
Name: Robert T. Brady
Title: Chairman of the Special
Committee of the Board of
Directors
KEY COMPONENTS, LLC
By: /s/ Alan L. Rivera
--------------------------------------
Name: Alan L. Rivera
Title: Vice President
KCI MERGER CORP.
By: /s/ Alan L. Rivera
--------------------------------------
Name: Alan L. Rivera
Title: Vice President
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AMENDMENT NO. 1, dated as of September 18, 2000, by and among Acme Electric
Corporation, a New York corporation (the "Company"), Key Components, LLC, a
Delaware limited liability company (the "Parent"), and KCI Merger Corp., a New
York corporation (the "Purchaser").
WHEREAS, Company, Parent and Purchaser are parties to that certain
Agreement and Plan of Merger, dated as of May 26, 2000 ("Merger Agreement;"
terms defined in the Merger Agreement being used herein as therein defined); and
WHEREAS, Company, Parent and Purchaser desire to amend the Merger Agreement
to provide, under certain circumstances, for the extension of the date after
which Company, on the one hand, or Parent and Purchaser, on the other hand, may
terminate the Merger Agreement.
NOW, THEREFORE, in consideration of the premises, the parties hereto hereby
agree as follows:
1. Conditional Extension of Termination Date. Section 8.01 of the Merger
Agreement is hereby amended to read in its entirety as follows (amendments shown
in italics):
Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time: (a) by mutual written
consent of the Parent, the Purchaser and the Company; (b) by the Parent and
the Purchaser or the Company if (i) any court of competent jurisdiction in
the United States or other United States governmental body shall have
issued an order, decree or ruling or taken any other final action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action is or shall have become nonappealable or
(ii) the Merger shall not have been consummated by October 2, 2000 or, in
the event that the Company has delivered to Parent and Purchaser before
5:00 p.m. New York time on September 26, 2000 and within 24 hours after the
receipt thereof by the Board a true and complete copy of a signed written
opinion dated after September 13, 2000 from Ernst & Young LLP that the
Merger is fair to the Company's shareholders from a financial point of
view, November 10, 2000; (c) by the Company if prior to the Effective Time,
a corporation, partnership, person or other entity or group shall have made
an Acquisition Proposal that the Board by a majority vote, determines in
its good faith judgment and in the discharge of its fiduciary duties, is
more favorable to the Company's shareholders than the Merger; (d) by the
Parent and the Purchaser prior to the Effective Time, if (i) there shall
have been a breach of any representation or warranty on the part of the
Company such that the condition with respect to representations and
warranties set forth in Section 6.02(a) shall not be satisfied, (ii) there
shall have been a breach of any covenant or agreement on the part of the
Company such that the condition with respect to covenants and agreements
set forth in Section 6.02(a) shall not be satisfied, or (iii) the Board
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Merger or shall have recommended another offer, or shall
have adopted any resolution to effect any of the foregoing and on or prior
to such date an entity or group (other than the Parent or the Purchaser)
shall have made and not withdrawn an Acquisition Proposal; or (e) by the
Company if (i) there shall have been a breach of any representation or
warranty on the part of the Parent or the Purchaser such that the condition
with respect to representations and warranties set forth in Section 6.03
shall not be satisfied or (ii) there shall have been a breach of any
covenant or agreement on the part of the Parent or the Purchaser such that
the condition with respect to covenants and agreements set forth in Section
6.03 shall not be satisfied.
2. Non-waiver of Defaults, Etc. Nothing in this Amendment No. 1 or any act
or omission of Parent or Purchaser, on the one hand, or of the Company, on the
other hand, prior to the date hereof shall be construed as a waiver by such
party of any rights or claims or excuse any prior breach by any other party of
any of its representatives, warranties, covenants or agreements contained in the
Merger Agreement. Except as amended hereby, the Merger Agreement shall remain in
full force and effect.
3. Miscellaneous.
(a) Counterparts. This Amendment No. 1 may be executed in any number of
counterparts (including execution of counterparts by facsimile) each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
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(b) Governing Law. This Amendment No. 1 shall be governed by and construed
in accordance with the laws of the State of New York without regard to its
conflicts of laws rules.
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1 as
of the day and year first above written.
ACME ELECTRIC CORPORATION
By: /s/ Robert J. McKenna
--------------------------------------
Name: Robert J. McKenna
Title: Chairman and Chief Executive
Officer
KEY COMPONENTS, LLC
By: /s/ Clay Lifflander
--------------------------------------
Name: Clay Lifflander
KCI MERGER CORP.
By: /s/ Clay Lifflander
--------------------------------------
Name: Clay Lifflander
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AMENDMENT NO. 2, dated as of October 6, 2000, by and among Acme Electric
Corporation, a New York corporation (the "Company"), Key Components, LLC, a
Delaware limited liability company (the "Parent"), and KCI Merger Corp., a New
York corporation (the "Purchaser").
WHEREAS, Company, Parent and Purchaser are parties to that certain
Agreement and Plan of Merger, dated as of May 26, 2000, as amended by Amendment
No. 1, dated as of September 18, 2000 ("Merger Agreement;" terms defined in the
Merger Agreement being used herein as therein defined); and
WHEREAS, Company, Parent and Purchaser desire to amend the Merger Agreement
to provide for the extension of the date after which Company, on the one hand,
or Parent and Purchaser, on the other hand, may terminate the Merger Agreement.
NOW, THEREFORE, in consideration of the premises, the parties hereto hereby
agree as follows:
1. Extension of Termination Date. Section 8.01 of the Merger Agreement
is hereby amended to read in its entirety as follows (amendment shown in
italics):
Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time: (a) by mutual written
consent of the Parent, the Purchaser and the Company; (b) by the Parent
and the Purchaser or the Company if (i) any court of competent
jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other
final action restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action is or shall have become
nonappealable or (ii) the Merger shall not have been consummated by
November 30, 2000; (c) by the Company if prior to the Effective Time, a
corporation, partnership, person or other entity or group shall have
made an Acquisition Proposal that the Board by a majority vote,
determines in its good faith judgment and in the discharge of its
fiduciary duties, is more favorable to the Company's shareholders than
the Merger; (d) by the Parent and the Purchaser prior to the Effective
Time, if (i) there shall have been a breach of any representation or
warranty on the part of the Company such that the condition with respect
to representations and warranties set forth in Section 6.02(a) shall not
be satisfied, (ii) there shall have been a breach of any covenant or
agreement on the part of the Company such that the condition with
respect to covenants and agreements set forth in Section 6.02(a) shall
not be satisfied, or (iii) the Board shall have withdrawn or modified
its approval or recommendation of this Agreement or the Merger or shall
have recommended another offer, or shall have adopted any resolution to
effect any of the foregoing and on or prior to such date an entity or
group (other than the Parent or the Purchaser) shall have made and not
withdrawn an Acquisition Proposal; or (e) by the Company if (i) there
shall have been a breach of any representation or warranty on the part
of the Parent or the Purchaser such that the condition with respect to
representations and warranties set forth in Section 6.03 shall not be
satisfied or (ii) there shall have been a breach of any covenant or
agreement on the part of the Parent or the Purchaser such that the
condition with respect to covenants and agreements set forth in Section
6.03 shall not be satisfied.
2. Non-waiver of Defaults, Etc. Nothing in this Amendment No. 2 or any
act or omission of Parent or Purchaser, on the one hand, or of the Company,
on the other hand, prior to the date hereof shall be construed as a waiver
by such party of any rights or claims or excuse any prior breach by any
other party of any of its representations, warranties, covenants or
agreements contained in the Merger Agreement. Except as amended hereby, the
Merger Agreement shall remain in full force and effect.
3. Miscellaneous.
(a) Counterparts. This Amendment No. 2 may be executed in any number
of counterparts (including execution of counterparts by facsimile) each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument.
(b) Governing Law. This Amendment No. 2 shall be governed by and
construed in accordance with the laws of the State of New York without
regard to its conflicts of laws rules.
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IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 2 as
of the day and year first above written.
ACME ELECTRIC CORPORATION
By: /s/ Robert J. McKenna
--------------------------------------
Name: Robert J. McKenna
Title: Chairman and Chief Executive
Officer
KEY COMPONENTS, LLC
By: /s/ Clay Lifflander
--------------------------------------
Name: Clay Lifflander
KCI MERGER CORP.
By: /s/ Clay Lifflander
--------------------------------------
Name: Clay Lifflander
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APPENDIX B
FAIRNESS OPINION OF ERNST & YOUNG LLP
September 25, 2000
Special Committee of the
Board of Directors of Acme Electric Corporation
400 Quaker Road
East Aurora, NY 14052
Members of the Special Committee of the Board of Directors:
The Special Committee of the Board of Directors of Acme Electric
Corporation (the "Company") retained Ernst & Young LLP ("Ernst & Young") to
advise it with respect to the fairness, from a financial point of view, to the
Stockholders of the Company ("Stockholders") of the Consideration, as defined
herein, to be received by them pursuant to the terms of the Agreement and Plan
of Merger (the "Agreement") among the Company, Key Components, LLC and KCI
Merger Corp., together (the "Purchaser").
The Agreement provides, among other things, that all issued and outstanding
shares of Acme Electric Corporation common stock (Nasdaq: ACEE) shall be
exchanged for cash consideration in the amount of $9.00 per share upon surrender
of the stock certificates. The agreement also provides for the vesting and
exercising of outstanding options and the assumption of all debt. The terms and
conditions of the proposed transaction ("Transaction") are set forth in more
detail in the Agreement dated May 26, 2000. We have assumed, with your consent,
that no other agreements or information referred to in the Agreement materially
affects the value of the Consideration or the terms of the Transaction.
In connection with rendering our opinion to the Company, we have, among
other things:
1. Reviewed the Agreement and the specific terms of the Transaction;
2. Reviewed, among other public information, the Annual Report and
Form 10-K of the Company for the fiscal years ended June 30, 1999, 1998 and
1997;
3. Reviewed the Company's quarterly report on Form 10-Q for the
fiscal quarters ended September 30, 1999, December 31, 1999 and April 1,
2000;
4. Reviewed the Company's internal financial statements for the year
ended June 30, 2000 and the month ended July 29, 2000;
5. Reviewed certain information, including financial forecasts and
prospects of the Company furnished to us and prepared by the Company,
relating to the business, earnings, cash flow, assets and liabilities of
the Company;
6. Conducted meetings and discussions with members of senior
management of the Company concerning, among other things, the Company's
businesses, assets, liabilities, prospects, financial forecasts, prior
efforts to sell the Company or any of its divisions and environmental
compliance;
7. Compared the historical financial results and present financial
condition of the Company with those of certain other companies, the
securities of which are publicly traded, that we believe may be relevant or
comparable in certain respects to the Company;
8. Reviewed the historical market prices and trading activity for the
Company's common stock and compared such prices and trading activity with
those of certain publicly traded companies which we deemed to be relevant;
9. Compared the proposed financial terms of the Transaction with the
financial terms of certain recent acquisitions and business combination
transactions among manufacturers and distributors of electrical
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<PAGE> 81
components specifically, and in other related industries generally, that we
believe to be reasonably comparable to the Transaction or otherwise
relevant to our inquiry;
10. Reviewed the premiums paid by the purchaser in other business
combinations relative to the closing price one day prior to the
announcement, one week prior to the announcement and four weeks prior to
the announcement;
11. Have undertaken such other financial studies, analyses and
investigations and reviewed such other information as we considered
appropriate for purposes of this opinion; and
12. Reviewed Phase I environmental site assessments obtained from the
Company for each facility.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the historical financial
and other information provided to or discussed with us or publicly available and
we have not assumed any responsibility for independent verification of any of
such information. We have also assumed and relied upon the reasonableness and
accuracy of the analyses and prospective financial information provided to us
and we have assumed that such analyses and prospective financial information
were reasonably prepared in good faith and on bases reflecting the best
currently available judgments and estimates of the respective managements of the
Company and the Purchaser. We express no opinion with respect to such analyses
and prospective financial information or the assumptions on which they are
based. In addition, we have not reviewed any of the books and records of the
Company or the Purchaser or assumed any responsibility for conducting a physical
inspection of their properties or facilities or for making or obtaining an
independent valuation or appraisal of the assets or liabilities of either the
Company or the Purchaser and no such independent valuation or appraisal was
provided to us.
We have assumed that obtaining all regulatory or other approvals and third
party consents required for consummation of the Transaction have been, or will
be, accomplished and will not have an adverse impact on either the Company or
the Purchaser and we have assumed that the Transaction will be consummated
without waiver or modification of, or with respect to, any of the material terms
or conditions contained in the Agreement. We are also assuming the absence of
any known contingent or quantifiable liabilities, including environmental
liabilities. Our opinion is necessarily based on economic and market conditions
and other circumstances as they exist and can be evaluated by us as of the date
hereof. We are not expressing any opinion herein as to the prices at which any
securities of the Purchaser will actually trade at any time.
Our opinion addresses only the fairness from a financial point of view to
the Stockholders of the Consideration provided pursuant to the Agreement and we
do not express any views on any other terms of the Transaction, the underlying
business decision of the Company to effect the Transaction or any terms of any
transactions other than the Transaction. We do not express any views on whether
the Purchaser will obtain the necessary financing to complete the Transaction.
It is understood that this letter is solely for the benefit and use of the
Special Committee of the Board of Directors of the Company in its consideration
of the Transaction and may not be relied upon by any other person and may not be
quoted, referred to or reproduced at any time and in any manner without our
prior written consent. This opinion does not constitute a recommendation to any
stockholder of the Company or any other person with respect to the Transaction
or any vote with respect thereto and should not be relied upon by any such
person for such purpose.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Consideration provided pursuant to the Agreement is fair to the
Stockholders, from a financial point of view.
Sincerely,
/s/ ERNST & YOUNG LLP
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APPENDIX C
NEW YORK APPRAISAL RIGHTS STATUTE
623 -- PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES.
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who there by is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
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(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of the transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2)'as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if an
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which
the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, in
the case of merger or consolidation, the surviving or new corporation is a
foreign
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corporation without an office in this state, such proceeding shall be
brought in the county where the office of the domestic corporation, whose
shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, and dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless
the supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid
for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in such proceeding upon each
dissenting shareholder who is a resident of this state in the manner
provided by law for the service of a summons, and upon each nonresident
dissenting shareholder either by registered mail and publication, or in
such other manner as is permitted by law. The jurisdiction of the court
shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of ths section, shall be the fair value as
of the close of business on the day prior to the shareholders'
authorization date. In fixing the fair value of the shares, the court shall
consider the nature of the transaction giving rise to the shareholder's
right to receive payment for shares and its effects on the corporation and
its shareholders, the concepts and methods then customary in the relevant
securities and financial markets for determining fair value of shares of a
corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the
fair value of the shares without a jury and without referral to an
appraiser or referee. Upon application by the corporation or by any
shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law
and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so
determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of
interest, the court shall consider all relevant factors, including the rate
of interest which the corporation would have had to pay to borrow money
during the pendency of the proceeding. If the court finds that the refusal
of any shareholder to accept the corporate offer of payment for his shares
was arbitrary, vexatious or otherwise not in good faith, no interest shall
be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and
fees incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the
court finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to
the proceeding against the corporation if the court finds any of the
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer
or required advance payment was made by the corporation; (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying
with its obligations as provided in this section was arbitrary, vexatious
or otherwise not in good faith. In making any determination as provided in
clause (A), the court
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may consider the dollar amount or the percentage, or both, by which the
fair value of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented
by certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the
corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares,
which right the corporation shall be obliged to satisfy when the
restrictions of this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given
to him within twenty days after the expiration of such period of thirty
days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
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PROXY CARD
ACME ELECTRIC CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert J. McKenna and Michael A.
Simon, and each of them, as proxies, with full power of substitution, and
authorizes them, and each of them, to vote and act with respect to all
shares of common stock of Acme Electric Corporation which the undersigned
is entitled to vote at the Special Meeting of Shareholders to be held on
November 16, 2000, at the offices of Hodgson, Russ, Andrews, Woods &
Goodyear, LLP, 20th Floor, One M&T Plaza, Buffalo, New York at 10:00 a.m.
local time.
The Board of Directors, on the recommendation of a special committee
of independent directors, with one director, Robert J. McKenna,
dissenting, recommends a vote FOR the following proposal:
TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF MERGER DATED AS OF
MAY 26, 2000, AS AMENDED, BY AND BETWEEN ACME, KEY COMPONENTS, LLC
AND KCI MERGER CORP. (THE "MERGER AGREEMENT") AND THE TRANSACTIONS
CONTEMPLATED THEREBY. PURSUANT TO THE MERGER AGREEMENT, EACH SHARE
OF ACME COMMON STOCK OUTSTANDING AT THE EFFECTIVE TIME OF THE
MERGER WILL BE CONVERTED INTO THE RIGHT TO RECEIVE $9.00 IN CASH.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH
OTHER MATTERS INCIDENT TO THE CONDUCT OF THE MEETING.
THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE
THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A CHOICE IS NOT
SPECIFIED, THEY SHALL VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Date ___________________________, 2000
--------------------------------------
Signature
--------------------------------------
Signature
Name(s) should be signed exactly as
shown. Title should be added if
signing as executor, administrator,
trustee, etc.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE.
P
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