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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT UNDER SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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DETECTION SYSTEMS, INC.
(Name of Subject Company)
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DETECTION SYSTEMS, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.05 PER SHARE
(Title of Class of Securities)
250644 10 1
(CUSIP Number of Class of Securities)
FRANK J. RYAN,
VICE PRESIDENT, SECRETARY AND TREASURER
DETECTION SYSTEMS, INC.
130 PERINTON PARKWAY
FAIRPORT, NEW YORK 14450
(Name, Address and Telephone number of person authorized to Receive
notice and communications on behalf of the person(s) filing statement)
WITH A COPY TO:
Stephen M. Banker, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036-6522
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
[ ] Check the box if the filing relates solely to preliminary
communications made before
the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
NAME AND ADDRESS.
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") relates is Detection
Systems, Inc., a New York corporation (the "Company"). The address of the
principal executive offices of the Company is 130 Perinton Parkway, Fairport,
New York 14450. The telephone number of the principal executive offices of
the Company is (716) 223-4060.
SECURITIES.
The title of the class of equity securities to which this statement
relates is the common stock, par value $.05 per share (the "Shares"), of the
Company. As of December 18, 2000 there were 6,729,015 Shares outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
NAME AND ADDRESS.
The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.
TENDER OFFER.
This Schedule 14D-9 relates to the tender offer (the "Offer") by Bosch
Security Systems Corporation, a New York corporation ("Purchaser"), to
purchase all of the outstanding Shares at a price of $18.00 per Share, net to
the selling shareholders in cash (the "Offer Price"), upon the terms and
subject to the conditions set forth in the Offer to Purchase dated December
20, 2000 (the "Offer to Purchase") and the related Letter of Transmittal (the
"Letter of Transmittal"). Purchaser is a wholly owned subsidiary of Robert
Bosch GmbH, a limited liability company organized under the laws of Germany
("Bosch" or "Parent"). The Offer is described in a Tender Offer Statement on
Schedule TO, dated December 20, 2000 (the "Schedule TO"), which was filed
with the Securities and Exchange Commission (the "SEC") on December 20, 2000.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of December 10, 2000 (as such agreement may be amended and supplemented
from time to time, the "Merger Agreement"), between Parent and the Company,
to which Purchaser subsequently became a party. The Merger Agreement
provides, among other things, that no later than two days after the
satisfaction or waiver of the conditions set forth in the Merger Agreement,
in accordance with the relevant provisions of the New York Business
Corporation Law, as amended (the "NYBCL"), Purchaser will be merged with and
into the Company (the "Merger"). Following consummation of the Merger, the
Company will continue as the surviving corporation (the "Surviving
Corporation"). At the effective time of the Merger (the "Effective Time"),
each Share then outstanding (other than treasury Shares and Shares owned by
Parent, Purchaser or any subsidiary thereof and shareholders of the Company
who properly exercise their appraisal rights, if any, in accordance with the
NYBCL) will be converted into the right to receive the Offer Price, without
interest (the "Merger Consideration"). A copy of the Merger Agreement is
filed as Exhibit 1 to this Schedule 14D-9 and is incorporated herein by
reference.
Information contained in this Schedule 14D-9 or incorporated herein by
reference concerning Purchaser, Parent or their respective officers,
directors, representatives of affiliates, or actions or events with respect
to them, was provided by Purchaser or Parent and the Company takes no
responsibility for such information.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Except as described herein, or incorporated herein by reference, there are
no material contracts, agreements, arrangements or understandings or any
actual or potential conflicts of interest between the Company or its
affiliates and either (a) the Company, its executive officers, directors or
affiliates or (b) Parent, Purchaser or any of their respective executive
officers, directors or affiliates.
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1. CERTAIN ARRANGEMENTS BETWEEN THE COMPANY AND ITS EXECUTIVE OFFICERS,
DIRECTORS AND AFFILIATES.
Certain such agreements, arrangements and understandings and actual or
potential conflicts of interest are disclosed under the captions "Board of
Directors and Committees," "Management Security Ownership," "Executive
Compensation," "Compensation Committee Report on Executive Compensation,"
"Executive Agreements" and "Retirement Benefits" in the Company's definitive
proxy statement filed with the SEC on November 20, 2000 (the "Proxy
Statement"), a copy of which is filed herewith as Exhibit 5 and is
incorporated herein by reference.
2. THE MERGER AGREEMENT.
The following is a summary of the material provisions of the Merger
Agreement. The summary is qualified in its entirety by reference to the
Merger Agreement and the amendment thereto, filed herewith as Exhibits 1 and
2, respectively. Capitalized terms used in this Schedule 14D-9 and not
otherwise defined have the meanings ascribed to them in the Merger Agreement.
The Offer. The Merger Agreement provides for the making of the Offer.
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may
delay the acceptance for payment of or, subject to the restriction referred
to above, the payment for, any tendered Shares, and may amend the Offer
consistent with the terms of the Merger Agreement or terminate the Offer and
not accept for payment any tendered Shares, if (i) there shall not have been
validly tendered and not withdrawn prior to the expiration of the Offer such
number of Shares which, when added to the Shares, if any, beneficially owned
by Parent or Purchaser, would constitute at least two-thirds of the Shares
outstanding on a fully diluted basis (the "Minimum Condition"), (ii) any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), has not expired or been terminated,
or (iii) at any time on or after the date of the Merger Agreement and prior
to the expiration of the Offer, any of the following events shall occur:
(a) there shall be threatened by a governmental entity or pending any
suit, action or proceeding (i) seeking to prohibit or impose any material
limitations on Parent's or Purchaser's ownership or operation (or that of
any of their respective subsidiaries or affiliates) of all or a material
portion of their or the Company's businesses or assets, (ii) seeking to
compel Parent or Purchaser or their respective subsidiaries and affiliates
to dispose of or hold separate any material portion of the business or
assets of the Company or Parent and their respective subsidiaries, in each
case taken as a whole, (iii) challenging the acquisition by Parent or
Purchaser of any Shares pursuant to the Offer, (iv) seeking to restrain or
prohibit the making or consummation of the Offer or the Merger or the
performance of any of the other Transactions, (v) seeking to impose material
limitations on the ability of Purchaser, or rendering Purchaser unable, to
accept for payment, pay for or purchase some or all of the Shares pursuant
to the Offer and the Merger, or (vi) seeking to impose material limitations
on the ability of Purchaser or Parent effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote
the Shares purchased by it on all matters properly presented to the
Company's shareholders;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
the Offer or the Merger, or any other action shall be taken by any
governmental entity, other than the application to the Offer or the Merger
of applicable waiting periods under the HSR Act, that is reasonably likely
to result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (vi) of paragraph (a) above;
(c) there shall have occurred and be continuing (i) any general
suspension of trading in, or limitation on prices for, securities on the
Nasdaq National Market System, for a period in excess of three hours
(excluding suspensions or limitations resulting solely from physical damage
or interference with such exchanges not related to market conditions), (ii)
a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), (iii) the
commencement of a war, armed hostilities or other international or national
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calamity directly or indirectly involving the United States, (iv) any
limitation or proposed limitation (whether or not mandatory) by any United
States governmental authority or agency that has a material adverse effect
generally on the extension of credit by banks or other financial
institutions, (v) any decline in the Dow Jones Industrial Average, the
Standard & Poor's Index of 500 Industrial Companies or the Nasdaq Composite
Index by an amount in excess of 20% measured from the close of business on
the date of the Merger Agreement or (vi) in the case of any of the
situations in clauses (i) through (v) inclusive, existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof;
(d) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and accurate as of such date or with respect to such period) or
the Company shall have breached or failed to perform or comply with any
obligation, agreement or covenant required by the Merger Agreement to be
performed or complied with by it except, in each case where the failure of
such representations and warranties to be true and accurate (without giving
effect to any limitation as to "knowledge," "materiality" or "material
adverse effect" set forth therein), or the failure to perform or comply with
such obligations, agreements or covenants, do not, individually or in the
aggregate, have a Material Adverse Effect on the Company or a materially
adverse effect on the ability to consummate the Offer or the Merger;
(e) the Board (i) shall have withdrawn, or modified or changed in a
manner adverse to Parent or Purchaser (including by amendment of the
Schedule 14D-9) its recommendation of the Offer, the Merger Agreement, or
the Merger, (ii) shall have recommended a Takeover Proposal, or (iii) shall
have adopted any resolution to effect any of the foregoing;
(f) the Merger Agreement shall have been terminated in accordance with
its terms; or
(g) there shall have occurred any event or any development of a state of
facts or circumstances that constitutes a Material Adverse Change or has a
Material Adverse Effect on the Company;
which, in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent
or Purchaser) giving rise to such condition, makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payments for
Shares.
The conditions (a) through (g) set forth above are for the sole benefit of
Parent and Purchaser and may be waived by Parent or Purchaser, in whole or in
part, at any time and from time to time, in the sole discretion of Parent or
Purchaser. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
Directors. The Merger Agreement provides that Parent will be entitled to
designate such number of directors, rounded up to the next whole number, on
the Board as is equal to the product of
o the total number of directors on the Company's Board of Directors
(giving effect to the increase in the size of such Board pursuant
to the Merger Agreement), and
o the percentage that the number of Shares beneficially owned by
Purchaser (including Shares so accepted for payment) bears to the
total number of Shares then outstanding.
The Company has agreed, upon a request of the Parent, promptly either (at
the election of the Company) to increase the size of the Board or use its
best efforts to secure the resignations of such number of incumbent
directors, or both, as is necessary to enable such designees of Parent to be
so elected or appointed to the Board and, subject to Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule
14f-1 promulgated thereunder, to cause Parent's designees to be so elected or
appointed; and at such time, the Company shall also take all action necessary
to cause persons designated by Parent to constitute at least the same
percentage (rounded up to the next whole number) as is on the Board of (i)
each committee of the Board, (ii) each board of directors (or similar body)
of each subsidiary of the Company and (iii) each committee (or similar body)
of each such
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subsidiary board; provided, however, that until the Effective Time, neither
Parent nor Purchaser will take any action that would cause the Board to
include fewer than two members of any of the following (the "Continuing
Directors") (i) any member of the Board as of December 10, 2000; (ii) Jerald
D. Bidlak, from and after his election to the Board; or (iii) any successor
of any Continuing Director who is (A) unaffiliated with, and not a designee
or nominee of, Parent or Purchaser, and (B) recommended to succeed a
Continuing Director by a majority of the Continuing Directors then on the
Board.
Following the election of Parent's designees to the Board (a) any
amendment or modification of the Merger Agreement by the Company, (b) any
amendment to the Company's Certificate of Incorporation or Bylaws
inconsistent with the Merger Agreement, (c) any termination of the Merger
Agreement by the Company, (d) any extension or waiver by the Company of the
time for the performance of any of the obligations of Parent or the Purchaser
under the Merger Agreement or (e) any waiver of any of the Company's rights
under the Merger Agreement, may be effected only by the action of a majority
of such Continuing Directors.
The Merger. The Merger Agreement provides that no later than two business
days after the satisfaction or waiver of each of the conditions to the Merger
set forth in the Merger Agreement, the Purchaser will be merged with and into
the Company. Following the Merger, the separate existence of the Purchaser
will cease, and the Company will continue as the Surviving Corporation,
wholly owned by Parent.
If required by the NYBCL, the Company will call and hold a meeting of its
shareholders following consummation of the Offer for the purpose of voting
upon the approval of the Merger Agreement. At any such meeting all Shares
then owned by Parent or the Purchaser or any other subsidiary of Parent will
be voted in favor of approval of the Merger Agreement. Under the NYBCL,
Parent may cause Purchaser to merge with and into the Company without a vote
of the Company's remaining shareholders if the Purchaser owns at least 90% of
the outstanding Shares. Consequently, if the number of Shares in the Offer,
together with the number of Shares owned by Parent and the Purchaser,
constitutes 90% or more of the outstanding Shares, on a fully diluted basis,
Parent intends to immediately effect the Merger. Pursuant to the Merger
Agreement, each Share outstanding at the Effective Time (other than Shares
owned by Parent or any of its subsidiaries or by the Company or any of its
subsidiaries, all of which will be cancelled, and shareholders who properly
exercise their appraisal rights, if any, in accordance with the NYBCL -- See
Item 8 hereof) will be converted into the right to receive the Merger
Consideration.
Conditions to the Merger. The Merger Agreement provides that the
obligations of Parent, Purchaser and the Company to effect the Merger are
subject to the satisfaction on or prior to the Effective Time of each of the
following conditions any and all of which may be waived in whole or in part
by the Company, Parent or Purchaser as the case may be, to the extent
permitted by applicable law:
(a) the Merger Agreement shall have been approved and adopted by the
requisite vote of the holders of Shares, if required by applicable law and
the Company's Certificate of Incorporation;
(b) any waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated, and no statute,
rule, regulation, order, decree or injunction shall have been enacted,
promulgated or issued by any governmental entity precluding, restraining,
enjoining or prohibiting consummation of the Merger; and
(c) Parent, Purchaser or their affiliates shall have purchased Shares
pursuant to the Offer.
Representations and Warranties. Pursuant to the Merger Agreement, the
Company has made customary representations and warranties to Parent and the
Purchaser, including but not limited to representations relating to corporate
existence and power; capital structure; corporate authorizations;
subsidiaries; SEC filings; financial statements; absence of certain changes
(including any material adverse effect on the business, results of
operations, or financial condition of the Company); employee benefit plans;
ERISA; government authorizations; litigation; compliance with laws; labor
matters; environmental matters; taxes; intellectual property; accuracy of
certain disclosures to be made in connection with preparation of the Offer
documents; the opinion of the Company's financial advisor; and brokers.
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Certain representations and warranties in the Merger Agreement made by the
Company and Parent are qualified as to "materiality" or "Material Adverse
Effect." For purposes of the Merger Agreement and this Schedule 14D-9, the
term "Material Adverse Effect" generally means any change or effect (or any
development that, in so far as can be reasonably foreseen, is likely to
result in any change or effect) that is materially adverse to the business,
properties, assets, prospects, financial condition or results of operations
of such party and its subsidiaries taken as a whole.
Pursuant to the Merger Agreement, Parent and the Purchaser have made
customary representations and warranties to the Company, including
representations relating to their corporate existence and power; good
standing; corporate authority; corporate authorizations; the accuracy of
certain disclosures to be made in connection with preparation of the Offer
documents; their ability to finance the Offer and the Merger; and brokers.
Covenants. The Merger Agreement contains various covenants of the parties
thereto. A description of certain of these covenants follows.
The Merger Agreement provides that, prior to the time the designees of
Parent have been elected or appointed to, and shall constitute a majority of,
the Board, or the Merger Agreement is terminated, the Company:
o will, and will cause each of its subsidiaries to, (A) carry on
their respective businesses in the ordinary course; (B) confer at
such times as Parent may reasonably request with one or more
representatives of Parent to report material operational matters
and the general status of ongoing operations;
o will not, and will not permit any of its subsidiaries to,
directly or indirectly, amend its certificate of incorporation or
by-laws or similar organizational documents;
o will not, and will not permit any of its subsidiaries to, (A)(i)
declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to the Company's
capital stock or that of its subsidiaries, except that a
wholly-owned subsidiary of the Company may declare and pay a
dividend or make advances to its parent or the Company or (ii)
redeem, purchase or otherwise acquire directly or indirectly any
of the Company's capital stock or that of its subsidiaries; (B)
issue, sell, pledge, dispose of or encumber any additional shares
of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to
acquire, any shares of capital stock of any class of the Company
or its subsidiaries, other than Shares issued upon the exercise
of options outstanding on the date of the Merger Agreement in
accordance with the option plans as in effect on the date of the
Merger Agreement; or (C) split, combine or reclassify the
outstanding capital stock of the Company or of any of the
subsidiaries of the Company;
o will not, and will not permit it subsidiaries to, except as
permitted by the Merger Agreement, acquire or agree to acquire
(A) 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
(including entities which are subsidiaries of the Company or any
of the Company's subsidiaries) or (B) any assets, including real
estate, except purchases in the ordinary course of business
consistent with past practice;
o will not, and will not permit its subsidiaries to, except in the
ordinary course of business and except as otherwise permitted by
the Merger Agreement, amend or terminate any material contract
where such amendment or termination would have a Material Adverse
Effect on the Company, or waive, release or assign any material
rights or claims;
o will not, and will not permit its subsidiaries to, transfer,
lease, license, sell, mortgage, pledge, dispose of or encumber
any property or assets other than in the ordinary course of
business and consistent with past practice;
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o will not, and will not permit its subsidiaries to, (A) enter into
any employment or severance agreement with or grant any severance
or termination pay to any officer, director or key employee of
the Company or any of its subsidiaries; or (B) hire or agree to
hire any new or additional executives or senior officers;
o will not, and will not permit its subsidiaries to, except in the
ordinary course of business and except as required to comply with
applicable law or contracts disclosed in the documents filed by
the Company with the SEC since April 1, 1999 or otherwise
disclosed to Parent or expressly provided in the Merger
Agreement, (A) adopt, enter into, terminate, amend or increase
the amount or accelerate the payment or vesting of any benefit or
award or amount payable under any benefit plan or other
arrangement for the current or future benefit or welfare of any
director, officer or current or former employee, except to the
extent necessary to coordinate any such benefit plans with the
terms of the Merger Agreement, (B) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee, (C) pay any benefit not provided
for under any benefit plan, (D) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement
or benefit plan (including the grant of stock options, stock
appreciation rights, stock based or stock related awards,
performance units or restricted stock, or the removal of existing
restrictions in any Benefit Plans or agreements or awards made
thereunder);
o will not, and will not permit any of its subsidiaries to, (A)
incur or assume any long-term debt, or except in the ordinary
course of business, incur or assume any short-term indebtedness
in amounts not consistent with past practice; (B) materially
increase its bank debt; (C) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other
person, except in the ordinary course of business and consistent
with past practice; (D) make any loans, advances or capital
contributions to, or investments in, any other person (other than
to wholly owned subsidiaries of the Company or customary loans or
advances to employees in the ordinary course of business and
consistent with past practice); or (E) enter into any material
commitment or transaction except in the ordinary course of
business consistent with past practice;
o will not, and will not permit any of its subsidiaries to, change
any of the accounting methods used by it unless required by
generally accepted accounting principles;
o will not, and will not permit its subsidiaries to, pay, discharge
or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction of any such claims,
liabilities or obligations, in the ordinary course of business
and consistent with past practice, of claims, liabilities or
obligations reflected or reserved against in, or contemplated by,
the consolidated financial statements (or the notes thereto) of
the Company and its consolidated subsidiaries; or, except in the
ordinary course of business consistent with past practice, waive
the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party;
o will not, and will not permit its subsidiaries to, enter into an
agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing; and
o will not, and will not permit its subsidiaries to, take any
action that would result in (i) any of its representations and
warranties set forth in the Merger Agreement that are qualified
as to materiality to become untrue, (ii) any of such
representations and warranties that are not so qualified becoming
untrue in any material respect or (iii) any of the conditions to
the Offer not being satisfied (subject to the Company's right to
take action specifically permitted under the terms of the Merger
Agreement).
Access; Confidentiality. The Merger Agreement provides that, prior to the
time the designees of Parent have been elected or appointed to, and shall
constitute a majority of, the Board, or the Merger Agreement is terminated,
the Company:
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o shall, and shall cause each of its subsidiaries to, afford to the
representatives of Parent reasonable access on reasonable prior
notice during normal business hours, throughout the period prior
to the earlier of the effective time of the Merger (the
"Effective Time") or the termination of the Merger Agreement, to
all of its properties, offices, employees, contracts,
commitments, books and records (including but not limited to tax
returns) and any report, schedule or other document filed or
received by it pursuant to the requirements of federal or state
securities laws.
o shall, and shall cause each of its subsidiaries to, furnish
promptly to Parent such additional financial and operating data
and other information as to its and its subsidiaries' respective
businesses and properties as Parent may from time to time
reasonably request. Parent and Purchaser will make all reasonable
efforts to minimize any disruption to the businesses of the
Company and its subsidiaries which may result from the requests
for data and information hereunder and pursuant to the terms of
the Merger Agreement.
The Merger Agreement further provides that Parent, the Purchaser and the
Company will be bound by the terms of a letter agreement, dated November 11,
2000, between Parent and the Company.
Further Action; Reasonable Best Efforts. The Merger Agreement provides
that:
(1) Upon the terms and subject to the conditions provided in the Merger
Agreement, each of Parent, Purchaser and the Company agrees to use its
reasonable best efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary under applicable laws and
regulations to consummate and make effective in the most expeditious
manner practicable, the Offer and the other transactions, including, (A)
the preparation and filing with the SEC of the offer documents, this
Schedule 14D-9, the information required to be distributed to the
shareholders of the Company pursuant to Section 14(f) of the Exchange Act
and Rule 14f-1 promulgated thereunder as is necessary so as to enable
Parent's designees to be elected to the Board pursuant to the terms of the
Merger Agreement, the preliminary proxy statement and the proxy statement
and all necessary amendments or supplements thereto; (B) the obtaining of
all necessary actions or nonactions, waivers, consents and approvals from
any governmental entity and the making of all necessary registrations and
filings (including filings with any governmental entity, if any) and the
taking of all reasonable steps as may be necessary to obtain an approval
or waiver from, or to avoid an action or proceeding by, any governmental
entity; (C) the obtaining of all necessary consents, approvals or waivers
from third parties; (D) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging the Merger
Agreement or the consummation of any of the transactions contemplated by
the Merger Agreement (the "Transactions"), including seeking to have any
stay or temporary restraining order entered by any court or other
governmental entity vacated or reversed; and (E) the execution and
delivery of any additional instruments necessary to consummate the
Transactions and to fully carry out the purposes of the Merger Agreement.
(2) Each of the Company, Parent and Purchaser shall give prompt notice to
the other of (i) any of their representations or warranties contained in
the Merger Agreement becoming untrue or inaccurate in any respect
(including receiving knowledge of any fact, event or circumstance which
may cause any representation qualified as to knowledge to be or become
untrue or inaccurate in any respect) or (ii) the failure by them to comply
with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by them under the 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 the Merger Agreement.
Employee Benefits; Current Obligations. The Merger Agreement provides that
the Parent will, or will cause the Surviving Corporation to, give all persons
who are employed by the Company immediately prior to the Effective Time full
credit for purposes of eligibility and vesting, under any tax-qualified
employee benefit plans or arrangements maintained by Parent or the Surviving
Corporation for such employees' service with Parent or the Surviving
Corporation to the same extent recognized by the Company immediately prior to
the Effective Time. For a period of one year immediately following the
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Effective Time, Parent has agreed that the coverage and benefits provided to
the Company's employees pursuant to employee benefit plans or arrangements
maintained by Parent or Surviving Corporation and generally applicable to a
group or groups of employees (including certain bonus arrangements, after
which Parent will consider appropriate bonus arrangements going forward)
shall be, in the aggregate, not less favorable than those provided to such
employees immediately prior to the Effective Time. Pursuant to the Merger
Agreement, Parent also agreed to cause the Company to honor certain
employment agreements with officers of the Company and its subsidiaries.
Stock Options. The Merger Agreement provides that at or immediately prior
to the Effective Time, each then outstanding option and warrant to purchase
any shares of capital stock of the Company (in each case, an "Option") shall
be cancelled by the Company. In consideration of such cancellation of Options
with an exercise price of less than the Offer Price, the Company (or, at
Parent's option, the Purchaser) shall pay to such holders of Options an
amount in respect thereof equal to the product of (A) the excess, if any, of
the Offer Price over the exercise price of each such Option and (B) the
number of Shares previously subject to the Option immediately prior to its
cancellation (such payment to be net of withholding taxes and without
interest) In connection with such cancellation, the Company shall use its
best efforts to obtain such consents from holders of Company Options as are
required pursuant to the plans (the "Option Plans"). The Company shall take
all other actions necessary and appropriate so that all stock option, other
equity based plans or deferred compensation plans maintained with respect to
the Shares, including, without limitation, the Option Plans, shall terminate
as of the Effective Time (except for the payments to be made out of the cash
assets remaining in the deferred compensation plans (including interest
thereon) to be paid to the participants, at the option of the Company, either
(i) in a lump sum upon termination of the plans or (ii) one-third in each of
January 2002, January 2003 and January 2004) and the provisions in any other
benefit plan providing for the issuance, transfer or grant of any capital
stock of the Company or any interest in respect of any capital stock of the
Company shall be deleted as of the Effective Time, and the Company shall use
its best efforts to ensure that following the Effective Time no holder of an
Option or any participant in any Option Plan or other benefit plan shall have
any right thereunder to acquire any capital stock of the Company, Parent,
Purchaser or the Surviving Corporation.
Notification of Certain Matters. The Merger Agreement provides that each
of the Company, Parent and Purchaser shall give prompt notice to the other of
(i) any of their representations or warranties contained in the Merger
Agreement becoming untrue or inaccurate in any respect (including receiving
knowledge of any fact, event or circumstance which may cause any
representation qualified as to knowledge to be or become untrue or inaccurate
in any respect) or (ii) the failure by them to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by them under the 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 the Merger Agreement.
No Solicitation. The Merger Agreement provides that the Company shall not,
nor shall it permit any of its subsidiaries to, nor shall it authorize (and
shall use its best efforts not to permit) any officer, director or employee
of, or any investment banker, attorney or other advisor or representative of,
the Company or any of its subsidiaries to, (i) solicit or initiate, or
encourage, directly or indirectly, any inquiries or the submission of, any
Takeover Proposal (as defined below), (ii) participate in any discussions or
negotiations regarding, or furnish to any Person any information or data with
respect to or access to the properties of, or take any other action to
knowingly facilitate the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal or (iii) enter into
any agreement with respect to any Takeover Proposal or approve or resolve to
approve any Takeover Proposal; provided, that nothing contained in the Merger
Agreement prohibits the Company or the Board from (i) taking and disclosing
to the Company's shareholders a position with respect to a tender or exchange
offer by a third party pursuant to Rules 14d-9 and 14e-2 under the Exchange
Act, or (ii) making such disclosure to the Company's shareholders as, in the
good faith judgment of the Board, after receiving advice from outside legal
counsel, is required under applicable law, provided that the Company may not,
except as permitted under the Merger Agreement, withdraw or modify, or
propose to withdraw or modify,
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its position with respect to the Offer or the Merger or approve or recommend,
or propose to approve or recommend any Takeover Proposal, or enter into any
agreement with respect to any Takeover Proposal. Upon execution of the Merger
Agreement, the Company was required to immediately cease any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Notwithstanding the foregoing, prior to
the time of acceptance of Shares for payment pursuant to the Offer, the
Company may furnish information concerning its business, properties or assets
to any person or group and may negotiate and participate in discussions and
negotiations with such person or group concerning a Takeover Proposal (as
defined below) if:
(x) such person or group has submitted a Superior Proposal (as defined
below); and
(y) the Board determines in good faith based on advice of outside legal
counsel that such action is necessary for the Board to comply with its
fiduciary duty under applicable law.
The Company is then required to promptly (but in no case later than 24 hours)
notify Parent of the existence of any proposal, discussion, negotiation or
inquiry received by the Company regarding any Takeover Proposal, and the
Company must immediately communicate to Parent the terms of any proposal,
discussion, negotiation or inquiry which it may receive regarding any
Takeover Proposal and the identity of the party making such proposal or
inquiry or engaging in such discussion or negotiation, and must provide
Parent with a copy of such proposal or inquiry, if available. The Company
must promptly provide to Parent any non-public information concerning the
Company provided to any other Person in connection with any Takeover Proposal
which was not previously provided to Parent. The Company must keep Parent
informed of the status and details of any such Takeover Proposal and of any
amendments or proposed amendments to any Takeover Proposal and must promptly
(but in no case later than 24 hours) notify Parent of any determination by
the Board that a Superior Proposal has been made.
Except as set forth in the Merger Agreement, neither the Board nor any
committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Purchaser, the approval or
recommendation by the Board or any such committee of the Offer, the Merger
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, subject to
compliance with the provisions of the Merger Agreement, if, prior to the time
of acceptance for payment of Shares pursuant to the Offer, the Board
determines in good faith, based upon the advice of outside legal counsel,
that its failure to do so would constitute a breach of its fiduciary duties
under applicable Law, the Board may withdraw or modify its approval or
recommendation of the Offer, the Merger Agreement or the Merger, approve or
recommend a Superior Proposal, or enter into an agreement with respect to a
Superior Proposal, in each case at any time after the fifth business day
following Parent's receipt of written notice (including by facsimile) from
the Company advising Parent that the Board has received a Superior Proposal
which it intends to accept, specifying the material terms and conditions of
such Superior Proposal and identifying the person making such Superior
Proposal, but only if Parent has not, within such five business days, made
such adjustments to the terms and conditions of the Merger Agreement as would
cause the Superior Proposal to no longer qualify as such. The Company shall
promptly deliver to Parent a copy of the minutes of any meeting of its Board
of Directors at which it determines that a Takeover Proposal is a Superior
Proposal.
"Takeover Proposal," as defined in the Merger Agreement, means any bona
fide proposal or offer, whether in writing or otherwise, from any Person
other than Parent, Purchaser or any affiliates thereof (a "Third Party") to
acquire beneficial ownership (as determined pursuant to Rule 13d-3 under the
Exchange Act) of all or a material portion of the assets of the Company or
any of its subsidiaries or 20% or more of any class of equity securities of
the Company or any of its subsidiaries pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock, sale of assets,
tender offer, exchange offer or similar transaction with respect to either
the Company or any of its subsidiaries, including any single or multi-step
transaction or series of related transactions, which is structured to permit
such Third Party to acquire beneficial ownership of any material portion of
the assets of or 20% or more of the equity interest in either the Company or
any of its subsidiaries.
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"Superior Proposal," as defined in the Merger Agreement, means an
unsolicited bona fide written proposal by a Third Party to acquire, directly
or indirectly, for consideration consisting of cash and/or securities, more
than a majority of the Shares then outstanding or all or substantially all of
the assets of the Company or to acquire, directly or indirectly, the Company
by merger or consolidation, and otherwise on terms which the Board determines
in good faith to be more favorable to the Company's shareholders (taking into
account the time period reasonably believed necessary to consummate such
transaction) than the Offer and the Merger (after receipt of opinion of a
nationally recognized independent financial advisor that the value of the
consideration provided for in such proposal is superior to the value of the
consideration provided for in the Offer and the Merger, and after taking into
account all legal, financial and regulatory aspects of such proposal, the
identity of the Third Party making such proposal, and the benefits to be
derived by the Company from the Transactions), for which financing, to the
extent required, is then committed and which, in the good faith reasonable
judgment of the Board, be consummated.
Directors' and Officers' Insurance and Indemnification. The Merger
Agreement provides that the Company shall, to the fullest extent permitted
under applicable New York Law, the terms of the Company's Certificate of
Incorporation or By-Laws and regardless of whether the Merger becomes
effective, indemnify and hold harmless, and, after the Effective Time, the
Surviving Corporation shall, to the fullest extent permitted under applicable
New York Law, the terms of the Surviving Corporation's certificate of
incorporation or by-laws, indemnify and hold harmless, each present and
former director or officer of the Company and each other person to whom
indemnification is provided under the Company's By-Laws as in effect on the
date of the Merger Agreement (collectively, the "Indemnified Parties")
against any costs or expenses (including reasonable attorneys' fees),
judgments, losses, claims, damages and liabilities incurred in connection
with, and amounts paid in settlement of, any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative
and wherever asserted, brought or filed, (x) arising out of or pertaining to
the Transactions or (y) otherwise with respect to any acts or omissions or
alleged acts or omissions occurring at or prior to the Effective Time, in
each case for a period of six years after the date of the Merger Agreement;
provided, further, that the Surviving Corporation may not amend the terms of
its certificate of incorporation or by-laws to be less favorable with respect
to such indemnification than the Company's Certificate of Incorporation or
By-Laws on the date of the Merger Agreement. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after
the Effective Time), (i) any counsel retained by the Indemnified Parties for
any period after the Effective Time must be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, the Surviving
Corporation shall pay the reasonable fees and expenses of such counsel,
promptly after statements therefor are received, and (iii) the Surviving
Corporation will cooperate in the defense of any such matter; provided,
however, that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed); and provided, further, that, in the event
that any claim or claims for indemnification are asserted or made within such
six year period, all rights to indemnification in respect of any such claim
or claims shall continue until the disposition of any and all such claims.
The Indemnified Parties as a group may retain only one law firm to represent
them with respect to any single action unless there is, under applicable
standards of professional conduct, a conflict on any significant issue
between the positions of any two or more Indemnified Parties. The indemnity
agreements of the Surviving Corporation in the Merger Agreement extend, on
the same terms to, and shall inure to the benefit of and shall be enforceable
by, each Person or entity who controls, or in the past controlled, any
present or former director, officer or employee of the Company or any of its
subsidiaries.
For a period of three years after the Effective Time, Parent must cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those Persons who are currently
covered by the Company's directors' and officers' liability insurance policy
(a copy of which has been made available to Parent) on terms (including the
amounts of coverage and the amounts of deductibles, if any) that are no less
favorable to the terms now applicable to them under the Company's current
policies; provided, however, that in no event shall Parent or the Surviving
Corporation be required to expend in excess of 125% of the annual premium
currently paid by the Company for such coverage; and provided further, that,
if the premium for such coverage exceeds such amount, Parent or the Surviving
Corporation shall purchase a policy with the greatest coverage available for
such 125% of the annual premium.
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Parent Undertaking. The Merger Agreement provides that Parent shall be
responsible for and shall cause the Purchaser to perform all of its
obligations under the Merger Agreement in a timely manner.
Takeover Statute. The Merger Agreement provides that in no event shall the
Company's approval of the Merger Agreement, the Offer, the acquisition of the
Shares pursuant to the Offer and the Merger for purposes of Section 912 of
the NYBCL be withdrawn, revoked or modified by the Board. If any state
takeover statute other than Section 912 of the NYBCL becomes or is deemed to
become applicable to the Offer, the acquisition of Shares pursuant to the
Offer or the Merger, the Company shall take all action necessary to render
such statute inapplicable to all of the foregoing.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time:
(a) By the mutual written consent of Parent and the Company; provided,
however, that if Parent shall have a majority of the directors pursuant to
the terms of the Merger Agreement, such consent of the Company may only be
given if approved by the Continuing Directors.
(b) By either of Parent or the Company if (i) a statute, rule or
executive order shall have been enacted, entered or promulgated prohibiting
the Transactions on the terms contemplated by the Merger Agreement or (ii)
any Governmental Entity shall have issued an order, decree or ruling or
taken any other action (which order, decree, ruling or other action the
parties hereto shall use their reasonable efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the Transactions
and such order, decree, ruling or other action shall have become final and
non-appealable.
(c) By either of Parent or the Company if the Effective Time shall not
have occurred on or before June 30, 2001; provided, that the party seeking
to terminate the Merger Agreement for such reason, such party shall not have
breached in any material respect its obligations under the Merger Agreement
in any manner that shall have proximately contributed to the failure to
consummate the Merger on or before such date.
(d) By the Company:
(i) if the Company has entered into an agreement with respect to a
Superior Proposal in accordance with the terms of the Merger Agreement,
provided the Company has complied with all provisions thereof, including
the notice provisions therein, and that it simultaneously terminates the
Merger Agreement and makes simultaneous payment to the Parent of its
expenses and the Termination Fee (as defined below);
(ii) if Parent or Purchaser shall have terminated the Offer or the
Offer expires without Parent or Purchaser, as the case may be,
purchasing any Shares pursuant thereto; provided that the Company may
not terminate the Merger Agreement pursuant to this provision of the
Merger Agreement if the Company is in material breach of the Merger
Agreement;
(iii) if Parent, Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to ten business days following
the date of the initial public announcement of the Offer; provided that
the Company may not terminate the Merger Agreement pursuant to this
provision of the Merger Agreement if the Company is in material breach
of the Merger Agreement; or
(iv) if there shall be a material breach by Parent or Purchaser of
any of their representations, warranties, covenants or agreements
contained in the Merger Agreement.
(e) By Parent or Purchaser:
(i) (A) if prior to the purchase of the Shares pursuant to the
Offer, the Board shall have withdrawn, or modified or changed in a
manner adverse to Parent or Purchaser, its approval or recommendation of
the Offer, the Merger Agreement or the Merger or shall have recommended
or approved a Takeover Proposal;
(B) there shall have been a material breach of any provision of
the non-solicitation provisions of the Merger Agreement;
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(ii) if Parent or Purchaser shall have terminated the Offer without
Parent or Purchaser purchasing any Shares thereunder, provided that
Parent or Purchaser may not terminate the Merger Agreement pursuant to
this provision if Parent or Purchaser is in material breach of the
Merger Agreement;
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of
the conditions set forth in Annex A hereto, Parent, Purchaser or any of
their affiliates shall have failed to commence the Offer on or prior to
ten business days following the date of the initial public announcement
of the Offer; or
(iv) if there shall be a material breach by the Company of any of
its representations, warranties, covenants or agreements contained in
the Merger Agreement.
Fees and Expenses. The Merger Agreement provides that, except as otherwise
specified below, all costs and expenses incurred in connection with the
Merger Agreement and the consummation of the Transactions shall be paid by
the party incurring such expenses, whether or not the Offer or the Merger is
consummated.
(a) If Parent or Purchaser terminates the Merger Agreement because the
Company has withdrawn, or modified or changed in a manner adverse to Parent
or Purchaser, its approval or recommendation of the Offer, the Merger
Agreement or the Merger or shall have recommended or approved a Takeover
Proposal, or the Company terminates the Merger Agreement because it has
entered into an agreement with respect to a Superior Proposal, then in each
case, the Company shall pay, or cause to be paid to Parent, at the time of
termination, an amount equal to $3,000,000 (the "Termination Fee").
(b) If the Termination Fee becomes payable or Parent or Purchaser
terminates the Merger Agreement due to a material breach by the Company of
any of its representations, warranties, covenants or agreements contained in
the Merger Agreement, then in each case, the Company shall pay, or cause to
be paid to Parent, at the time of termination an amount equal to Parent's
and Purchaser's actual and reasonably documented out-of-pocket expenses
incurred by Parent or Purchaser in connection with the Offer, the Merger,
the Merger Agreement and the consummation of the Transactions, including,
without limitation, the fees and expenses payable to all banks, investment
banking firms and other financial institutions and Persons and their
respective agents and counsel incurred in connection with acting as Parent's
or Purchaser's financial advisor with respect to, or arranging or committing
to provide or providing any financing for, the Transactions up to
$1,000,000.
Parent shall be solely responsible for any and all filing fees that are
payable in connection with or on account of any filing by Parent or any other
party concerning the transactions contemplated by the Merger Agreement under
or pursuant to the HSR Act.
Amendment and Waiver. The Merger Agreement provides that subject to
applicable law, the Merger Agreement may be amended, modified and
supplemented in any and all respects, whether before or after any vote of the
shareholders of the Company contemplated thereby, by written agreement of the
parties thereto, at any time prior to the effective date of the Merger with
respect to any of the terms contained therein; provided, however, that after
the approval of the Merger Agreement by the shareholders of the Company, no
such amendment, modification or supplement shall reduce the amount or change
the form of the Merger Consideration or otherwise adversely affect the rights
of shareholders.
3. STOCK OPTION AGREEMENT.
In connection with the Merger Agreement, Parent and the Company have
entered into a Stock Option Agreement, dated as of December 10, 2000 (the
"Stock Option Agreement"). Parent subsequently assigned all its rights in the
Stock Option Agreement to Purchaser. The following summary of certain
provisions of the Stock Option Agreement is qualified in its entirety by
reference to the complete
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text of the Stock Option Agreement, a copy of the form of which is filed as
Exhibit 3 hereto and is incorporated by reference in this Schedule 14D-9.
Capitalized terms used in the following summary and not otherwise defined
below shall have the meanings set forth in the Stock Option Agreement.
Under the Stock Option Agreement, the Company has granted Parent an
irrevocable option (the "Company Option") to purchase from the Company up to
1,138,596 newly issued Shares (the "Option Shares"), at an exercise price of
$18.00 per Share in cash. Parent has assigned its rights under the Stock
Option Agreement to the Purchaser.
The Company Option is not presently exercisable and will not become
exercisable until January 2, 2001. The Company Option may be exercised by the
Purchaser, in whole or in part.
The Company has made certain representations and warranties in the Stock
Option Agreement, including with respect to (i) its authority to enter into
and perform its obligations under such Stock Option Agreement and the absence
of required consents and statutory or contractual conflicts or violations,
and (ii) the absence of liens or any other encumbrances on or in respect of
the Option Shares.
The Stock Option Agreement provides that the Company Option will
terminate, without any action by Parent or the Company, in certain
circumstances where: (a) Purchaser fails to commence the Offer within 10
business days after the date thereof, except if the Board (i) shall have
withdrawn, or modified or changed in a manner adverse to Parent or Purchaser
(including by amendment of this Schedule 14D-9) its recommendation of the
Offer, the Merger Agreement, or the Merger, (ii) shall have recommended a
Takeover Proposal, or (iii) shall have adopted any resolution to effect any
of the foregoing; (b) Purchaser fails to purchase Shares pursuant to the
Offer, because (i) there shall be threatened by a governmental entity or
pending any suit, action or proceeding (A) seeking to prohibit or impose any
material limitations on Parent's or Purchaser's ownership or operation (or
that of any of their respective subsidiaries or affiliates) of all or a
material portion of their or the Company's businesses or assets, (B) seeking
to compel Parent or Purchaser or their respective subsidiaries and affiliates
to dispose of or hold separate any material portion of the business or assets
of the Company or Parent and their respective subsidiaries, in each case
taken as a whole, (C) challenging the acquisition by Parent or Purchaser of
any Shares pursuant to the Offer, (D) seeking to restrain or prohibit the
making or consummation of the Offer or the Merger or the performance of any
of the other Transactions, (E) seeking to impose material limitations on the
ability of Purchaser, or rendering Purchaser unable, to accept for payment,
pay for or purchase some or all of the Shares pursuant to the Offer and the
Merger, or (F) seeking to impose material limitations on the ability of
Purchaser or Parent effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote the Shares purchased
by it on all matters properly presented to the Company's shareholders; (ii)
there shall be any statute, rule, regulation, judgment, order or injunction
enacted, entered, enforced, promulgated or deemed applicable to the Offer or
the Merger, or any other action shall be taken by any governmental entity,
other than the application to the Offer or the Merger of applicable waiting
periods under the HSR Act, that is reasonably likely to result, directly or
indirectly, in any of the consequences referred to in clauses (A) through (F)
of paragraph (i) above; (iii) there shall have occurred and be continuing (A)
any general suspension of trading in, or limitation on prices for, securities
on the Nasdaq National Market System, for a period in excess of three hours
(excluding suspensions or limitations resulting solely from physical damage
or interference with such exchanges not related to market conditions), (B) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States (whether or not mandatory), (C) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (D) any
limitation or proposed limitation (whether or not mandatory) by any United
States governmental authority or agency that has a material adverse effect
generally on the extension of credit by banks or other financial
institutions, (E) any decline in the Dow Jones Industrial Average, the
Standard & Poor's Index of 500 Industrial Companies or the Nasdaq Composite
Index by an amount in excess of 20% measured from the close of business on
the date of the Merger Agreement or (F) in the case of any of the situations
in clauses (A) through (E) inclusive, existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof; (iv)
the representations and warranties of the Company set forth in the Merger
Agreement shall not be true and accurate as of the date of consummation of
the Offer as though made on or as of such date (except for those
representations and
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warranties that address matters only as of a particular date or only with
respect to a specific period of time which need only be true and accurate as
of such date or with respect to such period) or the Company shall have
breached or failed to perform or comply with any obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with by
it except, in each case where the failure of such representations and
warranties to be true and accurate (without giving effect to any limitation
as to "knowledge," "materiality" or "material adverse effect" set forth
therein), or the failure to perform or comply with such obligations,
agreements or covenants, which do not, individually or in the aggregate, have
a Material Adverse Effect on the Company or a materially adverse effect on
the ability to consummate the Offer or the Merger; or (v) there shall have
occurred any event or any development of a state of facts or circumstances
that constitutes a Material Adverse Change or has a Material Adverse Effect
on the Company; (c) Parent or the Company terminates the Merger Agreement (i)
with the mutual written consent of the other party; provided, however, that
if Parent shall have a majority of the directors pursuant to the terms of the
Merger Agreement, such consent of the Company may only be given if approved
by the Continuing Directors; (ii) if (1) a statute, rule or executive order
shall have been enacted, entered or promulgated prohibiting the Transactions
on the terms contemplated by the Merger Agreement or (2) any governmental
entity shall have issued an order, decree or ruling or taken any other action
(which order, decree, ruling or other action the parties hereto shall use
their reasonable efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the Transactions and such order, decree,
ruling or other action shall have become final and non-appealable; or (iii)
if the Effective Time shall not have occurred on or before June 30, 2001;
provided, that the party seeking to terminate the Merger Agreement for such
reason, such party shall not have breached in any material respect its
obligations under the Merger Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger on or before
such date; (d) Parent terminates the Merger Agreement (i) if Parent or
Purchaser shall have terminated the Offer without Parent or Purchaser
purchasing any Shares thereunder, provided that Parent or Purchaser may not
terminate the Merger Agreement pursuant to this provision if Parent or
Purchaser is in material breach of the Merger Agreement; (ii) if, due to an
occurrence that if occurring after the commencement of the Offer would result
in a failure to satisfy any of the conditions set forth under "Merger
Agreement -- Offer Conditions" in part 2 of this Item 3, Parent, Purchaser or
any of their affiliates shall have failed to commence the Offer on or prior
to ten business days following the date of the initial public announcement of
the Offer; or (iii) if there shall be a material breach by the Company of any
of its representations, warranties, covenants or agreements contained in the
Merger Agreement; (e) the Company terminates the Merger Agreement (i) if
Parent or Purchaser shall have terminated the Offer or the Offer expires
without Parent or Purchaser, as the case may be, purchasing any Shares
pursuant thereto; provided that the Company may not terminate the Merger
Agreement pursuant to this provision of the Merger Agreement if the Company
is in material breach of the Merger Agreement; (ii) if Parent, Purchaser or
any of their affiliates shall have failed to commence the Offer on or prior
to ten business days following the date of the initial public announcement of
the Offer; provided that the Company may not terminate the Merger Agreement
pursuant to this provision of the Merger Agreement if the Company is in
material breach of the Merger Agreement; or (iii) if there shall be a
material breach by Parent or Purchaser of any of their representations,
warranties, covenants or agreements contained in the Merger Agreement, in,
the cases of (i) and (ii) only if the failure of Purchaser to commence the
Offer or purchase Shares is not due to the failure of the condition set forth
in paragraph (a) hereto.
4. VOTING AND OPTION AGREEMENT.
In connection with the Merger Agreement, Karl H. Kostusiak, Chairman and
Chief Executive Officer of the Company, and David B. Lederer, Executive Vice
President of the Company (collectively, the "Agreement Shareholders") have
entered into a Voting and Option Agreement, dated as of December 10, 2000,
with Parent (the "Voting and Option Agreement"). Parent has assigned its
rights under the Voting and Option Agreement to the Purchaser.
The following summary of certain provisions of the Voting and Option
Agreement is qualified in its entirety by reference to the complete text of
the Voting and Option Agreement, which is filed herewith as Exhibit 4 and is
incorporated by reference herein. Capitalized terms used in the following
summary and not otherwise defined below shall have the meanings set forth in
the Voting and Option Agreement.
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Each Agreement Shareholder has agreed to tender (and not withdraw) his
Shares (the "Agreement Shares") pursuant to the Offer. In addition, each
Agreement Shareholder has agreed not to transfer, sell, offer, pledge or
otherwise dispose of or encumber, or grant any proxies for or enter into any
voting agreements or arrangements respecting, any of the Agreement Shares
until the consummation of the Merger, the expiration of the period commencing
January 2, 2001 and expiring, without any action by Parent or the Company's
shareholders, upon the termination of the Offer or the Merger Agreement under
certain circumstances (the "Option Period"), the purchase of the Agreement
Shares by Parent or the date the Voting and Option Agreement is terminated.
Each Agreement Shareholder has retained all voting rights with respect to
the Agreement Shares, except he has agreed to irrevocably appoint the
officers of Parent the lawful agent, attorney, and proxy of the Agreement
Shareholder, to (a) vote the Agreement Shares in favor of the Merger, (b)
vote the Agreement Shares against any action or agreement that would result
in a breach in any material aspect of any covenant, representation, or
warranty or any other obligation of the Company under the Merger Agreement;
and (c) vote the Agreement Shares against any action or agreement that would
impede, interfere with, delay, postpone, or attempt to discourage the Merger,
including, but not limited to: (i) any extraordinary corporate transaction,
such as a merger, rights offering, consolidation or other business
combination involving the Company, (ii) a sale or transfer of a material
amount of the assets of the Company or a reorganization, recapitalization, or
liquidation of the Company, (iii) any change in the management or Board,
except as otherwise agreed to in writing by Parent, or (iv) any other change
in the Company's corporate structure.
Each Agreement Shareholder also irrevocably granted to Parent an option to
purchase his Agreement Shares at the Offer Price. Parent can exercise this
option, in whole and not in part, at any time after January 2, 2001.
In the event that: (i) the option is exercised, (ii) the Merger is not
consummated and (iii) any party other than Parent and its subsidiaries
acquires, through merger or otherwise, all or substantially all of the
business or assets of the Company pursuant to a transaction or series of
transactions providing aggregate consideration to shareholders of the Company
greater than $18 per Share (the "Alternative Consideration"), then within 5
days following receipt of such consideration by Parent or its affiliates,
Parent shall pay to each of the Shareholders the product of (x) the amount by
which the Alternative Consideration exceeds $18 and (y) the number of Shares
sold by such shareholder to Parent pursuant to the option.
Each Agreement Shareholder has made certain representations and warranties
in the Voting and Option Agreement, including with respect to (i) ownership
of his Shares and his Agreement Shares, (ii) the authority to enter into and
perform his/its obligations under such Voting and Option Agreement and the
absence of required consents and statutory or contractual conflicts or
violations, and (iii) the absence of liens or any other encumbrances on or in
respect of his/its Shares and his Agreement Shares.
The Voting and Option Agreement, and all rights and obligations under the
Voting and Option Agreement, terminates upon the earlier of (a) the
expiration of the Option Period, (b) the purchase of the Agreement Shares,
(c) the agreement of the parties to terminate the Voting and Option
Agreement, or (d) the consummation of the Merger.
5. INDEMNIFICATION.
Article V, Section 2 of the Company's By-Laws, as amended and restated by
the Company's Board of Directors on February 21, 2000, requires the Company
to indemnify to the maximum extent permitted by law each of its directors and
officers for all reasonable expenses and any other liabilities paid or
incurred by reason of the fact that such person is or was a director or
officer of the Company. To the maximum extent permitted by law, the Company
must make advances of expenses incurred by any such person in connection with
an action prior to final disposition of such action, subject to receipt by
the Company of an undertaking by or on behalf of such person to repay such
advances to the extent such person is ultimately found not to be entitled to
indemnification. Such indemnification shall inure to the benefit of such
person's testator or intestate. The right of such indemnification is deemed
to constitute a
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contract between the Company and the persons entitled thereto and may not,
without the consent of such persons, be amended or repealed with respect to
any act or omission occurring or allegedly occurring prior to the end of the
term of office such person. A copy of such Article V is filed as Exhibit 5
hereto, and is incorporated herein by reference.
The Merger Agreement provides that the Company's officers and directors
shall have continued rights to indemnification and insurance, as described
under "The Merger Agreement -- Directors' and Officers' Insurance and
Indemnification" under part 2 of this Item 3.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
RECOMMENDATION OF THE BOARD.
The Board (a) has unanimously determined that the Offer, the Merger and
the Merger Agreement are advisable, fair to, and in the best interests of,
the Company's shareholders, (b) has unanimously approved the Merger Agreement
and the transactions contemplated thereby, including the Merger and the
Offer, and (c) unanimously recommends that the Company's shareholders accept
the Offer and tender their Shares to Purchaser pursuant to the offer and, if
approval and adoption is required under applicable law, approve and adopt the
Merger Agreement.
BACKGROUND.
Five years ago, the Company committed to becoming a worldwide,
full-catalog supplier of electronic protection equipment to professional
installation and service companies. With this goal in mind, the Company
adopted a strategy to: (a) expand its product catalog, (b) expand its market
reach, (c) increase its manufacturing capacity and (d) improve its overall
cost structure. The Company has invested considerable financial, managerial
and other resources in connection with this strategy. The Company believes
that these investments will have a positive impact on its long-term
performance, but have had a short-term negative impact on the Company's
performance and stock price, which may not reflect the Company's future
potential.
Since 1997, the Company has had intermittent discussions with Bosch (as
well as other well-known companies in the industry) regarding various
potential business transactions, arrangements and combinations. Bosch again
approached the Company in late 1999 to express its interest in an
acquisition. At that time, the Board authorized management to pursue
discussions regarding a partial or total acquisition of the Company by Bosch.
Representatives of Bosch and the Company had several meetings between
February and May 2000. Bosch's representatives twice visited the Company's
offices for presentations regarding the Company's technology. Senior Company
executives also met with Bosch and its investment banker in New York City on
one occasion. In addition, the Company arranged for Bosch to visit its
manufacturing facility in Zhuhai, China.
After various meetings and other communications, the Company ended these
discussions, since the Board believed the valuation of $14 per Share
indicated by Bosch was inadequate.
The Company subsequently discussed an alternative transaction with Bosch
that would have provided those shareholders who wanted to sell their Shares
for cash at an above-market price with an opportunity to do so, while
providing other shareholders who wished to retain their Shares with the
opportunity to participate in the future growth of the Company. Discussions
progressed satisfactorily with Bosch's security systems division; however,
Bosch senior management subsequently decided not to proceed with the
transaction. These discussions terminated in approximately May 2000.
On May 12, 2000, Ultrak, Inc. ("Ultrak"), a shareholder of the Company,
notified the Company that it was nominating a slate of candidates for
election to the Board at the Company's 2000 annual meeting of shareholders,
thereby commencing a proxy contest for control of the Company. Ultrak stated
at the time that its directors, if elected, and subject to their fiduciary
duties to the shareholders of the Company, would seek to negotiate a sale of
the Company or take other steps to maximize shareholder value.
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On July 21, 2000 the Company engaged Fleet Securities, Inc. ("Fleet
Securities") to provide financial advisory and investment banking services to
the Company and to explore various strategic alternatives available to it,
including (a) one or more possible acquisitions by the Company of, business
combinations involving the Company with, or other strategic equity
investments by the Company in, a third party and/or (b) a possible sale of,
business combination involving, or other strategic equity investment by a
third party in, the Company.
On August 30, 2000 Fleet Securities reviewed with the Board certain
analyses and valuations it had performed relating to the Company. Fleet
Securities performed a comparable companies analysis, a precedent transaction
analysis and a discounted cash flow analysis. Fleet Securities also analyzed
the financial implications to the Company as well as the potential valuations
that might be realized upon certain strategic alternatives, including a
leveraged buyout of the Company, a Share repurchase, the payment of special
dividends by the Company, a minority investment in the Company by a third
party and a business combination involving the Company. As part of this
analysis, Fleet Securities examined the potential debt capacity of the
Company and estimated theoretical values that may be paid for the Shares in a
business combination where such combination would not be dilutive to a
strategic acquirer's earnings in calendar year 2001. These analyses were
presented to the Board in connection with the Board's general efforts to
enhance shareholder value, and were not presented with respect to any
particular offer or proposal that the Company had received.
In a letter to the Board dated September 23, 2000, Bosch formally proposed
to acquire Detection Systems for $14 per Share in cash, subject to certain
conditions. The Board met several times, both formally and informally to
consider Bosch's proposal. At a meeting on October 5, 2000, Fleet Securities
noted that its analyses of the value of the Company had not materially
changed from its presentation of August 30, 2000. After further discussions
at a meeting on October 12, 2000, and after considering the Company's
prospects as a stand alone entity, its track record of financial results and
its growth potential due to its significant investments, as well as Fleet
Securities' analyses of the Company's value and other factors, the Board
unanimously determined that $14 per Share did not represent a fair value for
the Company and rejected the Bosch offer.
On October 31, 2000 the Board authorized Fleet Securities to contact third
parties who might have a strategic interest in the Company, which could
include a joint venture arrangement, leveraged buyout, licensing agreement,
minority investment or potential sale of the Company. In furtherance of this
assignment, Fleet Securities prepared offering materials respecting the
Company and its business, developed a list of potential recipients of those
offering materials, and contacted 13 parties who were regarded as potentially
interested in pursuing a strategic transaction with the Company, including
several parties who had previously expressed an interest in the Company. Of
those parties, 8 initially expressed an interest in reviewing materials with
respect to the Company, 7 executed confidentiality agreements and six parties
(including Bosch) had expressed interest in continuing discussions with the
Company. By November 16, 2000, four parties had submitted initial indications
of interest at prices ranging from $13.04 to $16.95 per Share. All of those
indications of interest were subject to conditions, including completion of
due diligence and the receipt of certain approvals. Thereafter, those parties
conducted more detailed due diligence with respect to the Company.
Each of the potential bidders was advised to submit its best offer by no
later than December 6, 2000; On that day, Bosch submitted a proposal at $17
per Share, another company ("Company A") submitted a proposal at $18 per
Share, and a third company ("Company B") submitted a proposal at $16.25 per
Share. After further discussion, Bosch increased its offer to $18 per Share
and Company B increased its offer to $17.50 per Share and indicated that it
had received board approval for the transaction.
At a meeting of the Board held on December 8, 2000, the Board considered
the terms of the proposals made by Bosch, Company A and Company B, including
the terms contained in the proposed forms of merger agreement submitted by
each. The Board especially noted that the proposals of Company A and Company
B were subject to substantial conditions. The Company A proposal was subject
to the approval of its own board of directors, additional due diligence and
completion of financing arrangements, and the Company B proposal was subject
to additional due diligence. In contrast, the Bosch proposal was
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fully financed, required no additional due diligence and was subject to very
few conditions, all of which appeared capable of being readily fulfilled. At
the request of the Board, Fleet Securities delivered its oral opinion to the
effect that the $18 per Share cash consideration was fair, from a financial
point of view, to the shareholders of the Company. After discussing the
proposals with its legal and financial advisors, the Board determined that
because it had fewer conditions and was more likely to be consummated, the
transaction with Bosch was superior to the transaction with Company A. The
Bosch proposal also appeared more advantageous with respect to the Company's
customers, employees and other constituencies. The Board then approved the
Bosch proposal, subject to (a) receipt of a written fairness opinion from
Fleet Securities, (b) receipt of the analyses supporting Fleet Securities'
fairness opinion, (c) negotiation by the Company's senior management of
satisfactory documentation and (d) no superior proposal being made prior to
the time such documentation was entered into.
The Board authorized its advisors to contact Company A to determine
whether it would be willing to eliminate the significant conditions to its
proposal, and to increase its price. Fleet Securities and the Company's
counsel then spoke with representatives of Company A, who indicated that it
(a) would seek its own board's approval of the proposed transaction on the
evening of December 10, (b) would eliminate the financing condition (although
it still needed to obtain financing to fund the transaction), (c) believed it
could complete its due diligence over the next two days (but might require
additional representations and warranties) and (d) would be willing to
increase its proposal by $0.25 per Share, all provided, however, that it be
given exclusive negotiating rights for the next two days. Representatives of
the Company also contacted Bosch in an effort to determine whether Bosch
would be willing to increase its offer. However, Bosch made clear that it was
unwilling to do so.
The Board considered the responses of Bosch and Company A on December 8,
and reconvened on the morning of December 9 to give the matter further
consideration. Following such consideration, the Board determined that (i)
there was no assurance that Company A's board would approve a transaction
with the Company, (ii) there was no assurance that Company A could complete
its due diligence promptly or that, as a result of such due diligence,
Company A would not revise its price or impose further conditions on its
proposal, (iii) there remained a risk that satisfactory financing for the
transaction could not be obtained and (iv) Bosch had indicated that it would
consider withdrawing its offer if the Company did not indicate a willingness
to proceed promptly to negotiate a definitive agreement with Bosch. In light
of (1) the small financial difference between the Bosch offer and the
potential improved proposal by Company A, (2) the greater degree of certainty
that the transaction with Bosch would be completed, (3) the risk that Bosch's
proposal might be withdrawn if it was not pursued and (4) the advantages of
the Bosch transaction with respect to the Company's customers, employees and
other constituencies, on December 9 the Board determined to reject Company
A's demand for exclusive negotiating rights and to proceed with negotiations
with Bosch.
On December 10, Bosch and its advisors met with the Company and its
advisors to negotiate final documentation with respect to the Bosch offer. As
part of such negotiations, and at the Board's request, Bosch reduced by $1
million the size of the termination fee it had proposed to be included in the
Merger Agreement. Later the same day, the Board met and determined to
reaffirm its conclusions reached on December 8. Shortly afterward, Bosch and
the Company executed the Merger Agreement and the Option Agreement, and
Messrs. Kostusiak and Lederer entered into the Voting and Option Agreement
with Bosch.
On December 20, 2000, Purchaser commenced the Offer.
REASONS FOR THE BOARD'S RECOMMENDATION; FACTORS CONSIDERED.
In approving the Merger Agreement and the other transactions contemplated
thereby, including the Offer and the Merger, and recommending that all
holders of Shares accept the Offer and tender their Shares pursuant to the
Offer, approve the Merger and approve and adopt the Merger Agreement, the
Board considered a number of factors including:
1. The historical market prices, price to earnings ratios, EBITDA
multiples, recent trading activity and trading range of the Shares,
including the fact that the Offer Price represents (a) a premium
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of approximately 110% over the $8.5625 closing price of the Shares
on The Nasdaq Stock Market on October 13, 2000, the last full
trading day prior to the announcement that Bosch had made a
proposal to acquire the Company, and (b) a premium of approximately
39.8% over the $12.875 closing price of the Shares on The Nasdaq
Stock Market on December 7, 2000, the last full trading day prior
to the meeting of the Board to approve the Merger Agreement.
2. The financial condition, results of operations and cash flows of
the Company, including the outlook for the Company's third fiscal
quarter ending December 31, 2000.
3. The current national and international economic climate.
4. The fairness opinion of Fleet Securities rendered at the meeting of
the Board held on December 8, 2000 and confirmed in writing on
December 10, 2000, as well as the analysis of Fleet Securities
supporting such opinion. The full text of the written opinion of
Fleet Securities, dated as of December 10, 2000, which sets forth
the assumptions made, matters considered and limitations on the
review undertaken, is attached to this Schedule 14D-9 and is filed
as Exhibit 7 hereto and is incorporated herein by reference.
Holders of Shares are urged to read such opinion carefully in its
entirety.
5. The fact that the consideration to be paid in the Offer and the
Merger is all cash.
6. The transaction has been structured to include a first-step cash
tender offer for all of the outstanding Shares, thereby enabling
shareholders who tender their Shares to promptly receive $18 per
Share in cash, and the fact that any public shareholders who do not
tender their Shares will receive the same cash price per Share in
the subsequent Merger.
7. The likelihood of the consummation of the transactions contemplated
by the Merger Agreement due to (a) the fact that the Offer and the
Merger are not subject to any consents and approvals, other than
the filing required under the Hart Scott Rodino Antitrust
Improvements Act of 1976, as amended, (b) the fact that Purchaser's
obligations under the Offer are not subject to any financing
condition, (c) the representations of Bosch in the Merger Agreement
that it or Purchaser has available sufficient funds to consummate
the Offer and the Merger and (d) Bosch's financial strength.
8. The fact that the Offer provides shareholders of the Company with
liquidity to dispose of their Shares which may not be available in
the public market due to the low level of trading volume of the
Shares.
9. The results of the discussions with certain companies in the
security industry regarding a possible strategic alliance,
partnership, business combination, acquisition or similar
transaction with the Company.
10. The fact that since the Company's public disclosure that it would
be exploring strategic alternatives to enhance shareholder value,
no other party had presented the Company with an acquisition
proposal that, taken as a whole, would be more favorable to the
Company and its shareholders than the Offer and the Merger,
including timing and certainty of completion.
11. The other provisions of the Merger Agreement, including the
respective representations, warranties and covenants proposed by
the parties, and the response of Bosch to the proposed merger
agreement prepared by the Company's counsel as compared to the
responses of Company A and Company B.
12. That, pursuant to the Merger Agreement, the Company and its
representatives may (a) furnish to any third party who might submit
an unsolicited Takeover Proposal (as defined in the Merger
Agreement) (a "Third Party Acquiror") information concerning the
Company's business, properties or assets, and (b) participate in
discussions or negotiations with such Third Party Acquiror
concerning an unsolicited Takeover Proposal, if in each case the
Board determines, in good faith, based on advice of its financial
advisor and counsel, that such Takeover Proposal is a Superior
Proposal.
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13. That, pursuant to the Merger Agreement, the Board has the right,
prior to the purchase of Shares pursuant to the Offer, to terminate
the Merger Agreement in order to accept a Superior Proposal, if (a)
the Board has determined, in good faith, based upon the advice of
legal counsel, that it is required to accept such proposal to
discharge properly its fiduciary duties under applicable law, (b)
the Company gives Bosch five full business days advance notice of
the Company's intention to accept such Superior Proposal and (c)
the Company, prior to termination, pays to Bosch a $3 million
termination fee, plus up to $1 million in itemized expenses.
14. The aggregate amount of the termination fee and the expense
reimbursement fee, relative to other transactions, and the
circumstances under which such fees would be payable to Bosch
pursuant to the Merger Agreement, appear reasonable taking into
account that (a) Bosch was only willing to make its proposal on the
express condition that the Company agreed to such a termination fee
and expense reimbursement fee upon the terms set forth in the
Merger Agreement; and (b) the belief of the Board that the
aggregate amount of the termination fee and the expense
reimbursement fee, which amount to approximately $0.56 per Share,
would not be likely to deter potentially interested third parties
from pursuing an acquisition of the Company. The Board also
considered the Stock Option Agreement, and the fact that Bosch was
only willing to make its proposal on the express condition that the
Company enter into the Stock Option Agreement.
15. That, pursuant to the Merger Agreement, Bosch has agreed that, for
a one-year period following the Effective Time, Bosch will provide,
or cause the Surviving Corporation and its subsidiaries and
successors to provide, those persons who, immediately prior to the
Effective Time, were employees of the Company or its subsidiaries
and who continue in such employment following the Effective Time
("Continuing Employees"), with benefits that are, in the aggregate,
not less favorable than those provided to such employees
immediately prior to the Effective Time.
16. The business reputation and capabilities of Bosch and its
management.
17. The possible loss of customers and employees due to the uncertainty
surrounding the future direction of the Company, and the Board's
concern that the opportunity to maximize value for shareholders
might be in jeopardy as a result of such uncertainty.
18. That, while the Offer gives the Company's shareholders the
opportunity to realize a premium over the price at which the Shares
traded immediately prior to the public announcement of the
execution of the Merger Agreement, the consummation of the Offer
and the Merger would eliminate the opportunity for the Company's
shareholders to participate in the future growth and profits of the
Company.
The foregoing discussion of information and factors considered and given
weight by the Board is not intended to be exhaustive, but is believed to
include all of the material factors, both positive and negative, considered
by the Board. In view of the variety of factors considered in connection with
its evaluation of the Offer and the Merger, the Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determinations and
recommendations. In addition, individual members of the Board may have given
different weights to different factors.
INTENT TO TENDER.
For tax reasons, certain officers of the Company may exercise stock
options and/or sell some of their Shares in the open market between the date
hereof and December 31, 2000. Except as otherwise provided herein, to the
Company's knowledge after reasonable inquiry, all of the Company's executive
officers, directors and affiliates currently intend to tender all Shares held
of record or beneficially owned by them pursuant to the Offer. The foregoing
does not include any Shares over which, or with respect to which, any such
executive officer, director or affiliate acts in a fiduciary or
representative capacity or is subject to the instructions of a third party
with respect to such tender.
OPINION OF INVESTMENT BANKER.
On July 21, 2000, the Company retained Fleet Securities as its exclusive
financial advisor in connection with the Company's efforts to explore various
strategic alternatives to enhance value for the
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<PAGE>
Company's shareholders. On December 10, 2000, at a meeting of the Company's
Board, Fleet Securities delivered to the Board its written opinion that the
cash consideration to be paid to shareholders of the Company (other than
Purchaser, Parent or any of their affiliates) was fair, from a financial
point of view, to such shareholders. The Fleet Securities opinion was: (i)
made as of December 10, 2000; (ii) based on certain assumptions; and (iii)
limited in its coverage to a specified scope of review.
No limitations were imposed by the Board on Fleet Securities with respect
to the investigations made or procedures followed by it in furnishing its
opinion. The cash consideration to be paid to holders of Shares in the Offer
and the Merger was determined through negotiations between the managements of
the Company and Parent.
The full text of the Fleet Securities opinion can be found attached to
this Schedule 14D-9 as Exhibit 7. The opinion sets forth, among other things,
the assumptions made, matters considered and limitations on Fleet Securities'
review, and is incorporated into this Schedule 14D-9. This summary of the
Fleet Securities opinion is qualified in its entirety by reference to the
full text of the Fleet Securities opinion, and you are urged to read the
Fleet Securities opinion in its entirety. The Fleet Securities opinion was
prepared for the benefit and use of the Board in its consideration of the
Offer and the Merger. The opinion is not a recommendation to shareholders of
the Company as to whether they should tender their shares or how they should
vote on, or take any other action with respect to, the Merger.
In connection with Fleet Securities' role as the Company's financial
advisor and the preparation of its opinion, Fleet Securities, among other
things:
o reviewed certain publicly available financial statements and other
business and financial information of the Company;
o reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the Company's
management;
o reviewed certain financial forecasts and other forward looking
financial information prepared by the Company's management;
o held discussions with the management of the Company concerning the
business, past and current operations, financial condition and
future prospects of the Company;
o reviewed the financial terms and conditions set forth in the draft
Merger Agreement dated December 10, 2000;
o reviewed the stock price and trading history of the Company;
o compared the financial performance of the Company and the prices
and trading activity of Shares with that of certain other publicly
traded companies that it deemed comparable to the Company;
o compared the financial terms of the Offer and the Merger with the
financial terms, to the extent publicly available, of other
transactions that it deemed relevant and comparable, in whole or in
part;
o considered the equity premiums paid, to the extent publicly
available, in other transactions that it deemed relevant;
o prepared a discounted cash flow analysis of the Company;
o prepared a leveraged buyout analysis of the Company;
o participated in discussions and negotiations among representatives
of the Company and Parent and their financial and legal advisors;
and
o made such other studies and inquiries, and reviewed such other
data, as it deemed relevant.
In its review and analysis, and in arriving at its opinion, Fleet
Securities assumed and relied on the accuracy and completeness of all of the
financial and other information provided to it (including information
furnished to it orally or otherwise discussed with it by the management of
the Company) or publicly available.
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<PAGE>
Fleet Securities did not attempt to verify or assume responsibility for
verifying any of this information. Fleet Securities relied on the assurances
of management of the Company that they were not aware of any facts that would
make this information inaccurate or misleading. Furthermore, Fleet Securities
did not obtain or make, or assume any responsibility for obtaining or making,
any independent evaluation, physical inspection or appraisal of the
properties, assets or liabilities (contingent or otherwise) of the Company,
nor was Fleet Securities furnished with any such evaluation or appraisal.
With respect to the forecasted financial performance and projections of
the Company and the assumptions and bases underlying this information that
Fleet Securities reviewed, Fleet Securities assumed that such forecasts and
projections:
o had been prepared reasonably and in good faith on the basis of
reasonable assumptions;
o reflected the best available estimates and judgments as to the
future financial condition and performance of the Company; and
o will be realized in the amounts and in the time periods estimated.
In rendering its opinion, Fleet Securities expressed no view as the
reasonableness of the Company's forecasts and projections or the assumptions
upon which they were based.
In addition, Fleet Securities assumed that:
o the Offer and Merger will be consummated in accordance with the
terms of the Merger Agreement without material changes to or
alterations of these terms; and
o the historical financial statements of the Company reviewed by it
had been prepared and fairly presented in accordance with U.S.
generally accepted accounting principles consistently applied.
Fleet Securities relied as to all legal matters relevant to rendering its
opinion on the advice of its counsel.
Although developments following the date of the Fleet Securities opinion
may affect the conclusion expressed in the opinion, the engagement letter
between the Company and Fleet Securities does not require Fleet Securities to
update, revise or reaffirm its opinion. The Fleet Securities opinion is
necessarily based upon market, economic and other conditions as in effect on,
and information made available to Fleet Securities as of, the date of the
Fleet Securities opinion. The Company's shareholders should understand that
subsequent developments may affect the conclusion expressed in the Fleet
Securities opinion if this opinion were rendered as of a later date. Fleet
Securities disclaims any undertaking or obligation to advise any person of
any change in any matter affecting the opinion which may come or be brought
to its attention after the date of the opinion. The Fleet Securities opinion
is limited to solely the fairness, from a financial point of view as of the
date of the opinion, of the cash consideration to be paid to the Company's
shareholders in the Offer and the Merger.
Fleet Securities did not express any opinion with respect to:
o the relative merits of the Offer and the Merger and the other
business strategies that the Company's Board has considered or may
be considering;
o the underlying business decision of the Board to proceed with the
Offer and the Merger;
o the value of any employee agreement or other arrangement entered
into in connection with the Offer and the Merger; and
o any tax or other consequences to the Company or its shareholders
that might result from the Offer and the Merger.
The following is a summary of the material financial analyses performed by
Fleet Securities in connection with rendering its opinion. This summary is
not a complete description of all of the analyses performed by Fleet
Securities. Portions of the information in this section are presented in a
tabular form. In order to better understand the financial analyses performed
by Fleet Securities, these tables must be read together with the text of each
summary. The Fleet Securities opinion is based on all of the various analyses
performed by Fleet Securities considered as a whole, and no particular
portion of the analyses has any merit standing alone.
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<PAGE>
Fleet Securities employed several analytical methodologies in performing
its analyses and rendering its opinion. No one method of analysis should be
regarded as critical to the overall conclusion reached by Fleet Securities.
Each analytical technique has inherent strengths and weaknesses, and the
nature of the available information may further affect the value of
particular techniques. The conclusions reached by Fleet Securities are based
on all analyses and factors taken as a whole and also on application of Fleet
Securities' own experience and judgment. These conclusions may involve
significant elements of subjective judgment and qualitative analysis. Because
of this, Fleet Securities did not provide an opinion as to the value or merit
standing alone of any one or more parts of its analysis. In performing its
analyses, Fleet Securities considered general economic, market and financial
conditions and other matters, many of which are beyond the control of the
Company.
No company, business or transaction compared in the comparable companies
analysis or precedent transaction analysis is identical to the Company or the
Offer and the Merger. Accordingly, an analysis of the results of the
comparable companies analysis or precedent transaction analysis is not
entirely mathematical. It involves complex considerations and judgments
concerning differences in financial and operating characteristics and other
factors that could affect the acquisition, public trading and other values of
the comparable companies, precedent transactions or the business segment,
company or transactions to which they are being compared.
Comparable Companies Analysis. Using publicly-available information,
Fleet Securities analyzed certain financial, trading and valuation statistics
for certain publicly-traded companies that were deemed by Fleet Securities to
have business and operating profiles and characteristics similar to those of
the Company. These statistics were the aggregate net debt and equity values
as a multiple of earnings before interest and taxes and as a multiple of
earnings before interest, taxes, depreciation and amortization for the most
recent twelve months, and equity values as a multiple of earnings per share
for the most recent twelve months and calendar year 2001. These comparable
companies were comprised of AXCESS, Inc., Checkpoint Systems, Inc., Cohu,
Inc., CompuDyne Corporation, Interlogix, Inc., Lifeline Systems, Inc.,
Lo-Jack Corporation, Napco Security Systems, Inc., Sensormatic Electronics
Corporation, Silent Witness Enterprises, Ltd., Ultrak, Inc. and Vicon
Industries, Inc. Fleet Securities then derived potential values for the
Company by applying multiples based upon these comparable companies to the
historical results and the projections provided by the Company's management.
The table below summarizes the range of the multiples described above as
derived by Fleet Securities, as well as the implied value for the Company's
Common Stock. Fleet Securities also derived implied valuation ranges for the
Shares on a premium adjusted basis, utilizing a 41% premium derived from its
precedent transaction analysis described below.
<TABLE>
<CAPTION>
AGGREGATE NET DEBT AND EQUITY
VALUE AS A MULTIPLE OF AGGREGATE EQUITY
MOST RECENT TWELVE MONTHS' VALUE AS A MULTIPLE OF
------------------------------------------ --------------------------------------
EARNINGS BEFORE EARNINGS BEFORE INTEREST, MOST RECENT ESTIMATED CALENDAR
INTEREST TAXES, DEPRECIATION TWELVE MONTHS YEAR 2000 EARNINGS
AND TAXES AND AMORTIZATION EARNINGS PER SHARE PER SHARE
--------------- ------------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Multiple 9.0-11.5x 6.0-7.5x 16.0-20.0x 12.0-15.0x
Implied Value Per Share $ 8.39-$11.23 $ 8.72-$11.36 $ 7.15-$8.93 $ 8.03-$10.04
Premium Adjusted Implied
Value Per Share $11.83-$15.83 $12.30-$16.01 $10.08-$12.60 $11.33-$14.16
</TABLE>
Precedent Transaction Analysis. Using publicly-available information,
Fleet Securities analyzed the implied cash flow multiples paid in prior
acquisition transactions involving companies deemed by Fleet Securities to
have business and operating profiles similar to those of the Company. The
precedent transactions cited in this analysis are set forth in the following
table.
23
<PAGE>
<TABLE>
<CAPTION>
DATE ACQUIRED COMPANY ACQUIRING COMPANY
---------------------- --------------------------------------------- --------------------------------
<S> <C> <C>
December 4, 2000 Simplex Time Recorder Co. Tyco International Ltd.
August 11, 2000 BI Inc. Kohlberg & Co.
August 3, 2000 Burns International Securitas AB
July 27, 2000 Continental Instruments LLC Napco Security Systems, Inc.
December 20, 1999 Pittway Corp. Honeywell International Inc.
September 29, 1999 Interlogix, Inc. (ITI Technologies, Inc.) SLC Technologies, Inc.
February 19, 1999 Pinkerton's Inc. Securitas AB
January 1, 1999 Alarmguard Holdings Inc. Tyco International Ltd.
</TABLE>
In analyzing these precedent transactions, Fleet Securities evaluated the
consideration paid in such transactions as a multiple of the preceding twelve
months' earnings before interest, taxes, depreciation and amortization and
the preceding twelve months' earnings before interest and taxes. Fleet
Securities then derived potential values for the Company by applying
multiples based upon these precedent transactions to the historical Company
results.
The table below summarizes the ranges of multiples described above as
derived by Fleet Securities, as well as the implied value for the Company's
Common Stock.
<TABLE>
<CAPTION>
MOST RECENT TWELVE MONTHS'
EARNINGS BEFORE INTEREST, TAXES, MOST RECENT TWELVE MONTHS'
DEPRECIATION AND AMORTIZATION EARNINGS BEFORE INTEREST AND TAXES
-------------------------------- ----------------------------------
<S> <C> <C>
Multiple 10.0-12.0x 15.0-18.0x
Implied Value Per Share $15.74-$19.25 $15.19-$18.59
</TABLE>
Discounted Cash Flow Analysis. Fleet Securities performed a discounted
cash flow analysis of the Company using estimates of after-tax free cash
flows for the fiscal years 2002 to 2006. The purpose of the discounted cash
flow analysis was to establish a range for the potential equity value of the
Company by determining a range for the net present value of the Company's
projected future cash flows.
Fleet Securities derived a value based upon two methodologies. Under one
methodology, Fleet Securities first discounted the projected, after-tax free
cash flows through December 31, 2006 using discount rates ranging from 14% to
18%. After-tax free cash-flows were calculated as the after-tax operating
earnings of the Company adjusted to add back non-cash expenses and deduct
uses of cash not reflected in the income statement. Fleet Securities then
added to the present value of the after-tax free cash flows the terminal
value of the Company at March 31, 2006, discounted back to the present at the
same discount rates. The terminal value was computed by multiplying the
projected earnings before interest, taxes, depreciation and amortization for
the Company in fiscal year 2006 by exit multiples ranging from 5.0x to 7.0x.
The range of exit multiples selected reflects Fleet Securities' judgment as
to an appropriate range of multiples at the end of the reference period.
Under the second methodology, Fleet Securities discounted the projected,
after-tax free cash flows through perpetuity, assuming perpetual growth rates
ranging from 3.0% to 4.0% per year. Fleet Securities used the same 14% to 18%
discount rates. The following tables summarize the resulting implied values
per share for the Shares.
<TABLE>
<CAPTION>
<S> <C> <C>
Projected Cash Flows 2002-2006
with Terminal Value
Discount Rates Terminal Value Multiples Implied Value Per Share
-------------- ------------------------ -----------------------
14%-18% 5.0X-7.0X $15.00-$24.50
Projected Cash Flows in Perpetuity
Discount Rates Assumed Annual Growth Rate Implied Value Per Share
-------------- -------------------------- -----------------------
14%-18% 3%-4% $12.50-$21.00
</TABLE>
24
<PAGE>
Leveraged Acquisition Analysis. Fleet Securities also performed a
leveraged acquisition analysis to ascertain the price that would be
attractive to a potential financial buyer based upon current market
conditions. For this analysis, Fleet Securities reviewed financial
projections of the Company's management and assumed the following in
performing this analysis:
o a Company capital structure comprised of approximately $92.5
million in equity and $50.7 million in debt;
o an equity investment that would achieve a 32.5% rate of return over
a five-year period; and
o exit multiples ranging from 5.0x to 7.0x fiscal 2006 projected
earnings before interest, taxes, depreciation and amortization.
Based on these assumptions, Fleet Securities derived a range of values per
Share of $12.14 to $14.84.
Other Factors and Comparative Analyses. In rendering its opinion, Fleet
Securities considered certain other factors and conducted certain other
comparative analyses, including a review of:
o the history of trading prices and volumes for the Shares from
December 8, 1997 to December 8, 2000; and
o the low and high closing prices per share of the Shares over the
prior 52 weeks, as a 253 day moving average and on the date 180
days before the initial offer of $14 by Parent was disclosed.
Based upon these trading ranges, Fleet Securities derived an implied value
per share for the Shares, both on an unadjusted basis and on a premium
adjusted basis, utilizing the 41% premium derived from its precedent
transaction analysis described above.
The table below summarizes the implied value for the Shares, based upon
these trading ranges.
<TABLE>
<CAPTION>
RECENT TRADING PREMIUM ADJUSTED
RANGE TRADING RANGE
----------------- ------------------
LOW HIGH LOW HIGH
------- -------- -------- --------
<S> <C> <C> <C> <C>
52 Week Closing Price..................... $8.00 $13.00 $11.28 $18.33
253 Day Moving Average.................... $9.49 $10.49 $13.38 $14.79
Closing Date 180 Days Before Parent
Offer.................................... $8.50 $10.75 $11.99 $15.16
</TABLE>
While the summary above describes certain analyses and factors that Fleet
Securities deemed material in its presentation to the Company's Board, it is
not a comprehensive description of all analyses and factors considered by
Fleet Securities. The preparation of a fairness opinion is a complex process
that involves various determinations as to the most appropriate and relevant
methods of financial analyses and the application of these methods to the
particular circumstances. Therefore, this kind of opinion cannot readily be
summarized. Fleet Securities believes that its analyses must be considered as
a whole. Selecting only portions of its analyses and of the factors
considered by it, would create an incomplete view of the evaluation process
underlying the Fleet Securities opinion.
The analyses performed by Fleet Securities do not predict actual values or
future results, which may be significantly more or less favorable than those
suggested by Fleet Securities' analyses. Accordingly, analyses relating to
the value of a business do not purport to be appraisals or to reflect the
prices at which the business actually may be purchased. Furthermore, Fleet
Securities is not expressing an opinion with respect to the prices at which
shares of the Company's common stock may be traded at any future time.
The engagement letter between Fleet Securities and the Company provides
that Fleet Securities is entitled to receive a fee for its services as
described in Item 5 below. The Company has also agreed to reimburse Fleet
Securities for certain of its out-of-pocket expenses, including legal fees.
In addition, the Company has agreed to indemnify Fleet Securities and its
affiliates and any director, employee or agent of Fleet Securities or any of
its affiliates, or any person controlling Fleet Securities or its affiliates,
for certain losses, claims, damages, expenses and liabilities relating to or
arising out of Fleet Securities rendering a fairness opinion to the Company.
The Company and Fleet Securities negotiated the terms of the engagement
letter, which the Company and Fleet Securities believe are customary in
transactions of this nature, at arm's length, and the Board was aware of such
arrangements.
25
<PAGE>
In the ordinary course of its business, Fleet Securities or one of its
affiliates may trade in the Company's securities for its own account and the
accounts of its customers and, accordingly, may at any time hold a long or
short position in the Company's securities. Fleet National Bank, an affiliate
of Fleet Securities, has provided senior debt financing and other commercial
banking services to the Company, for which it has received customary banking
fees.
The Company retained Fleet Securities based on Fleet Securities'
experience in preparing and rendering fairness opinions in connection with
mergers and acquisitions and in securities valuations generally. Fleet
Securities, a nationally recognized investment-banking firm, is frequently
engaged in the valuation of businesses and their securities in connection
with mergers and acquisitions, negotiated underwritings, secondary
distributions and securities, private placements and other purposes.
ITEM 5. PERSON/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
Fleet Securities was retained pursuant to the terms of a letter agreement,
dated July 21, 2000 (the "Letter Agreement"), to provide financial advisory
and investment banking services to the Company. In connection with the
Board's consideration of the Merger Agreement, Fleet Securities rendered a
fairness opinion (the "Opinion") to the Board. The Opinion is attached hereto
as Exhibit 7.
Pursuant to the Letter Agreement, the Company agreed to pay Fleet
Securities a non-refundable cash retainer fee of $100,000, to be credited
against subsequent transaction fees due. For each Sale Transaction (as
defined below) completed, the Company agreed to pay Fleet Securities a fee
equal to $750,000 plus one and one quarter of one percent (1.25%) of the
aggregate transaction value (including, among other things, cash, securities
and notes paid or issued and debt assumed) in excess of $50 million.
The term "Sale Transaction" in the Letter Agreement means a transaction or
series of related transactions resulting in the sale of 50% or more of the
Shares or assets of the Company. If less than 50% of the Shares or assets of
the Company were sold in a transaction, the Company would be required to pay
Fleet: (i) 3%, if the aggregate transaction value was no greater than $10
million; (ii) 2.50%, if the aggregate transaction value was in excess of $10
million up to $20 million; (iii) 2.00%, if the aggregate transaction value
was in excess of $20 million up to $30 million; (iv) 1.75%, if the aggregate
transaction value was in excess of $30 million up to $40 million; and (v)
1.5%, if the aggregate transaction value was in excess of $40 million.
Additionally, pursuant to the Letter Agreement, for each Purchase
Transaction (as defined below) completed, the Company agreed to pay Fleet
Securities a fee equal to $750,000 plus one and one quarter of one percent
(1.25%) of the aggregate transaction value (including, among other things,
cash, securities and notes paid or issued and debt assumed in excess of $50
million). The term "Purchase Transaction" in the Letter Agreement means a
transaction or series of related transactions resulting in the purchase of
50% or more of the voting stock or assets of the target company. If less than
50% of the Shares or assets of the Company were purchased in a transaction,
the Company would be required to pay Fleet: (i) 3%, if the aggregate
transaction value was no greater than $10 million; (ii) 2.50%, if the
aggregate transaction value was in excess of $10 million up to $20 million;
(iii) 2.00%, if the aggregate transaction value was in excess of $20 million
up to $30 million; (iv) 1.75%, if the aggregate transaction value was in
excess of $30 million up to $40 million; and (v) 1.5%, if the aggregate
transaction value was in excess of $40 million.
The Letter Agreement also provides that the Company shall pay Fleet
Securities $250,000 for delivery of the first opinion to the Company, to be
credited against any subsequent transaction fees due, with payment for
subsequent opinions to be negotiated. If Fleet Securities provides the
Company advice and assistance in connection with the adoption of potential
anti-takeover strategies, the Company shall pay Fleet a fee to be negotiated
by the parties. The Company also agreed to reimburse Fleet Securities for all
reasonable out-of-pocket expenses (including reasonable attorneys' fees).
Pursuant to the Letter Agreement, the Company also agreed to indemnify
Fleet Securities and its affiliates and any director, employee or agent of
Fleet Securities or any of its affiliates, or any person controlling Fleet
Securities or its affiliates, for certain losses, claims, damages, expenses
and liabilities relating to or arising out of the services provided by Fleet
Securities to the Company.
26
<PAGE>
Except as described above, neither the Company nor any other person acting
on its behalf currently intends to employ, retain or compensate any other
person to make solicitations or recommendations to the shareholders on its
behalf concerning the Offer or the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
On November 6, 2000, the Stock Option Committee of the Board granted, with
an exercise price of $11.875 per share, stock options to purchase: (i) 5,000
Shares to Jeffrey M. Swan, Vice President, Engineering of the Company; (ii)
3,000 Shares to Bruce E. Becker, Chairman, Detection Systems Australia Pty.
Limited (a subsidiary of the Company); and (iii) an aggregate of 24,500
Shares to five non-officer employees. On December 8, 2000, the Company
granted stock options to purchase an aggregate of 750 Shares to two
non-officer employees with an exercise price of $13 per Share.
On November 27, 2000, the Company issued from its treasury 8,400 and 933
Shares to Meinrad J. Formosa, Vice President, International Engineering and
European General Manager of Detection Systems International, Inc. (a
subsidiary of the Company), and John H. Chappell (unaffiliated with the
Company), respectively, in satisfaction of the remaining payment obligations
in connection with the Company's acquisition of Electronic Design &
Manufacturing Pty. Limited in January 1998.
On November 29, 2000, each of Donald R. Adair and Mortimer B. Fuller, III,
directors of the Company, exercised options to purchase 2,000 Shares pursuant
to the Company's Non-Employee Director Stock Option Plan as follows: (i)
1,200 Shares at a price of $8.688 per Share and (ii) 800 Shares at a price of
$9.656 per share. Such Shares were issued from the Company's treasury.
On November 30, 2000, the Company newly issued 370,057 Shares to a trustee
on behalf of participants in the Company's deferred compensation plans, all
of which were previously allocated to such participants under such plans.
On December 15, 2000, Frank J. Ryan, Vice President, Secretary and
Treasurer of the Company, donated 750 Shares to the Rochester Area Community
Foundation.
Except as set forth in the preceding paragraphs, during the past 60 days,
neither the Company nor any subsidiary of the Company nor, to the best of the
Company's knowledge, any executive officer, director or affiliate of the
Company has effected a transaction in the Shares.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Schedule 14D-9, the Company is not engaged in
any negotiations in response to the Offer which relates to or would result in
(i) a tender offer or other acquisition of the Company's securities by the
Company, any of its subsidiaries or any other person; (ii) an extraordinary
transaction, such as a merger, reorganization or liquidation, involving the
Company or any subsidiary of the Company; (iii) a purchase, sale or transfer
of a material amount of assets of the Company or any subsidiary of the
Company; or (iv) any material change in the present dividend rate, policy,
indebtedness or capitalization of the Company. Except as set forth in this
Schedule 14D-9, there are no transactions, board resolutions, agreements in
principle or signed contracts in response to the Offer that relate to or
would result in one or more of the matters described above.
ITEM 8. ADDITIONAL INFORMATION.
SHORT FORM MERGER.
Under Section 905 of the NYBCL, if the number of Shares in the Offer,
together with the number of Shares owned by Parent and the Purchaser,
constitutes 90% or more of the outstanding Shares, on a fully diluted basis,
the Purchaser will be able to effect the Merger without a meeting of the
Company's shareholders. However, if the Purchaser does not acquire at least
90% of the outstanding Shares in such manner pursuant to the Offer or
otherwise, a meeting of the Company's shareholders will be required under the
NYBCL to effect the Merger. Upon successful completion of the Offer, the
Purchaser would have a sufficient number of Shares to approve the Merger
without the vote of any other shareholder of the Company.
27
<PAGE>
APPRAISAL RIGHTS.
No appraisal rights are available in connection with the Offer. However,
if the Merger is consummated, shareholders of the Company at the time the
Merger is consummated may, under certain circumstances, have certain rights
to dissent and demand appraisal of their Shares under Section 623 of the
NYBCL. Dissenting shareholders who comply with the requisite statutory
procedures under the NYBCL would be entitled to a judicial determination and
payment of the "fair value" of their Shares as of the close of business on
the day prior to the date of shareholder authorization of the Merger,
together with interest thereon, at such rate as the court finds equitable,
from the date the Merger is consummated until the date of payment. Under the
NYBCL, in fixing the fair value of the Shares, a court would consider the
nature of the transaction giving rise to the shareholders' right to receive
payment for Shares and its effects on the Company 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 foregoing summary of the rights of objecting shareholders does
not purport to be a complete statement of the procedures to be followed by
shareholders desiring to exercise any available dissenters' rights. The
preservation and exercise of dissenters' rights require strict adherence to
the applicable provisions of the NYBCL.
28
<PAGE>
ITEM 9. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
--------------- -----------------------------------------------------------------------------------------
<S> <C>
1. Agreement and Plan of Merger, dated as of December 10, 2000, by and between Robert Bosch
GmbH and Detection Systems, Inc., dated as of December 10, 2000.+
2. Amendment Agreement, dated as of December 14, 2000, by and among Robert Bosch GmbH, Bosch
Security Systems Corporation, a New York corporation, and Detection Systems, Inc.+
3. Stock Option Agreement, dated as of December 10, 2000, between Robert Bosch GmbH and
Detection Systems, Inc. (incorporated by reference to Exhibit 10-b of the Current Report
on Form 8-K, filed by the Company with the SEC on December 12, 2000).
4. Voting and Option Agreement, dated as of December 10, 2000, by and among Robert Bosch
GmbH, Karl H. Kostusiak and David B. Lederer (incorporated by reference to Exhibit A the
Schedule 13D/A filed by Karl H. Kostusiak with the SEC on December 13, 2000).
5. Pages 18-30 of the Proxy Statement dated November 20, 2000, relating to the Company's
2000 annual meeting of shareholders (incorporated by reference to the Proxy Statement on
Schedule 14A, filed by the Company with the SEC on November 20, 2000).
6. Article Five of the Company's By-Laws, as amended and restated by the Company's Board of
Directors on February 21, 2000 (incorporated by reference to Exhibit 3 to the Current
Report on Form 8-K, filed by the Company with the SEC on February 28, 2000).
7. Opinion of Fleet Securities, Inc., dated December 10, 2000.*
8. Press release issued by the Company on December 11, 2000 (incorporated by reference to
the Schedule 14A, filed by the Company with the SEC on December 11, 2000).
9. Letter to shareholders from Karl H. Kostusiak, dated December 12, 2000 (incorporated by
reference to the Schedule 14A, filed by the Company with the SEC on December 12, 2000).
10. Letter to shareholders from Karl H. Kostusiak, dated December 20, 2000.*
</TABLE>
------------
* Included in the copy of the Schedule 14D-9 mailed to the Company's
shareholders and filed herewith.
+ Filed herewith.
29
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
By: /s/ Frank J. Ryan
----------------------------------------
Name: Frank J. Ryan
Title: Vice President, Secretary and
Treasurer
Dated: December 20, 2000
