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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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DYNAMICS CORPORATION OF AMERICA
(NAME OF SUBJECT COMPANY)
DYNAMICS CORPORATION OF AMERICA
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(including the associated Series A Cumulative Participating Preferred Stock
Purchase Rights)
(Title of Class of Securities)
268039 10 4
(CUSIP Number of Class of Securities)
HENRY V. KENSING
Vice President, General
Counsel and Secretary
475 Steamboat Road
Greenwich, Connecticut 06830-7197
(203) 869-3211
(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:
ALAN C. MYERS
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Dynamics Corporation of America, a New
York corporation (the "Company"), and the address of the principal executive
offices of the Company is 475 Steamboat Road, Greenwich, Connecticut 06830-7197.
The title of the class of equity securities to which this Schedule relates is
the common stock, par value $0.10 per share, of the Company (the "Common
Stock"), including the associated Series A Cumulative Participating Preferred
Stock Purchase Rights (the "Rights" and, together with the Common Stock, the
"Shares") issued pursuant to the Rights Agreement, dated as of January 30, 1986,
as amended (the "Company Rights Plan"), between the Company and BankBoston
(formerly The First National Bank of Boston), as Rights Agent.
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to a tender offer by CTS First Acquisition Corp.
("Sub"), a New York corporation and a wholly-owned subsidiary of CTS
Corporation, an Indiana corporation ("CTS"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated May 16, 1997 (the "Schedule 14D-1"), under
which Sub is offering to purchase up to 49.9% of the outstanding Shares at a
price of $55 per Share, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated May 16, 1997 (the
"Offer to Purchase"), and the related Letter of Transmittal (which together
constitute the "CTS Offer").
The CTS Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of May 9, 1997 (the "Merger Agreement"), among CTS, Sub and the
Company. The Merger Agreement provides, among other things, that as soon as
practicable after the satisfaction or waiver of the conditions set forth in the
Merger Agreement, the Company will be merged with and into Sub (the "CTS
Merger"), and Sub will continue as the surviving corporation (the "Surviving
Corporation"). A copy of the Merger Agreement is attached hereto as Exhibit 1
and incorporated herein by reference.
As set forth in the Schedule 14D-1,the principal executive offices of Sub
and CTS are located at 905 West Boulevard North, Elkhart, Indiana 46514.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b) Except as described in this Schedule, to the knowledge of the Company,
as of the date hereof, there are no material contracts, agreements, arrangements
or understandings, or any actual or potential conflicts of interest between the
Company or its affiliates and (i) its executive officers, directors or
affiliates or (ii) CTS, its executive officers, directors or affiliates.
THE MERGER AGREEMENT
The summary of the Merger Agreement contained in the Offer to Purchase,
which has been filed with the Securities and Exchange Commission (the
"Commission") as an exhibit to the Schedule 14D-1, a copy of which is enclosed
with this Schedule 14D-9, is incorporated herein by reference. Such summary
should be read in its entirety for a more complete description of the terms and
provisions of the Merger Agreement. A copy of the Merger Agreement has been
filed as Exhibit 1 hereto and is incorporated herein by reference.
INTERESTS OF CERTAIN PERSONS
Certain members of the Company's management and the Board of Directors of
the Company (the "Company Board") may be deemed to have interests in the
transactions contemplated by the Merger Agreement that are in addition to their
interests as stockholders of the Company generally. The Company Board was aware
of these interests and considered them, among other matters, in approving the
Merger
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Agreement and the transactions contemplated thereby. In considering the
recommendation of the Company Board in respect of the Merger Agreement and the
transactions contemplated thereby, the shareholders of the Company should be
aware of these interests which may present actual or potential conflicts of
interest.
OFFICERS AND DIRECTORS OF THE COMPANY
From and after the time the CTS Merger becomes effective, as provided by the
Merger Agreement (the "Effective Time"), Messrs. Lozyniak and Dorme, who are
currently members of the Board of Directors of CTS ("CTS Board"), will remain on
the CTS Board and Mr. Lozyniak, who is currently a member of the Company Board,
will remain on the Company Board.
From and after the Effective Time, Mr. Lozyniak will join CTS' Office of the
Chairman with Mr. Walker and focus on strategic issues while continuing to
oversee the management of the Company's continuing operations.
Pursuant to the Merger Agreement, CTS has agreed to assume all rights to
indemnification existing in favor of current or former directors or officers of
the Company or each of its subsidiaries from liabilities for acts or omissions
occurring at or prior to the Effective Time. In addition, from and after the
Effective Time, directors and officers of the Company who become directors or
officers of CTS or Sub will be entitled to the same indemnity rights or
protections as afforded to other directors and officers of CTS. CTS has also
agreed to, or cause the Surviving Corporation to, maintain policies of
directors' and officers' liability insurance equivalent to current policies of
the Company, subject to certain limitations, for six years after the Effective
Time.
On May 9, 1997, the Company Board adopted a resolution providing that, in
addition to the special meeting fees paid or to be paid to the outside directors
of the Company from April 1, 1997, through the consummation of the transactions
contemplated by the Merger Agreement or any other acquisition of the Company,
the outside directors be paid a fee of $25,000 upon the earlier to occur of (i)
the date any person acquires beneficial ownership of 20% or more of the Shares
other than a person that currently beneficially owns 20% or more of the Shares,
or (ii) September 30, 1997.
The provisions of the Merger Agreement relating to the election and
designation of directors to the Company Board are subject to Section 14(f) of
the Securities Exchange Act of 1934 (the "Exchange Act"), which requires the
Company to mail to its shareholders the Information Statement containing the
information required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. A copy of the Information Statement is attached as
Schedule I hereto and is incorporated herein by reference.
AMENDED EMPLOYMENT AGREEMENTS
On April 11, 1997, the Company Board approved amendments to the employment
agreements (the "Amended Employment Agreements") previously entered into with
Andrew Lozyniak, Chairman of the Company Board and President of the Company,
Henry V. Kensing, Vice President, General Counsel and Secretary, and Patrick J.
Dorme, Vice President-Finance and Chief Financial Officer to (i) provide for a
new definition of a change in control of the Company ("Change in Control"),
pursuant to which a Change in Control is, in general, deemed to occur if (a) any
person, with specified exceptions, becomes the beneficial owner of at least 25%
of the Company's voting securities, (b) a change in the majority of the
membership of the Company Board occurs without approval of two-thirds of the
directors who either were directors on the date of the amendments, or whose
election was previously so approved, (c) there is consummated a merger or
consolidation of the Company or a subsidiary thereof with another company in
which the Company's shareholders do not continue to hold at least 60% of the
voting securities of the surviving entity (excepting certain recapitalizations
of the Company) or (d) there occurs a liquidation of the Company or a sale or
other disposition of all or substantially all of the Company's assets and (ii)
clarify
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that the payment by the Company of any excise tax imposed under section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), would itself be made
on an after-tax basis and would include all "change-in-control" payments,
whether made pursuant to the Amended Employment Agreements or otherwise. The
foregoing description is qualified by reference to the text of the Amended
Employment Agreements, copies of which are filed as Exhibits 2 through 4 hereto.
The employment agreements are described on Schedule I hereto.
TRUST AGREEMENT
On April 11, 1997, the Company Board approved an amendment to the grantor
trust established by the Company (the "Trust Agreement Amendment") that provides
for the segregation of assets to pay liabilities under certain of the Company's
employee benefit arrangements to permit the segregation of additional assets to
pay any future severance liabilities under the Amended Employment Agreements and
the Severance Agreements, which are described immediately below. The grantor
trust agreement was also amended to adopt the definition of Change in Control
described above under "Amended Employment Agreements" and to provide certain
other changes. The foregoing description is qualified by reference to the text
of the Trust Agreement Amendment, a copy of which is filed as Exhibit 5 hereto.
SEVERANCE AGREEMENTS
On April 11, 1997, the Company Board authorized the Company to enter into
severance agreements (the "Severance Agreements") with two groups of employees:
Group I (the "Group I Severance Agreements"), consisting of seven employees, and
Group II (the "Group II Severance Agreements"), consisting of 30 employees. The
Severance Agreements provide for the payment of certain severance and other
benefits to covered employees who are terminated within two years following a
Change in Control (as defined above under "Amended Employment Agreements"). If,
following a Change in Control, the employee is terminated by the Company other
than for Cause (as defined in the Severance Agreements), or if the employee
terminates employment for Good Reason (as defined in the Severance Agreements)
(each a "Qualifying Termination"), then the Company will pay to the employee in
one lump sum, as severance pay, an amount equal to, in the case of the Group I
Severance Agreements, three times, and in the case of the Group II Severance
Agreements, one times, salary (based upon annual base salary at the date of
termination) and bonus payments (based upon the highest bonus paid in respect of
the Company's prior three full fiscal years) and will continue the employee's
welfare benefits for a period of, in the case of the Group I Severance
Agreements, three years, and in the case of the Group II Severance Agreements,
one year. In no case, however, may the employee receive any payment or benefit
in connection with a Change in Control in excess of 2.99 times his "base amount"
(as that term is defined in section 280G of the Code). The foregoing description
is qualified by reference to the text of the Severance Agreement, a copy of the
form of which is filed as Exhibit 6 hereto.
SEVERANCE POLICY
On April 11, 1997, the Company Board adopted a severance policy pursuant to
which six employees at the Company's corporate headquarters would be eligible,
in the event of a Qualifying Termination, to receive, in the case of covered
employees with at least five years of service with the Company or its
subsidiaries, one year's, and in the case of the remaining covered employees,
six months', salary (based upon annual base salary at the date of termination)
and highest bonus paid in respect of the Company's prior three full fiscal
years, payable in one lump sum.
RESTRICTED STOCK PLAN
The Company maintains the 1980 Restricted Stock and Cash Bonus Plan, as
amended (the "Restricted Stock Plan"), which provides for the award or sale of
shares of so-called restricted stock and, upon the lapse of restrictions
thereon, the payment of a cash bonus. The Restricted Stock Plan provides
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that all restrictions on outstanding awards will lapse in the event of a Change
in Control. On April 11, 1997, the Company Board made awards of restricted
shares under the Restricted Stock Plan to certain of the Company's employees and
adopted an amendment to the Restricted Stock Plan to adopt the definition of
Change in Control described above under "Amended Employment Agreements." The
foregoing description is qualified by reference to the text of the Restricted
Stock Plan amendment, a copy of which is filed as Exhibit 7 hereto. The
Restricted Stock Plan is described on Schedule I hereto.
NEW EMPLOYMENT AGREEMENTS
In connection with the execution of the Merger Agreement, the Company and
CTS have entered into new employment agreements (each, a "New Employment
Agreement"), dated as of May 9, 1997 and effective as of the Effective Time (the
"Effective Date"), with Messrs. Lozyniak, Kensing and Dorme, pursuant to which
each executive (the "Executive") will be employed by the Company for a period of
five years following the Effective Date (the "Term") in the same position as he
currently holds. As of the Effective Date, the New Employment Agreements will
supersede the Amended Employment Agreements. The terms and provisions of the New
Employment Agreements are substantially similar to those of the Amended
Employment Agreements.
The New Employment Agreements provide for (i) level monthly payments for
Messrs. Lozyniak, Kensing and Dorme of $37,500, $17,039 and $14,162,
respectively, with salary increases for Mr. Lozyniak comparable to those
provided from time to time for the Chief Executive Officer of CTS ("Base
Salary"); (ii) split-dollar life insurance coverage, supplemental retirement
benefits and, for the ten-year period following retirement, post-retirement
medical coverage, each as provided to the Executives under the Amended
Employment Agreements; (iii) eligibility to participate in annual and long-term
(including stock-based) incentive programs, on the same level as similarly
situated employees of CTS; and (iv) participation in other benefit programs and
policies at the level provided as of the date of the New Employment Agreements.
Mr. Lozyniak's New Employment Agreement also provides for an initial grant of an
option to purchase 100,000 shares of the outstanding shares of CTS (the "CTS
Shares"), at an exercise price of $62.50. The option is to become exercisable at
the rate of 20% per year during the next five years, such exercise schedule to
be accelerated if the market price of CTS Shares is at or above $70 for 20
trading days and upon termination of employment in specified circumstances.
The New Employment Agreements provide that if an Executive's employment is
terminated by the Executive for Good Reason, as defined in the New Employment
Agreements, or by the Company for any reason other than Cause, as defined in the
New Employment Agreements, or Disability, as defined in the New Employment
Agreements (a "Qualifying Termination"), the Executive will be entitled to the
following payments and benefits: (i) a cash lump sum equal to 3 1/3 times the
sum of his Base Salary and his highest aggregate stock and cash bonuses earned
for any of the five years prior to the Effective Date; or (ii) if the Executive
so elects, the continuation of his Base Salary over the remainder of the Term
plus an annual bonus for each year of the remainder of the Term equal to his
highest annual aggregate stock and cash bonuses earned for any of the five years
prior to the date of termination.
The New Employment Agreements provide that if an Executive's termination of
employment is by reason of death or Disability, he or his estate will be
entitled to the continuation of Base Salary over the remainder of the Term plus
an annual bonus for each year of the remainder of the Term equal to his highest
annual aggregate cash and stock bonuses earned for any of the five years prior
to the date of termination. At the end of the Term, if termination is by reason
of death, the Executive's surviving spouse will receive for ten additional years
(or her earlier death) an annual amount equal to $50,000 ($60,000 in the case of
Mr. Lozyniak). At the end of the Term, if termination is by reason of
disability, the Executive will receive an annual amount equal to 40% of his base
salary until age 65.
The New Employment Agreements also provide that if an Executive's employment
is terminated for any reason other than by the Company for Cause or by the
Executive without Good Reason, (i) an amount
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sufficient to pay 10 years of premiums with respect to the split-dollar
insurance policy on the Executive's life will be transferred to the split-dollar
life insurance carrier and CTS and the Company will release all their rights
under such policy; (ii) the Executive will be immediately eligible for
post-retirement supplemental retirement and medical benefits; and (iii) life and
disability insurance benefits, at the level provided as of the date of the
agreements, will be continued for the remainder of the Term. The Executives will
also be entitled to reasonable attorney's fees in the event of any disputes, as
well as a gross-up for any excise tax imposed upon any payments or benefits.
Finally, the New Employment Agreements provide that, during the Term,
Messrs. Lozyniak and Dorme will be nominated to the CTS Board and that Messrs.
Lozyniak, Dorme and Kensing will be nominated to the Company Board.
The foregoing description is qualified by reference to the text of the New
Employment Agreements, copies of which are filed as Exhibits 8 through 10
hereto.
OTHER COMPENSATION MATTERS
As of May 9, 1997, the Secretary of the Company exercised his authority
under the Company's Stock Retirement Plan for nonemployee Directors to
accelerate, from January 1, 1998 to immediately prior to the Effective Time, the
date on which the transfer of Shares will be made under such plan. In addition,
it is anticipated that the Compensation Committee of the Company Board will
review and consider the award of cash bonuses under the Company's annual cash
incentive plan, payable immediately prior to the Effective Time, based on
performance during the portion of 1997 preceding the Effective Time in an
aggregate amount not to exceed the accrual for annual cash incentive payments
reflected on the books of the Company on the date of the awards.
The Merger Agreement provides that, following the Effective Time, service
with the Company will be treated as service with CTS for all purposes (except
for the accrual of benefits under defined benefit pension plans or where
duplication of benefits would result) under any CTS employee benefit plan in
which employees of the Company may at any time participate. Amounts paid by
employees of the Company under a Company medical or similar employee benefit
plan with respect to the period in which the Effective Time occurs will be
treated as amounts paid under the corresponding CTS employee benefit plan in
which such employees are eligible to participate. Following the Effective Time,
CTS has agreed to cause the Surviving Corporation to honor in accordance with
their terms all employment, severance and other compensation agreements and
arrangements, including but not limited to severance benefit plans.
CONFIDENTIALITY AGREEMENT
On April 14, 1997, the Company and CTS signed a Confidentiality Agreement
(the "Confidentiality Agreement") providing that, subject to the terms of the
agreement, each company keep confidential certain non-public information
furnished by the other. The foregoing description is qualified by reference to
the text of the Confidentiality Agreement, a copy of which is filed as Exhibit
11 hereto.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS
THE COMPANY BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE CTS
OFFER AND THE CTS MERGER AND DETERMINED THAT THE CTS OFFER AND CTS MERGER ARE
FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS SHAREHOLDERS.
ACCORDINGLY, THE COMPANY BOARD UNANIMOUSLY RECOMMENDS THAT THOSE SHAREHOLDERS
WHO WISH TO RECEIVE CASH FOR THEIR SHARES ACCEPT THE CTS OFFER AND TENDER THEIR
SHARES PURSUANT THERETO.
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(B) BACKGROUND; REASONS FOR THE RECOMMENDATION
On March 27, 1997, WHX Corporation ("WHX") sent a letter to the Company
proposing to acquire all of the outstanding Shares in a merger at $40 per Share
(the "WHX Merger Proposal"). In its March 27, 1997 letter, WHX stated it had no
interest in increasing the equity stake that the Company holds in CTS or in
changing the nature of the current relationship between the Company and CTS. WHX
also stated that it would be prepared to increase its offer if additional
information demonstrated that a higher price was warranted, and asked the
Company to respond by the close of business on the next day (which was Good
Friday). Later that day, Mr. Lozyniak advised WHX that he would not be able to
review the WHX Merger Proposal with the Company's directors until the following
week and would communicate further with WHX promptly thereafter.
On March 31, 1997, WHX filed with the Commission materials relating to a
tender offer to purchase up to 649,000 Shares, subject to downward adjustment,
at a price of $40 per Share (the "WHX Tender Offer"). WHX also filed preliminary
proxy materials with the Commission on March 31, 1997 relating to the
solicitation of proxies by WHX for use at the Company's 1997 annual meeting of
shareholders (the "Company Annual Meeting") to (i) elect four WHX nominees to
the Company Board, (ii) adopt changes to the Company's By-laws to (a) permit
holders of at least 9.9% of the outstanding Shares to call a special meeting of
shareholders and (b) permit the removal of directors at any time with or without
cause, and (iii) repeal any By-law changes adopted by the Company Board after
March 14, 1997 and prior to the adoption of such resolution.
To obtain advice and assistance in considering the WHX Merger Proposal and
the WHX Tender Offer or an alternative business combination, the Company engaged
Wasserstein Perella & Co., Inc. ("Wasserstein Perella") as its financial advisor
and Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden Arps") as outside
counsel.
On April 5, 1997, Joseph P. Walker and Andrew Lozyniak met to discuss a
possible business transaction. Mr. Walker indicated a price of $45 per Share,
payable in CTS Shares and cash, for such a transaction. Mr. Lozyniak indicated
in this meeting that he would be willing to instruct the Company's advisors to
pursue further discussions of a possible transaction, but did not respond to Mr.
Walker's price indication.
To obtain advice and assistance in considering possible strategic benefits
that could result from a business combination and the issues that would be
required to be considered if such a transaction were to be pursued, CTS engaged
J.P. Morgan Securities Inc. ("J.P. Morgan") as CTS' financial advisor, Sommer &
Barnard as counsel in respect to matters of Indiana law and possible litigation
and Jones, Day, Reavis & Pogue ("Jones Day") as transactional counsel. From
April 16, 1997 through April 25, 1997, representatives of J.P. Morgan met with
senior management of the Company and Wasserstein Perella to carry out due
diligence reviews. In connection therewith, the Company furnished J.P. Morgan
certain Company projections. See "Certain Information Concerning the
Company--Certain Projections" in the Schedule 14D-1.
On April 9, 1997, WHX amended its offer, among other things, to increase the
WHX Tender Offer price and the WHX Merger Proposal price to $45 per Share. In an
effort to move forward from the discussions conducted at the April 5, 1997
meeting, representatives of CTS delivered to representatives of the Company a
draft merger agreement on April 9, 1997. In response, representatives of the
Company informed representatives of CTS that the proposed draft merger agreement
was unacceptable, particularly provisions therein requiring the Company to grant
to CTS an option on the CTS Shares beneficially owned by the Company, a ten-year
standstill that would operate regardless of whether the transaction closed and a
fiduciary-out provision that was limited to superior acquisition proposals
meeting specified criteria.
On April 9 and 11, 1997, the Company Board met with its financial and legal
advisors to discuss the WHX Tender Offer and possible actions to be taken by the
Company. At the April 11, 1997 meeting, the Company Board unanimously rejected
the WHX Tender Offer as inadequate and not in the best interests
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of the shareholders of the Company and unanimously recommended that holders of
Shares reject the WHX Tender Offer and not tender their Shares pursuant thereto.
The Company Board also determined to explore alternative transactions to
maximize shareholder value, including a possible business combination with CTS.
In reaching its determination to reject the WHX Tender Offer, the Company Board
considered a number of factors, including the opinion of Wasserstein Perella to
the effect that, based upon and subject to the matters reviewed with the Company
Board, the $45 per Share cash consideration offered to holders of Shares
pursuant to the WHX Tender Offer was inadequate from a financial point of view
to such holders.
At the April 11, 1997 meeting, the Company Board also (i) postponed the
Company Annual Meeting to August 1, 1997, (ii) added two directors to the
Company Board (resulting in the Company Board being divided into three, rather
than two, classes), (iii) amended the Company's By-laws to (a) eliminate the
shareholders' ability to remove directors without cause, (b) raise to two-thirds
the percentage of Shares needed to call a special meeting of shareholders, (c)
add advance notice provisions for shareholders to nominate persons for election
to the Company Board or to propose business at annual or special shareholders'
meetings, and (d) remove an inconsistent, and thus ineffective, provision
purporting to allow the holders of a majority of the Shares to amend the By-laws
(the Company's Restated Certificate of Incorporation, as amended (the "Company
Charter"), which controls over the By-laws, provides for an 80% vote to amend
the By-laws), and (iv) approved certain employee benefits matters. As a result
of these actions, it will take at least two annual meetings to replace a
majority of the Company Board. As discussed below, WHX has challenged the
validity of certain of these actions in litigation.
At an April 11, 1997 meeting, the CTS Board (Messrs. Lozyniak and Dorme
having excused themselves) considered, on a preliminary basis, alternatives that
may be available to it in the circumstances, including the matters discussed in
the meeting between Messrs. Walker and Lozyniak at their April 5, 1997 meeting.
On April 14, 1997, the Company commenced litigation against WHX in Federal
District Court in Connecticut (the "Connecticut Court") alleging, among other
things, violations of the federal securities laws. On April 17, 1997, WHX filed
a counterclaim in the action pending in the Connecticut Court seeking a
declaratory judgment that Article XV of the Company Charter is invalid and
unenforceable. Article XV provides, in general, that 80% of the outstanding
voting stock of the Company is required to approve a merger of the Company with
another person if the other person is the "beneficial owner" of 5% or more of
the outstanding voting stock of the Company unless the Company Board approves
such a merger before the acquisition of such ownership. The New York Business
Corporation Law (the "NYBCL") only requires a two-thirds approval by
shareholders. Subsequently, WHX amended its counterclaim, among other things, to
challenge certain actions taken by the Company Board at its April 11, 1997
meeting.
Starting April 14, 1997, representatives of the Company, including
representatives of Wasserstein Perella and financial and operational executives
of the Company, commenced discussions with representatives of CTS concerning the
operations of the Company and areas of potential synergy between the Company and
CTS. Also on April 14, 1997, the Company and CTS signed a confidentiality
agreement providing that, subject to the terms of the agreement, each company
would keep confidential certain non-public information furnished by the other.
On April 16, 1997, Mr. Walker, Mr. Lozyniak and representatives of J.P.
Morgan, Wasserstein Perella, Jones Day and Skadden Arps met to discuss a
potential business combination transaction. The specific price proposed by CTS
to be paid therein was not discussed at that meeting. On April 17, 1997,
representatives of CTS informed representatives of the Company that CTS proposed
to acquire the Company for $50 per Share, consisting of approximately 50% cash
and approximately 50% CTS Shares. This proposal of CTS was rejected by
representatives of the Company later that day.
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The CTS Board met on April 24, 1997. At this meeting, the CTS Board
determined that it would be appropriate to establish a committee comprised of
the two CTS directors who were not employed by either CTS or the Company to
facilitate discussions of a possible business combination transaction between
CTS and the Company (the "CTS Board Committee"). On April 25, 1997, the day of
CTS' 1997 annual meeting of shareholders (the "CTS Annual Meeting"),
representatives of the Company and of other shareholders of CTS discussed the
possible adjournment of the CTS Annual Meeting. Following discussions between
representatives of CTS and the Company, the CTS Annual Meeting was adjourned to
June 16, 1997.
On April 29, 1997, the Connecticut Court entered a preliminary injunction
against WHX in connection with the WHX Tender Offer. The Connecticut Court
ordered WHX to make further and complete disclosures on certain issues and to
extend its tender offer for an additional 20 days.
During April 29-30, 1997, the CTS Board Committee received presentations
from Wasserstein Perella and J.P. Morgan as to such firms' views regarding the
Company and CTS and the possible terms of a business combination transaction
involving the two companies. In addition, the CTS Board Committee conducted
discussions with representatives of CTS and the Company with respect to other
matters relevant to a possible business combination transaction.
On April 30, 1997, WHX amended its offer to provide that WHX is offering to
purchase any and all outstanding Shares and to condition its tender offer on the
inapplicability of the Company Rights Plan and Section 912 of the NYBCL, which
prohibits certain transactions, including mergers, between a New York
corporation, such as the Company, and a stockholder that beneficially owns 20%
or more of the outstanding voting stock of such corporation for a period of five
years after the acquisition of such ownership, unless the acquisition of such
ownership is approved in advance by the board of directors of the company. The
WHX Tender Offer is now scheduled to expire on May 20, 1997.
On April 30, 1997, the Company executed a confidentiality agreement with a
substantial multinational entity (the "Third Party"). The confidentiality
agreement contained an 18-month standstill provision that prohibited the Third
Party from, among other things, making any proposal to acquire securities or
assets of the Company. Thereafter, representatives of the Company met with
representatives of the Third Party and provided the Third Party with certain
information concerning the Company. Representatives of CTS had engaged in
preliminary discussions with representatives of the Third Party on April 29,
1997.
On May 1, 1997, representatives of J.P. Morgan met with representatives of
Wasserstein Perella and informally discussed a possible $55 per share offer for
the Company, with approximately 50% of the consideration in cash and 50% in CTS
Shares. A meeting of the CTS Board was held on May 2, 1997, at which the status
of efforts regarding the possible business combination with the Company was
reviewed with the CTS Board (Messrs. Lozyniak and Dorme having excused
themselves from such discussion). It was the consensus of the unaffiliated CTS
directors that the parties should continue to pursue a possible business
combination transaction with the Company. Commencing on May 5, 1997,
representatives of the Company and CTS engaged in negotiations of the terms for
such a transaction, including definitive documentation.
The Company Board met on May 7, 1997 with its financial and legal advisors
to discuss the status of negotiations and the terms of a possible transaction
with CTS. The Company Board also adopted an amendment to the Company Rights Plan
to prevent the Rights from separating from the Company Common Stock as a result
of WHX amending its offer to purchase any and all Shares. See the Company's Form
8-K, as filed with the Commission on May 9, 1997.
On May 7, 1997, a meeting of the CTS Board was held at which the possible
business combination with the Company was reviewed with the assistance of J.P.
Morgan, Sommer & Barnard and Jones Day. The presentations to and discussions by
the CTS Board (Messrs. Lozyniak and Dorme having excused themselves) were wide
ranging and detailed, and included, among other things, (i) a presentation by
Sommer & Barnard regarding the duties of directors in considering a possible
business combination, (ii) a
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review by senior management of the discussions conducted to date with
representatives of the Company, (iii) a detailed review by Jones Day of the
draft merger documentation and the status of discussions thereon between the
parties, (iv) a review by senior management as to how a merger could be
implemented, including the expected composition of the board of directors and
senior management of the combined company, and (v) a presentation by J.P. Morgan
of its preliminary views of the possible transaction. The CTS Board also
reviewed a detailed presentation from Jones Day regarding the terms of certain
executive employment agreements and a proposed employment agreement to be
entered into between CTS and Mr. Walker to replace his existing employment
agreement (which expires by its terms on June 24, 1997).
The CTS Board met again in the morning of May 9, 1997. At that meeting, the
CTS Board in its entirety, and the unaffiliated CTS directors separately,
approved the Merger Agreement.
Later in the morning of May 9, 1997, the Company received a letter from the
Third Party proposing to acquire the Company at $54 per Share in cash, subject
to a number of conditions, including satisfactory completion of financial,
legal, tax and environmental due diligence, exclusive negotiation between the
Company and the Third Party regarding the acquisition of the Company (which
would have required the cessation of negotiations between the Company and CTS)
and a $10 million break-up fee (the "Third Party Proposal"). The Third Party
also sent a letter to CTS that same morning indicating an intention to pursue
the possible acquisition of the Company and a desire to work with CTS'
management in connection therewith.
Representatives of CTS contacted representatives of the Company in the
morning of May 9, 1997 to report that CTS had approved the Merger Agreement
earlier that morning, that CTS had received the above-described letter from the
Third Party, that CTS believed that the Merger Agreement had been substantially
negotiated and could be signed later that day, that CTS had invested substantial
time and effort negotiating with the Company and that CTS did not wish to invest
further time and effort discussing a transaction with the Company if the Company
were not willing to sign a Merger Agreement on the terms which had been
discussed. Accordingly, representatives of CTS informed representatives of the
Company that CTS would terminate further discussions of a business combination
if the Merger Agreement were not approved by the Company and signed that day.
Representatives of CTS also said that CTS would not increase the consideration
it was proposing in the Acquisition. In light of the Third Party Proposal,
representatives of the Company proposed that CTS reduce the break-up fee
contemplated by the draft merger documents that the parties had been discussing.
CTS agreed in these discussions to reduce the fee to $2 million upon signing and
$4 million under certain circumstances.
Later that day, the Company Board met with its financial and legal advisors
to continue the discussions begun on May 7, 1997 regarding a possible business
combination transaction with CTS. At the meeting, the Company Board considered
the Third Party Proposal, the WHX Tender Offer and CTS' proposal. The Company
Board received a presentation by representatives of Wasserstein Perella relating
to financial considerations with respect to the transactions contemplated by the
Merger Agreement with CTS. Representatives of Wasserstein Perella delivered
Wasserstein Perella's opinion to the effect that, based upon and subject to the
matters reviewed with the Company Board, the consideration to be received by the
Company's shareholders in the CTS Offer and the CTS Merger, taken together, was
fair to the Company's shareholders from a financial point of view. See
"--Opinion of Wasserstein Perella."
During the deliberations of the Company Board on May 9, 1997,
representatives of the Third Party sent a second letter to the Company that
removed the due diligence condition and clarified that its proposal was not
subject to the consent or approval by CTS. Representatives of the Company held
further discussions with representatives of CTS regarding the break-up fee
proposed by CTS, as a result of which CTS agreed to reduce the fee to $2 million
upon the signing of the Merger Agreement and $3 million under certain
circumstances. See "The Merger Agreement--Termination Fees" in the Schedule
14D-1.
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The Company Board did not communicate with the Third Party regarding the
Third Party Proposal in light of (i) the fact that the Company and CTS had
substantially negotiated the terms of the Merger Agreement, while there could be
no assurance that the Company and the Third Party could agree as to the final
terms of a merger agreement, (ii) CTS' statement that if the Merger Agreement
were not approved that day it would terminate further discussions of a business
combination transaction, (iii) Wasserstein Perella's opinion as to the fairness
of the consideration provided for in the Merger Agreement (and the fact that
representatives of Wasserstein Perella were aware of the Third Party Proposal
when they delivered such opinion), and (iv) the Company Board's belief that the
break-up fee and other features of the Merger Agreement would not deter a more
attractive offer to acquire the Company.
After discussion and further analysis, at its May 9, 1997 meeting, the
Company Board unanimously determined to approve the CTS Offer and the CTS
Merger. See "Reasons for the Recommendation." In addition, the Company Board
unanimously recommended that (i) shareholders who wish to receive cash for their
Shares accept the CTS Offer and tender their Shares pursuant thereto and (ii)
shareholders vote in favor of approval and adoption of the Merger Agreement and
the CTS Merger. At the May 9, 1997 meeting, the Company Board also reaffirmed
its determination that the WHX Tender Offer was inadequate and not in the best
interests of the Company and its shareholders and reaffirmed its recommendation
to the Company's shareholders that they reject the WHX Tender Offer and not
tender their Shares pursuant thereto. Finally, the Company Board also adopted an
amendment to the Company Rights Plan to make it inapplicable to the CTS Offer,
the CTS Merger and the other transactions contemplated by the Merger Agreement.
See the Company's Form 8-K, as filed with the Commission on May 12, 1997.
CTS and the Company signed the Merger Agreement on the evening of May 9,
1997 and publicly announced the transaction on May 11, 1997.
WHX has sent a notice, dated May 8, 1997, to the Company, in compliance with
the Company's advance-notice By-law provisions adopted on April 11, 1997 (i)
nominating six persons for election to the Company Board at the Company Annual
Meeting and (ii) proposing that a non-binding Shareholder resolution be
presented to the Company's shareholders at the Company Annual Meeting
recommending that the Company Board take all actions necessary, including
removing any anti-takeover devices of the Company, to effect the WHX Tender
Offer or to effect a transaction with a third party for cash consideration in
excess of $45 per Share. On May 9, 1997, WHX filed revised preliminary proxy
materials with the Commission relating to the solicitation of proxies by WHX for
use at the Company Annual Meeting regarding these matters.
On May 14, 1997, WHX said it was reviewing its options with respect to the
Company.
On May 16, 1997, CTS commenced the CTS Offer.
REASONS FOR THE RECOMMENDATION
In approving the Merger Agreement and the transactions contemplated thereby,
the Company Board considered the following factors:
(i) the business, results of operations, financial condition and
prospects of the Company and CTS and presentations by management of the
Company and Wasserstein Perella;
(ii) the presentation of Wasserstein Perella at the May 9, 1997 Company
Board meeting and the opinion of Wasserstein Perella to the effect that,
based upon and subject to the matters reviewed with the Company Board, the
consideration to be received by the Company's shareholders in the CTS Offer
and the CTS Merger taken together, pursuant to the Merger Agreement is fair
to the Company's shareholders from a financial point of view; such opinion
is based on various assumptions and subject to various limitations, as
discussed in the opinion (see "--Opinion of Wasserstein Perella"). A copy of
the opinion of Wasserstein Perella, which sets forth the factors considered
and the assumptions made by Wasserstein Perella, is attached hereto as
Exhibit 12, and incorporated herein by
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reference. SHAREHOLDERS ARE URGED TO READ THE OPINION OF WASSERSTEIN PERELLA
CAREFULLY AND IN ITS ENTIRETY;
(iii) that the transactions contemplated by the Merger Agreement include
(a) a cash tender offer for up to 49.9% of the outstanding Shares, thereby
enabling those of the Company's shareholders who wish to receive cash for
some or (depending on the number of Shares tendered) all of their Shares to
do so and (b) a stock-for-stock merger that would be a tax-free
reorganization, thereby allowing those of the Company's shareholders who
wish to participate in the future growth of the combined companies on a
tax-free basis to do so;
(iv) the terms and conditions of the Merger Agreement and that the
Merger Agreement permits the Company, under certain circumstances, to
furnish information to and to negotiate with third parties and to terminate
the Merger Agreement upon the payment of a $3 million fee (in addition to
the $2 million fee paid at signing), that such provisions apply equally to
the Company and CTS (other than that CTS would be required to pay a $5
million fee and did not pay a fee at signing) and the belief of the Company
Board that the provisions of the Merger Agreement would not deter a more
attractive offer for the Company;
(v) historical market prices and trading information for the Shares and
the CTS Shares;
(vi) the Company Board's familiarity with the operations and management
of CTS due to the Company's significant equity ownership interest in CTS for
over a decade;
(vii) the strategic fit between the operations of the Company and those
of CTS, including (x) the ability of the two companies to combine
complementary product lines, reduce costs and create significant synergies
and (y) the financial strength and flexibility, strong balance sheet and
opportunities for growth of the combined company;
(viii) the ability of the Company's shareholders to participate in the
potential benefits of the combined company through ownership of
approximately 36% of the CTS Shares following the CTS Merger (assuming the
purchase of 49.9% of the Company Shares in the CTS Offer); and
(ix) that, following the CTS Merger, (a) the CTS Board would continue to
include two members from the Company's management, (b) Mr. Lozyniak would be
a member of CTS' Office of the Chairman with Mr. Walker, (c) through CTS'
1998 annual shareholder's meeting, any new members to the CTS Board would
have to be unanimously approved by a committee of the CTS Board consisting
of, among others, Mr. Lozyniak or Patrick J. Dorme, the Company's Chief
Financial Officer and (d) Messrs. Lozyniak, Kensing and Dorme would continue
to be involved with the management of the Company.
Having considered all the foregoing, the Company Board concluded that the
CTS Offer and the CTS Merger, taken together, was fair to and in the best
interests of the Company and its shareholders.
The foregoing discussion of the information and factors considered by the
Company Board is not intended to be exhaustive but includes all material factors
considered by the Company Board. The Company Board did not assign relative
weights to the foregoing factors or determine that any factor was of particular
importance, and individual directors may have given differing weights to
different factors. Rather, the Company Board viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it.
There can be no assurances that the expected benefits of the CTS Merger will
be realized.
OPINION OF WASSERSTEIN PERELLA
Wasserstein Perella delivered its oral opinion to the Company Board on May
9, 1997 (subsequently confirmed in writing) that, as of the date of such
opinion, and based on the procedures followed,
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assumptions made, matters considered and limitations on the review undertaken,
as set forth in the opinion, the consideration to be received in the CTS Offer
and the CTS Merger (together, the "Transactions"), taken together, was fair to
the shareholders of the Company from a financial point of view.
A COPY OF THE OPINION OF WASSERSTEIN PERELLA, DATED MAY 9, 1997, IS ATTACHED
HERETO AS EXHIBIT 12, AND INCORPORATED BY REFERENCE. SHAREHOLDERS ARE URGED TO
READ THE WASSERSTEIN PERELLA OPINION IN ITS ENTIRETY FOR INFORMATION WITH
RESPECT TO THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS OF THE REVIEW UNDERTAKEN BY WASSERSTEIN PERELLA IN RENDERING ITS OPINION.
REFERENCES TO THE WASSERSTEIN PERELLA OPINION AND THE SUMMARY OF THE WASSERSTEIN
PERELLA OPINION HEREIN ARE QUALIFIED BY REFERENCE TO THE FULL TEXT OF THE
WASSERSTEIN PERELLA OPINION, WHICH IS INCORPORATED HEREIN BY REFERENCE. THE
WASSERSTEIN PERELLA OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL
POINT OF VIEW, TO THE COMPANY'S SHAREHOLDERS OF THE CONSIDERATION TO BE RECEIVED
IN THE CTS OFFER AND THE CTS MERGER, TAKEN TOGETHER, PURSUANT TO THE MERGER
AGREEMENT, AND WASSERSTEIN PERELLA DID NOT EXPRESS ANY VIEWS ON ANY OTHER TERMS
OF THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT. SPECIFICALLY,
WASSERSTEIN PERELLA'S OPINION DOES NOT ADDRESS THE COMPANY'S UNDERLYING BUSINESS
DECISION TO EFFECT THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT OR
CONSTITUTE A RECOMMENDATION TO ANY COMPANY SHAREHOLDER WITH RESPECT TO WHETHER
SUCH HOLDER SHOULD TENDER SHARES PURSUANT TO THE CTS OFFER OR AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE CTS MERGER.
In connection with rendering its opinion, Wasserstein Perella reviewed the
Merger Agreement. Wasserstein Perella also reviewed and analyzed certain
publicly available business and financial information relating to the Company
and CTS for recent years and interim periods to the date of such opinion, as
well as certain internal financial and operating information, including
financial forecasts, analyses and projections prepared by or on behalf of the
Company and CTS and provided to Wasserstein Perella for purposes of its
analysis, and Wasserstein Perella met with representatives of the senior
managements of the Company and CTS to review and discuss such information and,
among other matters, the Company's and CTS' respective businesses, operations,
assets, financial condition and future prospects.
Wasserstein Perella reviewed and considered certain financial and stock
market data relating to the Company and CTS, and compared that data with similar
data for certain other companies, the securities of which are publicly traded,
that Wasserstein Perella believed may be relevant or comparable in certain
respects to the Company and CTS or one or more of their respective businesses or
assets, and Wasserstein Perella reviewed and considered the financial terms of
certain recent acquisitions and business combination transactions which
Wasserstein Perella believed to be reasonably comparable to the transactions
contemplated by the Merger Agreement or otherwise relevant to its inquiry.
Wasserstein Perella also performed such other studies, analyses, and
investigations and reviewed such other information as Wasserstein Perella
considered appropriate for purposes of its opinion.
Wasserstein Perella noted that, in its review and analysis and in
formulating its opinion, Wasserstein Perella assumed and relied upon the
accuracy and completeness of all the financial and other information provided to
or discussed with it or publicly available, and did not assume any
responsibility for independent verification of any of such information.
Wasserstein Perella also relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to Wasserstein Perella
and assumed, with the Company's consent, that such projections, forecasts and
analyses were reasonably prepared in good faith and on bases reflecting the best
currently available judgments and estimates of the Company's and CTS'
management, and Wasserstein Perella expressed no opinion with respect to such
projections, forecasts and analyses or the assumptions upon which they were
based. In addition, Wasserstein Perella did not review any of the books and
records of the Company or CTS, or assume any responsibility for conducting a
physical inspection of the properties or facilities of the Company or CTS, or
for making or obtaining an independent valuation or appraisal of the assets or
liabilities of the Company or CTS, and no such independent valuation or
appraisal was provided to Wasserstein Perella. Wasserstein Perella noted that it
assumed that the transactions described in the Merger Agreement will be
consummated on the terms set forth therein, without material waiver or
modification. Wasserstein Perella also assumed that the
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CTS Merger will qualify as a tax-free reorganization under the Code. Wasserstein
Perella noted that its opinion was necessarily based on economic and market
conditions and other circumstances as they existed and could be evaluated by
Wasserstein Perella as of the date of such opinion. In rendering its opinion,
Wasserstein Perella noted that it was not expressing any opinion as to the price
at which the CTS Shares will actually trade at any time, or the market value of
the consideration that the Company's shareholders will receive upon consummation
of the transactions contemplated by the Merger Agreement.
Wasserstein Perella noted that in the context of its engagement by the
Company, at the direction of the Company, Wasserstein Perella did not solicit
alternative offers for the Company or its assets, although Wasserstein Perella
did (with the Company's permission) engage in preliminary discussions with one
company (other than CTS and WHX). On May 9, 1997, such company delivered a
written proposal to the Company to acquire all of the outstanding Shares for $54
per share in cash, subject to certain conditions, including the negotiation of a
mutually satisfactory merger agreement.
Set forth below is a summary of certain of the financial analyses used by
Wasserstein Perella in connection with providing its opinion to the Company's
Board as contained in the presentation by Wasserstein Perella to the Company's
Board on May 9, 1997 (the "Wasserstein Perella Presentation").
VALUATION ANALYSIS
Wasserstein Perella prepared a summary pre-tax valuation reference range for
each of the Company's divisions, and, by aggregating such valuation ranges with
valuations for the Company's other assets, calculated an implied reference range
of valuations for the Company as a whole. The divisions are IERC,
Reeves-Hoffman, Waring, Ellis & Watts, Fermont, Anemostat-West and
Anemostat-Scranton. Wasserstein Perella arrived at its summary valuations of the
divisions by considering, among other things, as applicable, (i) discounted cash
flow analysis, (ii) comparable company analysis, (iii) comparable acquisition
analysis and (iv) book value. The Company's other assets are cash and
approximately 2.3 million CTS Shares.
DISCOUNTED CASH FLOW ANALYSIS. Wasserstein Perella performed a discounted
cash flow analysis on each division for the years ended December 31, 1997
through 2001. Wasserstein Perella, using forecasts prepared by management of the
Company for the years 1997 through 1999 and extrapolated to 2001 in consultation
with management, discounted the unlevered free cash flow of each division
(unlevered net income plus depreciation and amortization, less capital
expenditures and changes in working capital) over the forecast period using a
range of risk-adjusted discount rates (representing a range of risk-adjusted
costs of capital for companies with similar and/or broader business portfolios
than the applicable division). Discount rates ranges ranged from 8.0% to 11.0%
(in the case of Fermont) to 13% to 16% (in the case of Reeves-Hoffman). The sum
of the present values of such cash flows was then added to the present value of
the applicable division's terminal value in 2001. The terminal value was
calculated by multiplying the EBITDA for calendar year 2001 by multiples ranging
from 4.0x to 5.5x (in the case of Fermont) to 7.5x to 9.0x (in the case of IERC
and Reeves-Hoffman). Based on this analysis, Wasserstein Perella calculated a
pre-tax valuation reference range of $45 million to $55 million for IERC, $20
million to $25 million for Reeves-Hoffman, $10 million to $15 million for
Waring, $8 million to $10 million for Ellis & Watts, $6 million to $7 million
for Fermont, $8 million to $10 million for Anemostat-West and $5 million to $10
million for Anemostat-Scranton.
With respect to the discounted cash flow analysis, Wasserstein Perella noted
that the selection of an appropriate discount rate and an appropriate multiple
for determining terminal value is an inherently subjective process. The
selection of an appropriate discount rate is affected by such factors as the
applicable division's cost of capital and the uncertainties associated with
achieving the projections provided by management of the Company. The selection
of an appropriate terminal multiple involves a judgment concerning appropriate
multiples of EBITDA prevailing in the market at the time such selection is made
and such multiples may not be obtainable in the future. Wasserstein Perella also
noted that discounted cash flow analysis is a widely used valuation methodology,
but that it relies on numerous assumptions regarding
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the future performance of a company and the future economic environment,
including earnings growth rates, unlevered free cash flows, terminal values and
discount rates, all of which are inherently uncertain because they are
predicated on future events and circumstances.
COMPARABLE COMPANY ANALYSIS. Wasserstein Perella reviewed certain financial
information relating to IERC, Reeves-Hoffman, Waring and Anemostat West and
compared it to corresponding publicly available financial information, ratios
and public market multiples for certain publicly-traded corporations. Such
financial information was used to calculate multiples, including Equity Value
(as defined below) to net income, Equity Value to after-tax cash flow, Equity
Value to book value, Enterprise Value (as defined below) to revenues, Enterprise
Value to EBITDA and Enterprise Value to EBIT. Wasserstein Perella noted that
Ellis & Watts, Fermont and Anemostat-Scranton were not deemed susceptible to
comparable company analysis. Wasserstein Perella's comparable company analysis
for the other divisions was prepared both with and without giving effect to any
change-of-control premium that may arise in connection with a transaction such
as the Transactions. For the purpose of giving effect to a change-of-control
premium, Wasserstein Perella included a control premium of 30% of imputed Equity
Value.
As used in the Wasserstein Perella analysis: (i) "Enterprise Value" means
the sum of the Equity Value of the transaction or the company, as the case may
be, plus the book value of net debt (short and long term debt less cash and
short term investments), non-convertible preferred stock and minority interest
and (ii) "Equity Value" and "Market Value" mean the fully-diluted equity value
of the transaction or the company, as the case may be.
Comparable companies for IERC included Aavid Thermal Technologies, Alpha
Technologies Group, Inc., Zero Corp., AVX Corporation, and Vishay
Intertechnology, Inc. and implied a pre-tax valuation reference range of $25
million to $35 million assuming no control premium and $33 million to $46
million assuming a control premium. Comparable companies for Reeves-Hoffman
included AVX Corporation, Kemet Corporation, International Rectifier
Corporation, Vishay Intertechnology, Inc., and Thomas & Betts Corporation and
implied a pre-tax valuation reference range of $15 million to $20 million
assuming no control premium and $20 million to $26 million assuming a control
premium. Comparable companies for Waring included Specialty Equipment Companies,
Inc., Premark International, Inc., The Rival Company, and Toastmaster, Inc. and
implied a pre-tax valuation reference range of $5 million to $7 million assuming
no control premium and $7 million to $9 million assuming a control premium.
Comparable companies for Anemostat-West included Butler Manufacturing Company,
Nortek, Inc., ABT Building Products Corporation, Armstrong World Industries,
Inc. and United Dominion Industries, Ltd. and implied a pre-tax valuation
reference range of $8 million to $12 million assuming no control premium and $10
million to $15 million assuming a control premium.
The comparable corporations were chosen because they are publicly-traded
companies with operations that, for purposes of this analysis, may be considered
to be similar to the operations of a division of the Company. Wasserstein
Perella observed that comparable company analysis is subject to certain
limitations, including: no individual company has a business mix that precisely
mirrors that of any division of the Company; and the analysis has limited
applicability to a loss-making business. Accordingly, an analysis of the results
of Wasserstein Perella's analysis necessarily involves certain considerations
and judgments concerning differences in the financial and operating
characteristics of each division which could effect the implied public trading
value of the companies to which it is being compared.
COMPARABLE ACQUISITIONS ANALYSIS. Wasserstein Perella reviewed and analyzed
certain financial information based on selected mergers and acquisitions in
industries considered comparable to IERC, Reeves-Hoffman, Waring and
Anemostat-West. Wasserstein Perella noted that Ellis & Watts, Fermont and
Anemostat-Scranton were not deemed susceptible to comparable acquisitions
analysis. Wasserstein Perella considered (i) the multiples of Enterprise Value
to sales, Enterprise Value to EBITDA and Enterprise Value to EBIT and (ii) the
multiples of Market Value (as defined above) to net income and Market Value
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to book value. Based on an analysis of the transactions, the means and medians
of the foregoing multiples were applied to the applicable division's
corresponding 1996 information to calculate implied value ranges.
Comparable acquisitions (listed by acquiror/acquiree) for IERC and Reeves
Hoffman included Technitrol/Pulse Engineering, Vishay Intertechnology,
Inc./Vitramon, Kemet/Vishay Intertechnology, Inc. (proposed), DII Group/Orbit
Semiconductor and Crane Co./Interpoint and implied a pre-tax valuation reference
range of $25 million to $27 million for IERC and $8 million to $10 million for
Reeves-Hoffman. Comparable acquisitions for Anemostat-West included
Investcorp/Falcon Building Products, Rugby Group PLC/Pioneer Plastics, and Atlas
Copco Group/Milwaukee Electric Tools Corp. and implied a pre-tax valuation
reference range of $8 million to $10 million. Comparable acquisitions for Waring
included Berisford International/Welbilt, Health o Meter/Mr. Coffee and
Honeywell/Duracraft; however, Wasserstein Perella concluded that the multiples
exhibited in these transactions did not provide meaningful valuation information
for Waring.
Wasserstein Perella observed that comparable acquisitions analysis is
subject to certain limitations, including: the analysis does not incorporate the
time of the transactions, no single transaction is precisely comparable in
business characteristics and market conditions, there is a scarcity of public
disclosure on terms of comparable transactions and the financial performance of
acquirees and the analysis has limited applicability to loss-making businesses.
Accordingly, an analysis of the results of the foregoing necessarily involves
certain considerations and judgments concerning differences in the financial and
operating characteristics of the divisions and certain other characteristics
which could affect the derived value of the transactions to which the divisions
are being compared.
Wasserstein Perella analyzed the pre-tax valuation reference ranges implied
by its discounted cash flow analysis, comparable companies analysis and
comparable acquisitions analysis as well as the book values of the divisions to
obtain an implied valuation reference range for each division. The pre-tax
valuation reference ranges were $30 million to $40 million for IERC, $10 million
to $20 million for Reeves-Hoffman, $5 million to $10 million for Waring, $5
million to $10 million for Ellis & Watts, $5 million to $7 million for Fermont,
$5 million to $10 million for Anemostat-West and up to $5 million for Anemostat-
Scranton. The foregoing analysis implied a total pre-tax valuation reference
range for all of the divisions of $60 million to $102 million. Wasserstein
Perella then added the value of the Company's other assets, which consist of
cash and CTS Shares. For purposes of this calculation, Wasserstein Perella used
the May 8, 1997 closing price of CTS Shares of $61 per share. These analyses
resulted in a range of values per share of the Shares of $53 to $64.
STOCK PRICE AND EXCHANGE RATIO ANALYSES
Wasserstein Perella reviewed the closing prices of the Shares and CTS Shares
over the period from May 31, 1994 through April 30, 1997. During this period,
the Shares increased from a closing price of $14.75 per share on May 31, 1994 to
a closing price of $44.125 per share on April 30, 1997. During the same period,
CTS Shares increased from a closing price of $25.375 per share to a closing
price of $62.50 per share.
In addition, Wasserstein Perella analyzed the ratios of closing prices of
the Shares to closing prices of CTS Shares as reported on the New York Stock
Exchange during various periods, compared to the exchange ratio of 0.88 CTS
Shares per Share in the CTS Merger. Wasserstein Perella observed that from March
28, 1994 through March 27, 1997, the mean of the ratios of closing stock prices
of the Shares to CTS Shares was 0.67x with a standard deviation of 0.06x and a
high ratio of 0.88x. Wasserstein Perella also observed that the mean of the
ratios of closing stock prices of the Shares to CTS Shares for various periods
ending March 27, 1997 were (1) 0.64x over the prior month; (2) 0.64x over the
prior three months; (3) 0.67x over the prior six months; and (4) 0.64x over the
prior year.
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SELECTED PUBLIC ACQUISITION PREMIA ANALYSIS
Wasserstein Perella reviewed mergers and acquisition transactions with
values ranging from $50 million to $500 million to derive a range of premia paid
over the public trading prices per share one day, one week and four weeks prior
to the announcement of such transactions. However, Wasserstein Perella noted
that the reasons for, and circumstances surrounding, each of the transactions
analyzed were diverse and the characteristics of the companies involved were not
particularly comparable to those of the Company and CTS and that premia
fluctuate based on perceived growth, synergies, strategic value and the type of
consideration utilized in the transaction.
The analyses indicated that the medians of premia paid in the transactions
over the public per share trading prices one day, one week and four weeks prior
to the announcement of such transactions were 24.2%, 34.2% and 26.9%,
respectively, and that the means of premia paid in the transactions over the
public per share trading prices one day, one week and four weeks prior to the
announcement of such transactions were 31.4%, 35.1% and 39.1%, respectively. The
proposed premia of an assumed value of $54.34 (representing the blended value of
the Transactions assuming 49.9% cash consideration and 50.1% stock consideration
utilizing the CTS Offer price of $55 per Share and a CTS Shares price of $61 per
share (the closing price on May 8, 1997)) over the closing price per share of
the Shares on March 27, 1997 and the average trading price of the Shares during
the 10, 30 and 90 days prior to the announcement of the WHX Tender Offer were
64%, 64%, 72% and 84%, respectively.
PRO FORMA MERGER ANALYSIS
Wasserstein Perella analyzed the pro forma impact of the Transactions on
holders of CTS Shares based on estimates of fully diluted earnings per share
("EPS") and fully diluted after-tax cash flow from operations per share (defined
as net income plus depreciation and amortization and herein referred to as
"CFPS") for the Company and CTS prepared by their respective managements for
1997 and 1998. The pro forma analysis was based on certain assumptions set forth
in the Wasserstein Perella Presentation, including the assumptions that the
Transactions had been consummated on January 1, 1997, that the price of CTS
Shares at consummation of the CTS Merger was $62.50 per share, and an interest
rate of 9% on acquisition debt.
Wasserstein Perella first analyzed the Transactions assuming that 49.9% of
the outstanding Shares were purchased for cash and 50.1% of such shares were
acquired in exchange for CTS Shares pursuant to the Transactions. This analysis
showed that, without giving effect to the estimated impact of potential cost
savings, the Transactions would result in increases in fully diluted EPS and
CFPS of CTS Shares of approximately 4.6% and 20.6%, respectively, in 1997 and
15.3% and 23.8%, respectively, in 1998, in each case as compared to CTS on a
stand-alone basis. After giving effect to $2 million of annual pre-tax corporate
and operating cost savings as preliminarily estimated by Company and CTS
management, the Transactions would result in increases in fully diluted EPS and
CFPS of CTS Shares of approximately 11.1% and 24.5%, respectively, in 1997 and
20.1% and 27.0%, respectively, in 1998, in each case as compared to CTS on a
stand-alone basis.
Wasserstein Perella also analyzed the pro forma impact of the Transactions
on certain interest coverage ratios and debt ratios assuming that 49.9% of the
outstanding Shares were acquired for cash and the remaining shares were acquired
in exchange for CTS Shares pursuant to the Transactions. These analyses showed
that CTS' EBITDA to interest coverage ratio would be 5.5x and 7.4x,
respectively, in 1997 and 1998 assuming no cost savings and 5.7x and 7.7x,
respectively, assuming $2 million of annual cost savings. CTS' EBIT to interest
coverage ratio would be 3.8x and 5.5x, respectively, in 1997 and 1998 assuming
no cost savings and 4.0x and 5.8x, respectively, assuming $2 million of annual
cost savings. CTS' net debt as a percentage of total capitalization would be
41.3% and 36.3%, respectively, at the outset of 1997 and 1998 assuming no cost
savings and 41.3% and 35.7%, respectively, assuming $2 million of annual cost
savings.
16
<PAGE>
Wasserstein Perella also analyzed the Transactions assuming that 25% of the
outstanding Shares were purchased for cash and 75% of such Shares were acquired
in exchange for CTS Shares pursuant to the Transactions. This analysis showed
that, without giving effect to the estimated impact of potential cost savings,
the Transactions would result in increases in fully diluted EPS and CFPS of CTS
Shares of approximately 1.4% and 9.8%, respectively, in 1997 and 7.2% and 11.1%,
respectively, in 1998, in each case as compared to CTS on a stand-alone basis.
After giving effect to $2 million of annual pre-tax corporate and operating cost
savings as preliminarily estimated by Company and CTS management, the
Transactions would result in increases in fully diluted EPS and CFPS of CTS
Shares of approximately 6.9% and 13.0%, respectively, in 1997 and 11.3% and
13.7%, respectively, in 1998, in each case as compared to CTS on a stand-alone
basis.
Wasserstein Perella also analyzed the pro forma impact of the Transactions
on certain interest coverage ratios and debt ratios assuming that 25% of the
outstanding Shares were acquired for cash and the remaining shares were acquired
in exchange for CTS Shares pursuant to the Transactions. These analyses showed
that CTS' EBITDA to interest coverage ratio would be 9.3x and 13.5x,
respectively, in 1997 and 1998 assuming no cost savings and 9.7x and 14.2x,
respectively, assuming $2 million of annual cost savings. CTS' EBIT to interest
coverage ratio would be 6.4x and 10.0x, respectively, in 1997 and 1998 assuming
no cost savings and 6.8x and 10.6x, respectively, assuming $2 million of annual
cost savings. CTS' net debt as a percentage of total capitalization would be
15.2% and 10.6%, respectively, at the outset of 1997 and 1998 assuming no cost
savings and 15.2% and 10.0%, respectively, assuming $2 million of annual cost
savings.
Wasserstein Perella also analyzed the Transactions assuming that all of the
outstanding Shares were acquired in exchange for CTS Shares pursuant to the CTS
Merger. This analysis showed that, without giving effect to the estimated impact
of potential cost savings, the Transactions would result in increases
(decreases) in fully diluted EPS and CFPS of CTS Shares of approximately (0.9%)
and 1.8%, respectively, in 1997 and 1.4% and 1.8%, respectively, in 1998, in
each case as compared to CTS on a stand-alone basis. After giving effect to $2
million of annual pre-tax corporate and operating cost savings as estimated by
Company and CTS management, the Transactions would result in increases in fully
diluted EPS and CFPS of CTS Shares of approximately 3.8% and 4.6%, respectively,
in 1997 and 4.8% and 4.0%, respectively, in 1998, in each case as compared to
CTS on a stand-alone basis.
Wasserstein Perella also analyzed the pro forma impact of the Transactions
on certain interest coverage ratios and debt ratios assuming that all of the
outstanding Shares were acquired in exchange for CTS Shares pursuant to the CTS
Merger. These analyses showed that CTS' EBITDA to interest coverage ratio would
be 32.2x and 80.8x, respectively, in 1997 and 1998 assuming no cost savings and
34.4x and 90.7x, respectively, assuming $2 million of annual cost savings. CTS'
EBIT to interest coverage ratio would be 22.3x and 59.9x, respectively, in 1997
and 1998 assuming no cost savings and 24.1x and 67.8x, respectively, assuming $2
million annual cost savings. CTS' net debt as a percentage of total
capitalization would be negative 11.0% and negative 15.1%, respectively, at the
outset of 1997 and 1998 assuming no cost savings and negative 11.0% and negative
15.7%, respectively, assuming $2 million of annual cost savings.
CTS
Wasserstein Perella compared the trading price of CTS Shares to certain
financial information, ratios and public market multiples for certain
publicly-traded companies. Such financial information was used to calculate
multiples, including Equity Value to net income, Equity Value to after-tax cash
flow, Equity Value to book value, Enterprise Value to revenues, Enterprise Value
to EBITDA and Enterprise Value to EBIT. Comparable companies for CTS included
AVX Corporation, Vishay Intertechnology, Inc., AMP Incorporated, Berg
Electronics Corporation and Kemet Corporation. Wasserstein Perella observed that
(i) the trading price of CTS Shares of $49.75 per share on March 27, 1997 (the
day prior to the WHX Tender Offer) indicated discounts from the comparable
company multiples ranging from 33% to 59% and (ii) the
17
<PAGE>
trading price of CTS Shares of $61.00 per share on May 8, 1997 indicated
discounts from the comparable company multiples ranging from 18% to 49%.
The comparable corporations were chosen because they are publicly-traded
companies with operations that, for purposes of analysis, may be considered to
be similar to CTS. No company considered in Wasserstein Perella's analysis is
identical to CTS. Accordingly, an analysis of the results of Wasserstein
Perella's analysis necessarily involves certain considerations and judgments
concerning differences in the financial and operating characteristics of CTS
which could affect the multiples of the companies to which it is being compared.
------------------------
18
<PAGE>
The foregoing summary does not purport to be a complete description of the
Wasserstein Perella Presentation or the analyses performed by Wasserstein
Perella. The preparation of financial analyses and fairness opinions is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Wasserstein Perella believes that its analyses (and the
summary set forth above) must be considered as a whole, and that selecting
portions of such analyses and of the factors considered by Wasserstein Perella,
without considering all of such analyses and factors, could create an incomplete
view of the processes underlying the analyses conducted by Wasserstein Perella
and its opinion. Wasserstein Perella made no attempt to assign specific weights
to particular analyses. Any estimates contained in Wasserstein Perella's
analyses are not necessarily indicative of actual value, which may be
significantly more or less favorable than as set forth therein. Estimates of
values of companies do not purport to be appraisals or necessarily to reflect
the prices at which companies may actually be sold.
Wasserstein Perella was retained to act as the Company's financial advisor
in connection with the WHX Tender Offer and related matters based on Wasserstein
Perella's qualifications, expertise, reputation and experience with respect to
transactions similar to those contemplated by the Merger Agreement. Wasserstein
Perella, as part of its investment banking business, is continually engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. In the ordinary course of
business, Wasserstein Perella and its affiliates may actively trade the debt and
equity securities of the Company and CTS and their respective affiliates for
their own accounts and for the accounts of their customers and, accordingly, may
at any time hold a long or short position in such securities.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Wasserstein Perella was retained, pursuant to the terms of a letter
agreement, dated as of April 4, 1997 (the "Letter Agreement"), to provide
financial advisory services with regard to the Company's review of the WHX
Tender Offer, any acquisition of or similar business combination involving the
Company or a significant portion of the Company's assets or any alternative
transaction (each, an "Alternative Business Combination"). Wasserstein Perella
also agreed to provide, in accordance with its customary practice, an opinion to
the Company Board with respect to the adequacy or fairness, from a financial
point of view, of the consideration to be paid or received, as the case may be,
in any Alternative Business Combination. The Company paid Wasserstein Perella a
fee of $150,000 in cash on the date the Letter Agreement was executed, which fee
is to be credited against any other fees earned by Wasserstein Perella pursuant
to the Letter Agreement. The Company has also agreed to pay Wasserstein Perella
a fee, in connection with any Alternative Business Combination, equal to 0.875%
of the aggregate value of such Alternative Business Combination, as determined
in accordance with the Letter Agreement, or a fee of $750,000 if, after the
passage of one year from the date of the Letter Agreement, no Alternative
Business Combination shall have been consummated. The Company has also agreed to
reimburse Wasserstein Perella for its reasonable out-of-pocket expenses,
including the fees, disbursements and other costs of counsel and of other
consultants and advisors retained by Wasserstein Perella in connection with its
activities contemplated by the Letter Agreement, and to indemnify Wasserstein
Perella for certain liabilities arising out of actions taken under the Letter
Agreement.
In the ordinary course of its business, Wasserstein Perella or its
affiliates may actively trade or otherwise effect transactions in the securities
of the Company for its own account and for the account of its customers and,
accordingly, may hold long or short positions in such securities.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the CTS Offer.
19
<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company, except that (i) on
April 11, 1997, the Compensation Committee of the Company Board awarded 22,000
shares of restricted stock to certain officers of the Company or its
subsidiaries, including 5,000 shares to Ronald Steiner and (ii) the Company has
purchased an aggregate of 376 Shares from the Company's 401(k) plan and pursuant
to its odd-lot purchase program at prices ranging from $30.875 to $53.625.
(b) To the best of the Company's knowledge, no executive officer, director,
affiliate or subsidiary of the Company currently intends to tender, pursuant to
the CTS Offer, any Shares that are held of record or beneficially owned by such
person or to otherwise sell any such Shares other than pursuant to the CTS
Merger, except that one director of the Company currently intends to tender
approximately 1,000 Shares pursuant to the CTS Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the CTS Offer that relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) To the best of the Company's knowledge, there are currently no
transactions, board resolutions, agreements in principle or signed contracts in
response to the CTS Offer, other than as described in Item 3(b) of this
Schedule, that relate to or would result in one or more of the matters referred
to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(A) CERTIFICATE OF INCORPORATION
The Company Charter provides that 80% of the outstanding voting stock of the
Company is required to approve a merger of the Company with another person if
the other person is the "beneficial owner" of 5% or more of the outstanding
voting stock unless (i) the transaction is consistent with a memorandum of
understanding approved by the Company Board prior to the time such person shall
have become the beneficial owner of 5% or more of the outstanding voting stock
or (ii) the Company and its subsidiaries own a majority of the outstanding
voting stock of such person. Because the Company Board has approved the Merger
Agreement and the transactions contemplated thereby, the 80% vote requirement
will not apply to the CTS Merger. Under the NYBCL, a two-thirds vote of the
shareholders of the Company will be necessary to approve the Merger Agreement
and the CTS Merger.
(B) LITIGATION
On April 1, 1997, a suit was filed in the Supreme Court of the State of New
York, County of New York, by an alleged stockholder of the Company against the
Company and the members of the Company Board (the "Individual Defendants"). The
suit was filed as a purported class action on behalf of the public shareholders
of the Company except the defendants and their affiliates. The complaint
alleges, among other things, that the Individual Defendants have breached their
fiduciary duties to plaintiffs in connection with the WHX Tender Offer by (i)
failing and refusing to take steps necessary to maximize shareholder value,
including considering the WHX Tender Offer, (ii) using their fiduciary positions
of control to thwart others in their attempt to acquire the Company and (iii)
entrenching themselves in their positions with the
20
<PAGE>
Company. The complaint seeks, among other things, (i) class certification, (ii)
an order requiring the Individual Defendants to carry out their fiduciary duties
to plaintiff by (a) cooperating with any person expressing an interest in
acquiring the Company, (b) taking appropriate action to enhance the value of the
Company, (c) acting independently to protect the interests of the Company's
public shareholders and (d) ensuring that no conflicts exist between the
interests of the Individual Defendants and those of the Company's public
shareholders, (iii) damages from the Individual Defendants and (iv) an award of
the plaintiff's costs and disbursements, including reasonable attorneys' fees.
The foregoing description is qualified by reference to the text of the
complaint, a copy of which is filed as Exhibit 13 hereto.
(C) NYBCL 912
Section 912 of the NYBCL regulates certain business combinations, including
mergers, of a New York corporation, such as the Company, with a stockholder that
beneficially owns 20% or more of the outstanding voting stock of such
corporation. Because the Company Board has approved the Merger Agreement and the
transactions contemplated thereby, section 912 of the NYBCL will not apply to
the CTS Merger.
(D) COMPANY RIGHTS PLAN
Each Right issued pursuant to the Company Rights Plan entitles the holder
thereof to purchase one one-hundredth of a share of Series A Cumulative
Participating Preferred Stock of the Company at an exercise price of $80,
subject to adjustment, in the event that (i) a person, together with all
affiliates and associates of such person, has acquired, or obtained the right to
acquire, the beneficial ownership of 20% or more of the outstanding Shares in a
transaction not approved by the Company Board prior to such acquisition or (ii)
a person has commenced a tender offer for 25% or more of the Shares. For a more
complete description of the Company Rights Plan, see the Company's Form 8-A,
dated January 30, 1986, and the Company's Forms 8-K, dated as of December 27,
1995, May 9, 1997 and May 12, 1997, each as filed with the Commission. The
Company has entered into an amendment to the Company Rights Plan to make it
inapplicable to the CTS Offer, the CTS Merger or the other transactions
contemplated by the Merger Agreement. See the Company's Form 8-K, dated May 12,
1997, as filed with the Commission.
21
<PAGE>
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of May 9, 1997, by and among Dynamics
Corporation of America, CTS Corporation and CTS First Acquisition Corp.
Exhibit 2 Amendment to Employment Agreement, dated as of April 11, 1997, by and between
Dynamics Corporation of America and Andrew Lozyniak.
Exhibit 3 Amendment to Employment Agreement, dated as of April 11, 1997, by and between
Dynamics Corporation of America and Patrick J. Dorme.
Exhibit 4 Amendment to Employment Agreement, dated as of April 11, 1997, by and between
Dynamics Corporation of America and Henry V. Kensing.
Exhibit 5 Form of Trust Agreement amendment.
Exhibit 6 Form of Severance Agreement.
Exhibit 7 Amendment to Dynamics Corporation of America 1980 Restricted Stock and Cash
Bonus Plan, dated as of April 11, 1997.
Exhibit 8 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation,
Dynamics Corporation of America and Andrew Lozyniak.
Exhibit 9 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation,
Dynamics Corporation of America and Patrick J. Dorme.
Exhibit 10 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation,
Dynamics Corporation of America and Henry V. Kensing.
Exhibit 11 Confidentiality Agreement, dated April 14, 1997, between Dynamics Corporation
of America and CTS Corporation.
Exhibit 12 Opinion of Wasserstein Perella & Co., Inc., dated May 9, 1997.*
Exhibit 13 Complaint in KENNETH STEINER V. ANDREW LOZYNIAK ET AL. (Index No. 97-601661)
filed in the Supreme Court of the State of New York, County of New York, on
April 1, 1997.
Exhibit 14 Letter to Shareholders, dated May 16, 1997.*
Exhibit 15 Press Release issued by Dynamics Corporation of America, dated May 12, 1997.
</TABLE>
- ------------------------
* Included in copies of the Schedule 14D-9 mailed to shareholders.
22
<PAGE>
SIGNATURE
After reasonable 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.
<TABLE>
<S> <C> <C>
Dated: May 16, 1997 DYNAMICS CORPORATION OF AMERICA
By: /s/ HENRY V. KENSING
----------------------------------------------
Henry V. Kensing
Vice President, General Counsel and
Secretary
</TABLE>
23
<PAGE>
SCHEDULE I
DYNAMICS CORPORATION OF AMERICA
475 Steamboat Road
Greenwich, Connecticut 06830-7197
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about May 16, 1997, as part
of the Company's Schedule 14D-9. You are receiving this Information Statement in
connection with the possible election of persons designated by CTS to a majority
of the seats on the Company Board. The Merger Agreement provides that promptly
upon the purchase of Shares by CTS pursuant to the CTS Offer, and from time to
time thereafter, CTS will be entitled to designate such number of directors,
rounded up to the next whole number, as will give CTS representation on the
Company Board proportionate with the percentage of Shares purchased in the CTS
Offer and, in any event, if the number of Shares purchased pursuant to the CTS
Offer equals or exceeds 49.9% of the outstanding Shares, the Company has agreed
that CTS' designees (the "CTS Designees") will constitute a majority of the
Company Board. See "The Merger and The Merger Agreement--Rights to Designate
Directors; CTS Designees" in the Offer to Purchase mailed herewith.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein shall have
the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, CTS commenced the CTS Offer on May 16,
1997. The CTS Offer is scheduled to expire at 12:00 midnight, Eastern Time, on
Friday, June 13, 1997, unless the CTS Offer is extended.
The information contained in this Information Statement concerning CTS, Sub
and the CTS Designees (hereinafter defined) has been furnished to the Company by
CTS, and the Company assumes no responsibility for the accuracy or completeness
of such information.
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
As of May 8, 1997, there were 3,835,171 voting Shares outstanding and 3,571
non-voting Shares outstanding. The Shares are the only class of voting
securities of the Company outstanding, and each voting Share has one vote. The
Company Board is divided into three classes and currently consists of nine
members. Each directors holds office until such director's successor is elected
and qualified or until such director's earlier resignation, death or removal.
CTS DESIGNEES
The CTS Designees will be selected by CTS from among the individuals listed
below. Each of the following individuals has consented to serve as a director of
the Company if appointed or elected. None of CTS Designees currently is a
director of, or holds any position with, the Company. To the best of CTS'
knowledge, except as set forth below and in the Offer to Purchase, none of CTS
Designees or any of their associates beneficially owns any equity securities or
rights to acquire securities of the Company, nor has any such person been
involved in any transaction with the Company or any of its directors, executive
officers or affiliates that are required to be disclosed pursuant to the rules
and regulations of the Commission. The name, age, present principal occupation
or employment and five-year employment history of each of the following
individuals are set forth below. Each person is a citizen of the United States
and the business address of each such person is c/o CTS Corporation, 905 West
Boulevard North, Elkart, Indiana 46514, unless otherwise provided.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
AGE DIRECTORSHIPS
--- ------------------------------------------------------------------
<S> <C> <C>
Joseph P. Walker(1).................... 58 Director, Chairman of the Board, President and Chief Executive
Officer and Chairman of the Executive Committee of CTS. During the
past five years, Mr. Walker has served in his present capacities
at CTS. Mr. Walker is a director of NBD Bank, N.A.
Stanley J. Aris........................ 57 Vice President Finance and Chief Financial Officer of CTS. During
the past five years, Mr. Aris has served in his present capacity
at CTS and prior to that, as a business consultant.
Jeannine M. Davis...................... 48 Vice President, General Counsel and Secretary of CTS. During the
past five years, Ms. Davis has served in her present capacity at
CTS.
James L. Cummins....................... 42 Vice President Human Resources of CTS. During the past five years,
Mr. Cummins has served in his present capacity at CTS and prior to
that, as Director, Human Resources, of CTS.
James N. Hufford....................... 57 Vice President Research, Development and Engineering of CTS.
During the past five years, Mr. Hufford has served in his present
capacity at CTS and prior to that, as Director of Corporate
Research, Development and Engineering of CTS.
Donald R. Schroeder.................... 49 Vice President Sales and Marketing of CTS. During the past five
years, Mr. Schroeder has served in his present capacity at CTS and
prior to that as Business Development Manager for the CTS
Microelectronics business unit.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
AGE DIRECTORSHIPS
--- ------------------------------------------------------------------
<S> <C> <C>
George T. Newhart...................... 54 Corporate Controller of CTS. During the past five year, Mr.
Newhart has served in his present capacity at CTS.
Gary N. Hoipkemier..................... 42 Treasurer of CTS. During the past five years, Mr. Hoipkemier has
served in his present capacity at CTS.
William J. Kaska....................... 55 Vice President and General Manager, Automotive Products, for CTS.
During the past five years, Mr. Kaska has served in his present
capacity at CTS.
R. Clayton Crum........................ 49 Vice President and General Manager, Electrocomponents, for CTS.
During the past five years, Mr. Crum has served in his present
capacity at CTS and prior to that as General Manager of the
Component Capacitor Business of General Electric Company.
</TABLE>
- ------------------------
(1) Mr. Walker's wife owns 853 Shares. Mr. Walker disclaims beneficial ownership
of such Shares.
I-3
<PAGE>
DIRECTORS OF THE COMPANY
The name, age, present principal occupation or employment, five-year
employment history and Share ownership of the current directors of the Company
are set forth below. Each person is a citizen of the United States and the
business address of each such person is c/o Dynamics Corporation of America, 475
Steamboat Road, Greenwich, Connecticut 06830-7197.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT YEAR FIRST
PRINCIPAL OWNED AS OF OF COMMON BECAME
NAME AND AGE OCCUPATION MAY 1, 1997(1) STOCK DIRECTOR
- ----------------------------------- ----------------------------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Harold Cohan--72................... Business Consultant 2,164 * 1986
Frank A. Gunther--89............... President, Highpoint Enterprises 4,666(2) * 1966
Incorporated, radio and microwave
communications engineering
Henry V. Kensing--63............... Vice President, General Counsel and 14,169.246(3) * 1977
Secretary of the Company
Andrew Lozyniak--65................ Chairman of the Board and President 181,428.189(4) 4.75% 1970
of the Company
Patrick J. Dorme--61............... Vice President of Finance and Chief 34,944.803(5) * 1985
Financial Officer of the Company
Russell H. Knisel--63.............. Business Consultant 904 * 1993
Saul Sperber--83................... Financial Advisor 4,279 * 1974
Ronald Steiner--58................. President of International 12,500 * 1997
Electronic Research Corporation
John Thompson--62.................. Principal of IMCOR, a management 0 * 1997
firm
</TABLE>
- ------------------------
* Less than 1%.
(1) In each case, beneficial ownership consists of sole voting and investment
power, except that l,000 shares of Mr. Cohan and 500 shares of Mr. Knisel
are owned jointly with their respective spouses. Beneficial ownership as of
May 1, 1997 includes common stock units credited to the accounts of non-
employee directors under the Company's Stock Retirement Plan for Outside
Directors described below. Except as referred to herein, no nominee or
director owns beneficially any security of the Company. In addition Messrs.
Dorme, Kensing and Lozyniak, as members of the Pension Committee for the
Retirement Plan for Employees of Dynamics Corporation of America, have the
right to instruct the Trustee to vote 100,000 shares of the Company's common
stock, which shares are not included in the foregoing tables.
(2) In addition, Mrs. Gunther owns 600 shares. Mr. Gunther disclaims beneficial
ownership of such shares.
(3) In addition, Mrs. Kensing owns 7,500 shares. Mr. Kensing disclaims
beneficial ownership of such shares.
(4) In addition, Mrs. Lozyniak owns 15,100 shares. Mr. Lozyniak disclaims
beneficial ownership of such shares.
(5) In addition, Mrs. Dorme owns 18,000 shares. Mr. Dorme disclaims beneficial
ownership of such shares.
------------------------
I-4
<PAGE>
There is no family relationship between any director, executive officer or
person nominated or chosen by the Board of Directors to become a director or
executive officer. There are no arrangements or understandings between any
director and any other person pursuant to which the director was selected as a
director.
The business experience of each of the nominees and directors during the
past five years is as listed above under principal occupation with the exception
of Mr. Knisel, Mr. Sperber, Mr. Thompson and Mr. Steiner.
Mr. Knisel's present occupation is and has been since January 1, 1994 as
listed above. Mr. Knisel retired as Vice Chairman of Shawmut Bank on December
31, 1993, a position he held for more than five years prior to his retirement.
Mr. Sperber's present occupation is and has been since February 9, 1993 as
listed above. From May 1, 1989 to February 9, 1993, Mr. Sperber was an
accountant with Salerno & Co., Certified Public Accountants.
Mr. Thompson present occupation is and has been since April 1988, the
Chairman and CEO of IMCOR,Inc., a management consulting firm.
Mr. Steiner present occupation is and has been since 1992, the President of
International Electronic Research Corporation, a subsidiary of the Company
("IERC"). Prior to that Mr. Steiner has served as Director of Operations, Vice
President of Operations and Executive Vice President of IERC since joining IERC
in April 1985.
Messrs. Lozyniak and Dorme also serve as directors of CTS Corporation, an
electronic components manufacturing company; the Company owns approximately
44.1% of the issued and outstanding common shares of CTS Corporation. Mr.
Lozyniak is also a director of Physicians Health Services, Inc., a corporation
engaged in the delivery of managed care health services.
The Company has a standing Audit Committee of the Board of Directors which
is comprised of Messrs. Cohan (Chairman), Gunther, Knisel and Sperber, and which
met twice during the year 1996. It performs the following functions: recommends
the engagement of the independent auditors, reviews the scope and the results of
the audit, reviews the recommendations and comments of the independent auditors
with respect to internal controls and the consideration given or the corrective
action taken by management, reviews internal accounting procedures and controls
with the Company's financial and accounting staff and reviews non-audit services
provided by the independent auditors.
The Company has a standing Compensation Committee of the Board of Directors
which is comprised of Messrs. Knisel (Chairman), Cohan, Gunther and Sperber and
which met once during the year 1996. It considers and acts upon all matters
dealing with executive compensation, including executive contracts, incentive
compensation plans and the 1980 Restricted Stock and Cash Bonus Plan.
The Company has no nominating or similar committee.
During the year 1996 the Board of Directors held twelve meetings. Each
director attended all of the meetings of the Board of Directors and of the
Committees on which he served, except that two directors were each absent from
one meeting of the Board of Directors and an Audit Committee member was absent
from one meeting of the Committee.
Directors who are employees of the Company and are compensated as such
receive no additional compensation for their services as directors. Other
directors receive an annual retainer of $10,000 plus $800 as a fee for
attendance at each meeting of the Board. No fee is paid for services on any
committee of the Board.
Effective January 1, 1993, the Company agreed to reimburse outside directors
for certain covered prescription drug charges incurred by the directors or their
spouses net of any reimbursement from any
I-5
<PAGE>
other group coverage and/or individual coverage independently arranged by the
director or his spouse. Under this program, no more than $25,000 in
reimbursement may be paid to any outside director over the entire life of the
program ($50,000 in case an outside director's spouse also participates in the
program). The program is subject to amendment or termination at the discretion
of the Company. During 1996, pursuant to the program, the amount following each
director's name was paid: Harold Cohan $358; Frank A. Gunther $5,073; and Saul
Sperber $1,222.
On June 26, 1986, the Company adopted The Dynamics Corporation of America
Stock Retirement Plan For Outside Directors (the "Plan"). Under the Plan,
separate accounts are opened by the Company in the names of non-employee
directors. On January 1 of each year, starting in 1987, a Deferred Stock Account
in the name of each outside director is credited with 100 Common Stock Units if
said director was an outside director of the Company on the last day of the
immediately preceding calendar year or ceased to be a director during such
preceding calendar year by reason of his retirement, disability or death. In
addition, on January 1, 1987 the Company credited to the Deferred Stock Account
of each such director 50 Common Stock Units for each complete calendar year of
his service to the Company as an outside director prior to January 1, 1986. Each
Deferred Stock Account will also be credited with Common Stock Units when
credits equivalent to cash dividends on the shares in an account aggregate an
amount equal to the value of a share of Common Stock on a dividend payment date.
All Deferred Stock Units in a director's account will be distributed in Common
Stock as of January 1st after the director leaves the board from treasury shares
held by the Company. Until such time the Company's obligation under the Plan is
an unsecured promise to deliver shares of Common Stock. No Common Stock will be
held in trust or as a segregated fund because of the Plan. In 1996 four members
of the Board of Directors were eligible to participate in the Plan. The Company
expensed an aggregate of $11,300 in respect of Common Stock Units credited on
January 1, 1997 to the accounts of the eligible directors as a group for the
year 1996 pursuant to the Plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
On or about May 1, 1997, to the knowledge of the Company, the following
table shows the only entities which owned beneficially more than 5% of the
Common Stock issued and outstanding on that date.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF PERCENT OF
OF BENEFICIAL OWNER SHARES(1) CLASS
- ------------------------------------------------------------------------------------------ ----------- -----------
<S> <C> <C>
GAMCO Investors, Inc. .................................................................... 583,900 15.21%
Gabelli Funds, Inc. ...................................................................... 139,500 3.63%
Gabelli Foundation, Inc. ................................................................. 26,000 0.68%
Gabelli International, Limited............................................................ 1,500 .04%
One Corporate Center
Rye, NY 10580-1435
Dimensional Fund Advisors Inc. ........................................................... 311,950 8.13%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
</TABLE>
- ------------------------
(1) Information with respect to beneficial ownership is based on information
furnished by the beneficial owners named above. Under the rules of the
Securities and Exchange Commission, beneficial ownership is determined by
the possession of either voting or investment power.
Each of the above Gabelli entities has the sole power to vote or direct the
vote and sole power to dispose or to direct the disposition of the securities
reported for it, either for its own benefit or for the benefit of its investment
clients or its partners, as the case may be, except that GAMCO Investors, Inc.
does not have authority to vote 56,500 of the reported shares, and except that
Gabelli Funds, Inc. shares with the Board of Directors of The Gabelli Asset
Fund, The Gabelli Growth Fund, The Gabelli
I-6
<PAGE>
Convertible Securities Fund and/or The Gabelli Value Fund Inc. voting power with
respect to the 153,000 shares held by such funds, so long as the aggregate
voting interest of all joint filers does not exceed 25% of the issuer's total
voting interest and, in that event, the Proxy Voting Committee of each fund
shall respectively vote that fund's shares.
Dimensional Fund Advisors Inc. has asked that the following language be used
when describing the beneficial ownership of the shares it holds. Dimensional
Fund Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed
to have beneficial ownership of 311,950 shares of Dynamics Corporation of
America stock as of December 31, 1996, all of which shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company, or in series of The DFA Investment Trust Company, a Delaware
business trust, or the DFA Group Trust and the DFA Participating Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional serves as investment manager. Dimensional disclaims beneficial
ownership of all such shares. Dimensional has sole voting power over 180,050
shares and officers of DFA Investment Dimensions Group Inc. and The DFA
Investment Trust Company vote 131,900 shares.
------------------------
All officers and directors of the Company as a group owned as of May 1, 1997
an aggregate of 273,918 shares of Common Stock or approximately 7.1% of the
Common Stock issued and outstanding on that date.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
To the Company's knowledge, based solely on its review of the copies of
changes of ownership of Common Stock and other equity securities furnished to
the Company and written representations that no other reports were required to
be filed during the year 1996 and to date, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
EXECUTIVE COMPENSATION
The following table sets forth current and long-term compensation
information for each of the last three fiscal years of the Chief Executive
Officer and each of the other executive officers whose salary and bonus for the
fiscal year 1996 exceeded the disclosure threshold established by the Securities
and Exchange Commission.
I-7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION RESTRICTED
----------------------------------- STOCK ALL OTHER
NAME AND PRINCIPAL POSITION (5) YEAR SALARY($)(1) BONUS($)(2) AWARDS($)(3) COMPENSATION($)(4)
- ------------------------------------------- --------- ----------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Andrew Lozyniak, Chairman of the Board and
President................................ 1996 351,489 -- -- 14,792
1995 333,316 -- -- 14,250
1994 182,568 -- 147,500 11,888
Henry V. Kensing, Vice President, General
Counsel, Secretary and a Director........ 1996 182,568 10,000 -- 5,831
1995 177,536 10,000 -- 5,651
1994 173,123 10,000 110,625 5,402
Patrick J. Dorme, Vice President --
Finance, Chief Financial Officer and a
Director................................. 1996 151,749 10,000 -- 4,571
1995 147,566 10,000 -- 4,431
1994 143,898 10,000 110,625 4,248
</TABLE>
- ------------------------
(1) Includes salaries deferred in 1996 under the DCA Savings and Investment Plan
pursuant to Section 401(k) of the Internal Revenue Code (see Savings and
Investment Plan below).
(2) Includes bonuses paid to the executives shown in the table in the last three
years pursuant to the Company's incentive performance plan. The Board of
Directors has determined to continue for 1997 a policy of awarding bonuses
on the basis of results on both an overall and divisional basis, and on
individual performance as described in the Report of the Compensation
Committee included herein.
(3) The number of restricted shares awarded in 1994 under the Plan to the
executives named were as follows: Mr. Lozyniak, 10,000; Mr. Kensing, 7,500;
Mr. Dorme, 7,500. The value of the restricted stock awards in 1994 was
determined by multiplying the fair market value of the Company's common
stock on the date of grant by the number of shares awarded. As of December
31, 1996, the number and value of aggregate restricted stock award holdings
were as follows: 6,000 shares ($169,500) by Mr. Lozyniak; 4,500 shares
($127,125) by Mr. Kensing and 4,500 shares ($127,125) by Mr. Dorme.
Restrictions lapse each year after the first year with respect to 20% of the
shares awarded in prior years under the Plan and cash bonuses are paid to
the holders thereof as called for by the Plan. The aggregate amount of cash
compensation paid, in 1996, 1995, and 1994, for the executives named is as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mr. Lozyniak.............................. 1996 $ 99,000 1995 $ 95,750 1994 $ 26,500
Mr. Kensing............................... 1996 $ 62,250 1995 $ 59,438 1994 $ 13,250
Mr. Dorme................................. 1996 $ 62,250 1995 $ 59,438 1994 $ 13,250
</TABLE>
Pursuant to the Plan, regular cash dividends are paid to holders of
restricted stock awarded under the Plan.
This Plan has a change of control provision under which, upon a change of
control of the Company, all restrictions on shares awarded under the Plan
will lapse and cash bonuses will be paid on those shares.
(4) Includes the amounts contributed under the 401(k) Plan by the Company and
the imputed income value of the term life insurance portion of the coverage
under "split-dollar" life insurance policies.
I-8
<PAGE>
(5) Employment Agreements. As of February 1, 1996, the Company entered into five
year employment agreements with Andrew Lozyniak, Henry V. Kensing and
Patrick J. Dorme.
The Board of Directors annually reviews the contributions of Messrs.
Lozyniak, Kensing and Dorme to the Company and may increase their salary
rates in accordance with such contributions. In addition, such rates will be
increased on March 1st of each year by no less than the annual percentage
increase in the consumer price index for the prior calendar year.
The employment agreements of such individuals may be terminated by the
Company for cause. In the event of disability, each such employee shall be
compensated for up to six months at full salary and up to an additional six
months at no less than one-half the rate in effect at the time such
disability commenced. If such disability continues beyond twelve months, the
Company may terminate said disabled employee's agreement but shall be
obligated to pay Mr. Lozyniak, Mr. Kensing or Mr. Dorme compensation at the
rate of 40% of the regular compensation in effect at the time of such
termination during the period commencing on the date of such termination and
ending on the earlier of the tenth anniversary thereof or the date the
employee attains age 65. If the employee dies during the employment period,
the Company shall pay to the wife of Mr. Lozyniak the sum of $60,000 and of
Mr. Kensing or Mr. Dorme, the sum of $50,000 per year during the period
commencing on the date of the death of the employee and ending on the
earlier of the tenth anniversary thereof or the death of the wife.
In the event of merger, sale or consolidation in which the Company is
not the surviving entity, or if voting control shall be obtained by any
person, firm or corporation, or group of persons, firms or corporations, not
in control as of February 1, 1996, each of said employees shall have the
right to terminate his employment agreement upon 30 days' written notice at
any time within three months after the occurrence of such event. Upon such
termination, the Company or the consolidated or surviving entity shall pay
the employee exercising said right, in lieu of any other further
compensation, in a lump sum, undiminished by any excise tax imposed upon the
receipt thereof, on the date of such termination, an amount equal to five
times the sum of (a) two-thirds of the aggregate regular compensation called
for by said agreement at the rate in effect at such termination, and (b)
two-thirds of the largest amount earned by the employee as stock and cash
bonuses for any of the five fiscal years preceding that in which termination
occurs.
If the Company terminates the agreement other than for cause or
disability of the employee, it shall pay to the employee in a lump sum,
undiminished by any excise tax imposed upon the receipt thereof, within 30
days of the date of termination, in lieu of any further regular compensation
under the agreement, an amount equal to the sum of (a) two-thirds of the
employee's regular compensation at the rate in effect at the time of such
termination, from the date of such termination to the last day of the
employment period called for by the agreement and (b) two-thirds of the
largest amount earned by the employee as stock and cash bonuses for any of
the five fiscal years preceding that in which termination occurs multiplied
by the number of years and/or fraction thereof then remaining in the
employment period called for by the agreement.
The Company also agrees not to endanger in any way, during the term of
said agreements, any benefit available to said employees under the
"split-dollar" life insurance policies on their lives and to continue to pay
the premiums thereon during such period and in the event of a change of
control. The agreements also contain provisions calling for payment of legal
fees to said employees if they are required to enforce the agreements
against the Company or a successor and for reimbursement of premiums for
health insurance coverage for said employees and their spouses and any
dependents for up to ten years after retirement.
The Company also agrees to pay each of the employees supplementary
retirement benefits described below under the captions "Pension Benefits"
and "Savings and Investment Plan." Such benefits shall be secured over the
term of the employment agreements by annual contributions by the
I-9
<PAGE>
Company to a trust established in 1996 in compliance with Internal Revenue
Service Revenue Procedure 92-64. In January 1997, 11,000 shares of the
common stock of the Company from its treasury stock were contributed to the
trust to secure payment of benefits accruing for the first two years of the
term of the employment agreements. The amount and kind of assets to be
contributed to the trust shall be determined, and Company common stock held
by the trust shall be voted by the Compensation Committee of the Board of
Directors.
In addition, the executive officers received other non-cash
compensation, not otherwise described in this proxy statement, such as
perquisites, but the aggregate amount thereof did not exceed the lesser of
$50,000 or 10% of the total salary and bonus for each of the persons named
in the Table.
See "Interests of Certain Persons--Amended Employment Agreements" in the
Schedule 14D-9 for a discussion of amendments to the employment agreements.
PENSION BENEFITS
The estimated annual benefits payable upon retirement at normal retirement
age and the years of credited service as of January 1, 1997 under the Company's
Retirement Plan for Employees (the "Pension Plan") for the individuals named in
the Executive Summary Compensation Table above and for all the executive
officers of the Company as a group are as follows:
<TABLE>
<CAPTION>
ESTIMATED YEARS OF
ANNUAL CREDITED SERVICE
RETIREMENT AS OF
BENEFITS JANUARY 1, 1997
----------- -------------------
<S> <C> <C>
Andrew Lozyniak................................................. $ 119,970 35
Patrick J. Dorme................................................ $ 80,500 28
Henry V. Kensing................................................ $ 38,760 12
All executive officers as a group (consisting of 4 people)...... $ 295,255
</TABLE>
The latest available actuarial present value of normal retirement benefits
for all employees who are participants in the Pension Plan is $18,003,643.
Under the Pension Plan, the retirement benefit, payable at normal retirement
or current age, is equal to the sum of (A) and (B) below:
(A) Past Service Benefit--equal to .7% of 1975 earnings up to $7,800
plus 1.4% of the excess multiplied by credited service prior to December 31,
1975.
(B) Future Service Benefit
(i) equal to 1% of annual earnings up to the Social Security Wage
Base plus 2% of the excess, for each year of credited service after
January 1, 1976 and prior to December 31, 1988.
(ii) equal to 1.1% of annual earnings up to the Social Security Wage
Base plus 1.45% of the excess, for each year of credited service after
December 31, 1988, or
(iii) equal to 1.45% of annual earnings up to the Social Security
Wage Base plus 1.80% of the excess (in lieu of the benefit under (ii)
above) for up to ten years of credited service in excess of 25 years (but
such higher benefit to be earned no earlier than in the plan year ended
December 31, 1989).
For purposes of the Pension Plan, covered earnings for the named Executive
Officers are essentially equivalent to the amount reported as salary in the
Annual Compensation section of the Summary Compensation Table above.
The minimum annual benefit for Greenwich office employees who have completed
20 or more years of service is 50% of the three-year average salary, not
including bonuses, for the years immediately
I-10
<PAGE>
preceding a participant's actual retirement date. The maximum annual retirement
benefit for 1996 under the Pension Plan is $120,000 ($125,000 for 1997). The
Pension Plan has been amended and restated to comply with the requirements of
the Tax Reform Act of 1986. Such amendments, which are retroactive to January 1,
1989, have reduced retirement benefits earned by the executive officers of the
Company for service after that date and have also eliminated the minimum annual
Greenwich office benefit for such executive officers as of that date. In
addition, the estimated annual retirement benefits reflect the additional
requirements of the 1993 Tax Act limiting to $150,000 ($160,000 for 1997) the
amount of compensation which may be taken into account in calculating benefits
under the Plan.
The February 1, 1996 employment agreements provide for supplemental
retirement benefits for Messrs. Lozyniak, Dorme and Kensing to restore benefits
generally available to employees in the Greenwich office of the Company under
the Pension Plan and the Savings and Investment Plan referred to below but which
are not available to them because of the above mentioned tax law changes and
limitations. Under the employment agreements, the Company will provide
additional retirement benefits, payable in an actuarially determined lump sum at
retirement, equal to the difference between the benefits the executives will
receive under the Pension Plan and the benefits they would have received
thereunder but for the tax law changes and limitations. The estimated annual
benefits under the retirement benefit restoration provision of the employment
agreements, when added to the benefits under the Pension Plan referred to on
page 8, and assuming the executives were to retire at the end of the term of the
agreements, produce the following total annual estimated retirement benefits for
the executives:
<TABLE>
<S> <C>
Andrew Lozyniak................................................... $ 175,744
Patrick J. Dorme.................................................. $ 80,642
Henry V. Kensing.................................................. $ 80,027
</TABLE>
SAVINGS AND INVESTMENT PLAN
Effective January 1, 1985, the Company implemented a Savings and Investment
Plan for all employees not covered by collective bargaining agreements which
qualified as a profit sharing plan under Section 401(k) of the Internal Revenue
Code ("401K Plan"). The 401K Plan allows eligible employees to defer up to 18%
of their pay until retirement, death, disability or the occurrence of certain
other events. Under the 401K Plan, the Company makes basic matching
contributions, in cash (in which the employee is immediately fully vested), of
$1.00 for every $1.00 of pay deferred up to 2% of pay, and also may match, in
cash or in shares of the Company's common stock, at the Company's option, all or
part of additional deferrals of pay up to 6% of pay, depending on the Company's
current results of operations and forecasted business conditions. Since
inception of the Plan through October 31, 1991, the Company decided in each plan
year to match 50% of deferrals above 2% of pay up to 6% of pay in Company
shares. Such additional matching contributions vest if and when the employee
completes five (5) years of service with the Company.
Under the Tax Reform Act of 1986, the amount of pay employees may defer
under the Plan must be limited to $9,500 in 1996 and $9,500 in 1997 for the Plan
to retain its tax-qualified status. The tax laws have also imposed a limit of
$150,000 ($160,000 in 1997) on pay available for deferral and matching by the
Company under the 401K Plan. The employment agreements with Messrs. Lozyniak,
Dorme and Kensing provide for payment to each of the executives at retirement of
an amount equal to 2% of the excess of his base salary over $150,000 ($160,000
in 1997) in each year of the term of the agreements, together with interest at
8% on these amounts.
Under the Plan, all contributions of employees and all Company matching
contributions which are made in cash are invested either in guaranteed
investment contracts issued by insurance companies or other financial
institutions and/or in mutual funds, in accordance with the choice of the
contributing employee.
I-11
<PAGE>
1980 RESTRICTED STOCK AND CASH BONUS PLAN
All officers and directors who are employees of the Company are also
eligible to participate in the 1980 Restricted Stock and Cash Bonus Plan (the
"Restricted Stock Plan"). The Restricted Stock Plan, as approved by the
shareholders on May 1, 1981, and as amended by them on May 6, 1988 to replenish
the 148,567 shares granted from 1981 to 1988, provides for the award or sale of
so-called "restricted stock", which is governed by Section 83 of the Internal
Revenue Code, to key executive personnel of the Company or any subsidiary. The
total number of shares of Common Stock which may be subject to the Restricted
Stock Plan may not exceed 400,000 shares (subject to adjustment in certain
events as described below).
The Restricted Stock Plan is administered by the Compensation Committee
elected by the Board of Directors, presently consisting of four directors of the
Company, each of whom shall be ineligible to participate in the Restricted Stock
Plan and shall be a non-employee director as that term is defined in Rule 16b-3
under the Securities Exchange Act of 1934.
In accordance with the terms of the Restricted Stock Plan, the Committee
shall select participants from among those officers and key management
executives who are full-time employees of the Company or any subsidiary.
Criteria for selection include: level of responsibility, performance, potential,
salary, bonuses, prior grants of stock options, and similar considerations.
Having selected eligible participants the Committee will offer such persons the
right to acquire by award or purchase a certain number of shares of Common Stock
on such terms and at such price, if any, as it deems appropriate. Shares
acquired by offerees pursuant to the Restricted Stock Plan are subject to the
restriction that, during the period of five years after the date of acquisition,
the participant may not sell, transfer, or otherwise dispose of such shares as
to which the restrictions shall not have lapsed unless he or she shall first
have offered such shares to the Company for repurchase. The restrictions lapse
as to 20% of the shares acquired pursuant to the Restricted Stock Plan in each
year following the acquisition of the shares after the first year. In addition,
within five years following the date shares were acquired, upon termination of
the participant's employment for any reason, including the participant's death
or disability, the Company is required to repurchase and the participant is
required to sell, at no cost to the Company if the shares were awarded or at
their original purchase price if the shares were purchased, all shares as to
which the restrictions shall not have lapsed. In the event of a change in
control of the Company not approved by the directors in office prior to such
change in control, all restrictions upon the transfer of such shares shall
lapse.
As soon as practicable after the restrictions as to any shares have lapsed,
the Company shall pay a cash bonus to the participant equal to the fair market
value of such shares as of the date of such lapse if such shares were awarded or
equal to the excess of the fair market value thereof as of the date of such
lapse over the original purchase price of such shares if such shares were
purchased. The cash bonus is intended to defray the federal income tax payable
at the time restrictions on transfer lapse. The Company may pay up to five such
cash bonuses to any participant, but in no event shall the aggregate of such
cash bonuses payable to any participant be greater than a sum equal to twice the
fair market value of such shares on the date they were originally acquired.
In the event of stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares for other securities, the
Restricted Stock Plan provides for appropriate adjustment by the Committee of
the total number of shares which may be offered for award or purchase under the
Plan and in the price, if any, paid for shares under the Plan.
The Restricted Stock Plan terminates upon the award or sale of all of the
shares available under the Plan. The Board of Directors may terminate or amend
the Restricted Stock Plan but may not, without approval by vote of the holders
of a majority of the shares of Common Stock present in person or by proxy at a
meeting of shareholders duly called, increase the number of shares reserved for
the Plan.
There is no limit to the number of shares that may be granted to any
individual or to the officers and directors of the Company as a group. Each
participant will be required to give a representation in writing
I-12
<PAGE>
that he or she is acquiring the shares of Common Stock under the Restricted
Stock Plan for his or her own account as an investment and not with a view to,
or for sale in connection with, any distribution thereof. The approximate number
of key employees which it is estimated will participate in the Restricted Stock
Plan at any one time is no more than 35.
No shares were awarded in 1996 under the Restricted Stock Plan.
In 1996, restrictions lapsed with respect to 20% of the shares awarded in
prior years under the Restricted Stock Plan and cash bonuses were paid to the
holders thereof as called for by the Plan.
See "Interests of Certain Persons--Restricted Stock Plan" in the Schedule
14D-9 for a discussion of an amendment to the Restricted Stock Plan.
I-13
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of May 9, 1997, by and among Dynamics Corporation of
America, CTS Corporation and CTS First Acquisition Corp. (incorporated by reference to Exhibit 2
to Amendment No. 46 to the Schedule 13D of Dynamics Corporation of America, filed May 12, 1997,
with respect to its investment in CTS Corporation (the "Schedule 13D")). DCA agrees to furnish
supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon
request.
Exhibit 2 Amendment to Employment Agreement, dated as of April 11, 1997, by and between Dynamics
Corporation of America and Andrew Lozyniak (incorporated by reference to Exhibit 10.1 to the Form
10-Q of Dynamics Corporation of America, filed on May 15, 1997 (the "Form 10-Q")).
Exhibit 3 Amendment to Employment Agreement, dated as of April 11, 1997, by and between Dynamics
Corporation of America and Patrick J. Dorme (incorporated by reference to Exhibit 10.2 to the
Form 10-Q).
Exhibit 4 Amendment to Employment Agreement, dated as of April 11, 1997, by and between Dynamics
Corporation of America and Henry V. Kensing (incorporated by reference to Exhibit 10.3 to the
Form 10-Q).
Exhibit 5 Form of Trust Agreement amendment.
Exhibit 6 Form of Severance Agreement.
Exhibit 7 Amendment to Dynamics Corporation of America 1980 Restricted Stock and Cash Bonus Plan, dated as
of April 11, 1997 (incorporated by reference to Exhibit 10.7 to the Form 10-Q).
Exhibit 8 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, Dynamics Corporation
of America and Andrew Lozyniak (incorporated by reference to Exhibit 10.4 to the Form 10-Q).
Exhibit 9 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, Dynamics Corporation
of America and Patrick J. Dorme (incorporated by reference to Exhibit 10.5 to the Form 10-Q).
Exhibit 10 Employment Agreement, dated as of May 9, 1997, by and among CTS Corporation, Dynamics Corporation
of America and Henry V. Kensing (incorporated by reference to Exhibit 10.6 to the Form 10-Q).
Exhibit 11 Confidentiality Agreement, dated April 14, 1997, between Dynamics Corporation of America and CTS
Corporation.
Exhibit 12 Opinion of Wasserstein Perella & Co., Inc., dated May 9, 1997.*
Exhibit 13 Complaint in KENNETH STEINER V. ANDREW LOZYNIAK ET AL. (Index No. 97-601661) filed in the Supreme
Court of the State of New York, County of New York, on April 1, 1997 (incorporated by reference
to Exhibit 11 to Schedule 14D-9, filed on April 14, 1997).
Exhibit 14 Letter to Shareholders, dated May 16, 1997.*
Exhibit 15 Press Release issued by Dynamics Corporation of America, dated May 12, 1997 (incorporated by
reference to Exhibit 1 to the Schedule 13D).
</TABLE>
- ------------------------
* Included in copies of the Schedule 14D-9 mailed to shareholders.
<PAGE>
EXHIBIT 99.5
AMENDMENT TO TRUST AGREEMENT
AMENDMENT, dated April 11, 1997, to the Trust Agreement, dated
December 31, 1996, by and between Dynamics Corporation of America (the
"Company") and Bank of Boston Connecticut (the "Trustee").
WHEREAS, the Company, as of December 31, 1996, established, pursuant
to the Trust Agreement, a "rabbi" trust (the "Trust") for the purpose of
securing benefits payable under three individual nonqualified deferred
compensations plans with Andrew Lozyniak, Patrick J. Dorme and Henry V. Kensing,
which are incorporated in subparagraph SECOND G. of the employment agreements
with each of such officers dated February 1, 1996 (the "Employment Agreements");
and
WHEREAS, the Board of Directors of the Company (the "Board"), on the
date first written above, approved the amendment of the Trust Agreement to
secure the benefits payable under the Employment Agreements, the Severance
Agreements and the Severance Policy; to require a majority vote of nonemployee
members of the Board to authorize the contribution of funds to the Trust with
respect to the aforementioned benefits; and to make certain other changes; and
WHEREAS, the Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company;
NOW, THEREFORE, the Trust Agreement is hereby amended as set forth
below, effective as of the date hereof:
1. Section 1(e) of the Trust Agreement is amended by adding the
following at the end thereof:
"Notwithstanding the foregoing, no such additional deposits shall
be made except upon the vote of a majority of those members of the
Board who are not officers or employees of the Company.
<PAGE>
2. Section 1 of the Trust Agreement is amended by adding at the end
of such section a new paragraph (h) to read as follows:
Notwithstanding anything in this Trust Agreement to the contrary,
as of April 11, 1997, the term "Plans" shall mean (i) the three
individual nonqualified deferred compensations plans with Andrew
Lozyniak, Patrick J. Dorme and Henry V. Kensing, which are
incorporated in subparagraph SECOND G. of the employment agreements
with each of such officers dated February 1, 1996 (the "Employment
Agreements"), (ii) the severance arrangements incorporated as Article
FOURTH of the Employment Agreements, (iii) the severance agreements
entered into as of such date with certain of the Company's employees
and (iv) the severance policy adopted as of such date for certain other
employees of the Company.
3. Section 5 of the Trust Agreement is amended by adding thereto a
new paragraph (d) to read as follows:
Notwithstanding anything to the contrary contained in paragraphs
(b) and (c) of this Section 5, upon and following a Change in Control,
the Company (i) shall no longer have the right to change the persons or
entities serving as an investment manager with the power and authority
to direct the investment of any portion of the assets of the Trust,
(ii) may not itself serve as such investment manager, and (iii) shall
no longer have the right to substitute assets of equal fair market
value for any asset held by the Trust.
4. Section 13 of the Trust is amended by changing parapraph (d)
thereof to read in its entirety as follows:
For purposes of this Trust Agreement, a "Change in Control" shall be deemed
to have occurred if the event set forth in any one of the following
paragraphs shall have occurred:
2
<PAGE>
(I) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates) representing
25% or more of the combined voting power of the Company's then
outstanding securities, excluding any Person who becomes such a
Beneficial Owner in connection with a transaction described in
clause (i) of paragraph (III) below; or
(II) the following individuals cease for any reason to constitute a
majority of the number of directors then serving on the Board of
Directors of the Company (the "Board"): individuals who, on the
date hereof, constitute the Board and any new director (other than
a director whose initial assumption of office is in connection with
an actual or threatened election contest, including but not limited
to a consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board or
nomination for election by the Company's stockholders was approved
or recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on the
date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or
(III) there is consummated a merger or consolidation of the Company or
any direct or indirect subsidiary of the Company with any other
corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof) at least 60% of the combined voting power of the
securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the Beneficial Owner, directly or indi-
3
<PAGE>
rectly, of securities of the Company (not including in the
securities Beneficially Owned by such Person any securities
acquired directly from the Company or its Affiliates other than in
connection with the acquisition by the Company or its Affiliates of
a business) representing 25% or more of the combined voting power
of the Company's then outstanding securities; or
(IV) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated
an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 60% of the combined voting
power of the voting securities of which are owned by stockholders
of the Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
For purposes of this Section 13(d), the following definitions
shall apply: "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d)
and 14(d) thereof, except that such term shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or
any of its Affiliates, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company. "Beneficial Owner" shall have the meaning set
forth in Rule 13d-3 under the Exchange Act. "Affiliate" shall have
the meaning set forth in Rule 12b-2 promulgated under Section 12 of
the Exchange Act. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended from time to time.
Except as set forth above, the Trust Agreement is hereby ratified
and confirmed in all respects.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this amendment
as of the date first written above.
DYNAMICS CORPORATION OF AMERICA
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BANK OF BOSTON CONNECTICUT
.
By:
----------------------------------
Name:
Title:
5
<PAGE>
EXHIBIT 99.6
SEVERANCE AGREEMENT
THIS AGREEMENT, dated as of April 11, 1997, is made by and between
Dynamics Corporation of America, a New York corporation (the "Company"), and
(the "Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. DEFINED TERMS. The definitions of capitalized terms used in
this Agreement are provided in the last Section hereof.
2. TERM OF AGREEMENT. The Term of this Agreement shall commence on
the date hereof and shall continue in effect through December 31, 1999;
PROVIDED, HOWEVER, that commencing on January 1, 1999 and each January 1
thereafter, the Term shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend the Term; and FURTHER PROVIDED,
HOWEVER, that if a Change in Control shall have occurred during the Term, the
Term shall expire no earlier than twenty-four (24) months beyond the month in
which such Change in Control occurred.
3. COMPANY'S COVENANTS SUMMARIZED. In order to induce the Executive
to remain in the employ of the
<PAGE>
Company and in consideration of the Executive's covenants set forth in Section 4
hereof, the Company agrees, under the conditions described herein, to pay the
Executive the Severance Payments and the other payments and benefits described
herein. Except as provided in Section 9.1 hereof, no Severance Payments shall
be payable under this Agreement unless there shall have been (or, under the
terms of the second sentence of Section 6.1 hereof, there shall be deemed to
have been) a termination of the Executive's employment with the Company
following a Change in Control and during the Term. This Agreement shall not be
construed as creating an express or implied contract of employment and, except
as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the Company.
4. THE EXECUTIVE'S COVENANTS. The Executive agrees that, subject to
the terms and conditions of this Agreement, in the event of a Potential Change
in Control during the Term, the Executive will remain in the employ of the
Company until the earliest of (i) a date which is six (6) months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason or by reason of death, Disability or Retirement, or (iv) the termination
by the Company of the Executive's employment for any reason.
5. COMPENSATION OTHER THAN SEVERANCE PAYMENTS.
5.1 Following a Change in Control and during the Term, during any
period that the Executive fails to perform the Executive's full-time duties with
the Company as a result of incapacity due to physical or mental illness, the
Company shall pay the Executive's full salary to the Executive at the rate in
effect at the commencement of any such period, together with all compensation
and benefits payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period, until the Executive's employment is terminated by the Company for
Disability.
5.2 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay the
Executive's full salary to the Executive through the Date
2
<PAGE>
of Termination at the rate in effect immediately prior to the Date of
Termination or, if higher, the rate in effect immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, together with
all compensation and benefits payable to the Executive through the Date of
Termination under the terms of the Company's compensation and benefit plans,
programs or arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance constituting Good
Reason.
5.3 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the Term, the Company shall pay to the
Executive the Executive's normal post-termination compensation and benefits as
such payments become due. Such post-termination compensation and benefits shall
be determined under, and paid in accordance with, the Company's retirement,
insurance and other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more favorable to
the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason.
6. SEVERANCE PAYMENTS.
6.1 Subject to Section 6.2 hereof, if the Executive's employment is
terminated following a Change in Control and during the Term, other than (A) by
the Company for Cause, (B) by reason of death or Disability, or (C) by the
Executive without Good Reason, then the Company shall pay the Executive the
amounts, and provide the Executive the benefits, described in this Section 6.1
("Severance Payments"), in addition to any payments and benefits to which the
Executive is entitled under Section 5 hereof. For purposes of this Agreement,
the Executive's employment shall be deemed to have been terminated following a
Change in Control by the Company without Cause or by the Executive with Good
Reason, if (i) the Executive's employment is terminated by the Company without
Cause prior to a Change in Control (whether or not a Change in Control ever
occurs) and such termination was at the request or direction of a Person who has
entered into an agreement with the Company the consummation of which would
constitute a Change in Control, (ii) the Executive terminates his employment for
3
<PAGE>
Good Reason prior to a Change in Control (whether or not a Change in Control
ever occurs) and the circumstance or event which constitutes Good Reason occurs
at the request or direction of such Person, or (iii) the Executive's employment
is terminated by the Company without Cause or by the Executive for Good Reason
and such termination or the circumstance or event which constitutes Good Reason
is otherwise in connection with or in anticipation of a Change in Control
(whether or not a Change in Control ever occurs). For purposes of any
determination regarding the applicability of the immediately preceding sentence,
any position taken by the Executive shall be presumed to be correct unless the
Company establishes to the Board by clear and convincing evidence that such
position is not correct.
(A) In lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination and in lieu of any
severance benefit otherwise payable to the Executive, the Company shall
pay to the Executive a lump sum severance payment, in cash, equal to
[three] [one] times the sum of (i) the Executive's base salary as in
effect immediately prior to the Date of Termination or, if higher, in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (ii) the highest annual
bonus earned by the Executive pursuant to any annual bonus or
incentive plan maintained by the Company in respect of any of the
three fiscal years ending immediately prior to the fiscal year in
which occurs the Date of Termination or, if higher, immediately prior
to the fiscal year in which occurs the first event or circumstance
constituting Good Reason.
(B) For the [thirty-six (36)] [twelve (12)] month period
immediately following the Date of Termination, the Company shall arrange
to provide the Executive and his dependents life, disability, accident
and health insurance benefits substantially similar to those provided
to the Executive and his dependents immediately prior to the Date of
Termination or, if more favorable to the Executive, those provided to
the Executive and his dependents immediately prior to the first
occurrence of an event or circumstance constituting Good Reason, at
no greater cost to the Executive than the cost to the Executive
immediately prior to such date
4
<PAGE>
or occurrence; PROVIDED, HOWEVER, that, unless the Executive consents
to a different method (after taking into account the effect of such
method on the calculation of "parachute payments" pursuant to
Section 6.2 hereof), such health insurance benefits shall be provided
through a third-party insurer. Benefits otherwise receivable by the
Executive pursuant to this Section 6.1 (B) shall be reduced to the
extent benefits of the same type are received by or made available to
the Executive during the [thirty-six (36)] [twelve (12)] month period
following the Executive's termination of employment (and any such
benefits received by or made available to the Executive shall be
reported to the Company by the Executive); PROVIDED, HOWEVER, that the
Company shall reimburse the Executive for the excess, if any, of the
cost of such benefits to the Executive over such cost immediately
prior to the Date of Termination or, if more favorable to the
Executive, the first occurrence of an event or circumstance
constituting Good Reason. If the Severance Payments shall be
decreased pursuant to Section 6.2 hereof, and the Section 6.1(B)
benefits which remain payable after the application of Section 6.2
hereof are thereafter reduced pursuant to the immediately preceding
sentence, the Company shall, no later than five (5) business days
following such reduction, pay to the Executive the least of (a) the
amount of the decrease made in the Severance Payments pursuant to
Section 6.2 hereof, (b) the amount of the subsequent reduction in
these Section 6.1(B) benefits, or (c) the maximum amount which can be
paid to the Executive without being, or causing any other payment to
be, nondeductible by reason of section 280G of the Code.
(C) If the Executive would have become entitled to benefits
under the Company's post-retirement health care or life insurance
plans, as in effect immediately prior to the Date of Termination or,
if more favorable to the Executive, as in effect immediately prior to
the first occurrence of an event or circumstance constituting Good
Reason, had the Executive's employment terminated at any time during
the period of [thirty-six (36)] [twelve (12)] months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive
5
<PAGE>
and the Executive's dependents commencing on the later of (i) the date
on which such coverage would have first become available and (ii) the
date on which benefits described in subsection (B) of this Section 6.1
terminate.
(D) The Company shall (i) either prepay all remaining
premiums, or establish an irrevocable grantor trust holding an amount
of assets sufficient to pay all such remaining premiums (which trust
shall be required to pay such premiums), under any insurance policy
insuring the life of the Executive under any "split-dollar" insurance
arrangement in effect between the Executive and the Company, and (ii)
shall transfer to the Executive any and all rights and incidents of
ownership in such arrangements at no cost to the Executive.
6.2 (A) Notwithstanding any other provisions of this Agreement, in
the event that any payment or benefit received or to be received by the
Executive in connection with a Change in Control or the termination of the
Executive's employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Company, any Person whose actions
result in a Change in Control or any Person affiliated with the Company or such
Person) (all such payments and benefits, including the Severance Payments, being
hereinafter called "Total Payments") would not be deductible (in whole or part),
by the Company, an affiliate or Person making such payment or providing such
benefit as a result of section 280G of the Code, then, to the extent necessary
to make such portion of the Total Payments deductible (and after taking into
account any reduction in the Total Payments provided by reason of section 280G
of the Code in such other plan, arrangement or agreement), the cash Severance
Payments shall first be reduced (if necessary, to zero), and all other Severance
Payments shall thereafter be reduced (if necessary, to zero); PROVIDED, HOWEVER,
that the Executive may elect to have the noncash Severance Payments reduced (or
eliminated) prior to any reduction of the cash Severance Payments.
(B) For purposes of this limitation, (i) no portion of the Total
Payments the receipt or enjoyment of which the Executive shall have waived at
such time and in such manner as not to constitute a "payment" within the meaning
of section 280G(b) of the Code shall be taken
6
<PAGE>
into account, (ii) no portion of the Total Payments shall be taken into account
which, in the opinion of tax counsel ("Tax Counsel") reasonably acceptable to
the Executive and selected by the accounting firm which was, immediately prior
to the Change in Control, the Company's independent auditor (the "Auditor"),
does not constitute a "parachute payment" within the meaning of section
280G(b)(2) of the Code, including by reason of section 280G(b)(4)(A) of the
Code, (iii) the Severance Payments shall be reduced only to the extent necessary
so that the Total Payments (other than those referred to in clauses (i) or (ii))
in their entirety constitute reasonable compensation for services actually
rendered within the meaning of section 280G(b)(4)(B) of the Code or are
otherwise not subject to disallowance as deductions by reason of section 280G of
the Code, in the opinion of Tax Counsel, and (iv) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by the Auditor in accordance with the principles of sections
280G(d)(3) and (4) of the Code.
(C) If it is established pursuant to a final determination of a
court or an Internal Revenue Service proceeding that, notwithstanding the good
faith of the Executive and the Company in applying the terms of this Section
6.2, the Total Payments paid to or for the Executive's benefit are in an amount
that would result in any portion of such Total Payments being subject to the
Excise Tax, then, if such repayment would result in (i) no portion of the
remaining Total Payments being subject to the Excise Tax and (ii) a
dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, state and local income and employment taxes, the Executive
shall have an obligation to pay the Company upon demand an amount equal to the
sum of (i) the excess of the Total Payments paid to or for the Executive's
benefit over the Total Payments that could have been paid to or for the
Executive's benefit without any portion of such Total Payments being subject to
the Excise Tax; and (ii) interest on the amount set forth in clause (i) of this
sentence at the rate provided in section 1274(b)(2)(B) of the Code from the date
of the Executive's receipt of such excess until the date of such payment.
7
<PAGE>
6.3 The payments provided in subsections (A) and (D) of Section 6.1
hereof shall be made not later than the fifth day following the Date of
Termination; PROVIDED, HOWEVER, that if the amounts of such payments, and the
limitation on such payments set forth in Section 6.2 hereof, cannot be finally
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Company of the minimum
amount of such payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest on the unpaid remainder
(or on all such payments to the extent the Company fails to make such payments
when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than the
thirtieth (30th) day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at 120% of the rate provided in section 1274(b)(2)(B) of
the Code). At the time that payments are made under this Agreement, the Company
shall provide the Executive with a written statement setting forth the manner in
which such payments were calculated and the basis for such calculations
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or consultants (and any
such opinions or advice which are in writing shall be attached to the
statement).
6.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in disputing in good faith any issue
hereunder relating to the termination of the Executive's employment, in seeking
in good faith to obtain or enforce any benefit or right provided by this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code to any payment or
benefit provided hereunder. Such payments shall be made within five (5)
business days after delivery of the Executive's written requests for payment
accompanied with such evidence of fees and expenses incurred as the Company
reasonably may require.
8
<PAGE>
7. TERMINATION PROCEDURES AND COMPENSATION DURING DISPUTE.
7.1 NOTICE OF TERMINATION. After a Change in Control and during the
Term, any purported termination of the Executive's employment (other than by
reason of death) shall be communicated by written Notice of Termination from one
party hereto to the other party hereto in accordance with Section 10 hereof.
For purposes of this Agreement, a "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. Further, a Notice of Termination for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2 DATE OF TERMINATION. "Date of Termination," with respect to any
purported termination of the Executive's employment after a Change in Control
and during the Term, shall mean (i) if the Executive's employment is terminated
for Disability, thirty (30) days after Notice of Termination is given (provided
that the Executive shall not have returned to the full-time performance of the
Executive's duties during such thirty (30) day period), and (ii) if the
Executive's employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company,
shall not be less than thirty (30) days (except in the case of a termination for
Cause) and, in the case of a termination by the Executive, shall not be less
than fifteen (15) days nor more than sixty (60) days, respectively, from the
date such Notice of Termination is given).
7.3 DISPUTE CONCERNING TERMINATION. If within fifteen (15) days after
any Notice of Termination is
9
<PAGE>
given, or, if later, prior to the Date of Termination (as determined without
regard to this Section 7.3), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be extended until the earlier of (i) the date on which
the Term ends or (ii) the date on which the dispute is finally resolved, either
by mutual written agreement of the parties or by a final judgment, order or
decree of an arbitrator or a court of competent jurisdiction (which is not
appealable or with respect to which the time for appeal therefrom has expired
and no appeal has been perfected); PROVIDED, HOWEVER, that the Date of
Termination shall be extended by a notice of dispute given by the Executive only
if such notice is given in good faith and the Executive pursues the resolution
of such dispute with reasonable diligence.
7.4 COMPENSATION DURING DISPUTE. If a purported termination occurs
following a Change in Control and during the Term and the Date of Termination is
extended in accordance with Section 7.3 hereof, the Company shall continue to
pay the Executive the full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, salary) and continue the
Executive as a participant in all compensation, benefit and insurance plans in
which the Executive was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 7.3 hereof. Amounts paid under this Section 7.4 are in addition to all
other amounts due under this Agreement (other than those due under Section 5.2
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
8. NO MITIGATION. The Company agrees that, if the Executive's
employment with the Company terminates during the Term, the Executive is not
required to seek other employment or to attempt in any way to reduce any amounts
payable to the Executive by the Company pursuant to Section 6 hereof or Section
7.4 hereof. Further, the amount of any payment or benefit provided for in this
Agreement (other than Section 6.1(B) hereof) shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
10
<PAGE>
9. SUCCESSORS; BINDING AGREEMENT.
9.1 In addition to any obligations imposed by law upon any successor
to the Company, the Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Executive to compensation from the Company in
the same amount and on the same terms as the Executive would be entitled to
hereunder if the Executive were to terminate the Executive's employment for Good
Reason after a Change in Control, except that, for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive shall
die while any amount would still be payable to the Executive hereunder (other
than amounts which, by their terms, terminate upon the death of the Executive)
if the Executive had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
the executors, personal representatives or administrators of the Executive's
estate.
10. NOTICES. For the purpose of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed, if to the
Executive, to the address inserted below the Executive's signature on the final
page hereof and, if to the Company, to the address set forth below, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:
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To the Company:
------------------------
------------------------
------------------------
Attention:
11. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or of any lack of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof which have been made by either party;
PROVIDED, HOWEVER, that this Agreement shall supersede any agreement setting
forth the terms and conditions of the Executive's employment with the Company
only in the event that the Executive's employment with the Company is terminated
on or following a Change in Control, by the Company other than for Cause or by
the Executive other than for Good Reason. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed. The obligations of the Company
and the Executive under this Agreement which by their nature may require either
partial or total performance after the expiration of the Term (including,
without limitation, those under Sections 6 and 7 hereof) shall survive such
expiration.
12. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
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13. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. SETTLEMENT OF DISPUTES; ARBITRATION. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. The Board shall afford a reasonable opportunity to
the Executive for a review of the decision denying a claim and shall further
allow the Executive to appeal to the Board a decision of the Board within sixty
(60) days after notification by the Board that the Executive's claim has been
denied.
14.2 Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
New York, New York in accordance with the rules of the American Arbitration
Association then in effect; PROVIDED, HOWEVER, that the evidentiary standards
set forth in this Agreement shall apply. Judgment may be entered on the
arbitrator's award in any court having jurisdiction. Notwithstanding any
provision of this Agreement to the contrary, the Executive shall be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
15. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Exchange Act.
(B) "Auditor" shall have the meaning set forth in Section 6.2 hereof.
(C) "Base Amount" shall have the meaning set forth in section
280G(b)(3) of the Code.
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(D) "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Exchange Act.
(E) "Board" shall mean the Board of Directors of the Company.
(F) "Cause" for termination by the Company of the Executive's
employment shall mean (i) the willful and continued failure by the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section 7.1 hereof)
after a written demand for substantial performance is delivered to the Executive
by the Board, which demand specifically identifies the manner in which the Board
believes that the Executive has not substantially performed the Executive's
duties, or (ii) the willful engaging by the Executive in conduct which is
demonstrably and materially injurious to the Company or its subsidiaries,
monetarily or otherwise. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's act, or failure to
act, was in the best interest of the Company and (y) in the event of a dispute
concerning the application of this provision, no claim by the Company that Cause
exists shall be given effect unless the Company establishes to the Board by
clear and convincing evidence that Cause exists.
(G) A "Change in Control" shall be deemed to have occurred if the
event set forth in any one of the following paragraphs shall have occurred:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such
Person any securities acquired directly from the Company or
its affiliates) representing 25% or more of the combined
voting power of the Company's then outstanding securities,
excluding any Person who becomes such a Beneficial Owner
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in connection with a transaction described in clause (i) of
paragraph (III) below; or
(II)the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board
and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors
of the Company) whose appointment or election by the Board
or nomination for election by the Company's stockholders was
approved or recommended by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election
or nomination for election was previously so approved or
recommended; or
(III) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a merger
or consolidation which would result in the voting securities
of the Company outstanding immediately prior to such merger
or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity or any parent thereof) at least 60% of
the combined voting power of the securities of the Company
or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no Person is or becomes the Beneficial Owner, directly
or indirectly, of securities of the Company (not including in
the securities Beneficially Owned by such Person any
15
<PAGE>
securities acquired directly from the Company or its
Affiliates) representing 25% or more of the combined voting
power of the Company's then outstanding securities; or
(IV) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there
is consummated an agreement for the sale or disposition by
the Company of all or substantially all of the Company's
assets, other than a sale or disposition by the Company of
all or substantially all of the Company's assets to an
entity, at least 60% of the combined voting power of the
voting securities of which are owned by stockholders of the
Company in substantially the same proportions as their
ownership of the Company immediately prior to such sale.
(H) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(I) "Company" shall mean and, except in
determining under Section 15(G) hereof whether or not any Change in Control of
the Company has occurred, shall include any successor to its business and/or
assets which assumes and agrees to perform this Agreement by operation of law,
or otherwise.
(J) "Date of Termination" shall have the meaning set forth in Section
7.2 hereof.
(K) "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the Company
for a period of six (6) consecutive months, the Company shall have given the
Executive a Notice of Termination for Disability, and, within thirty (30) days
after such Notice of Termination is given, the Executive shall not have returned
to the full-time performance of the Executive's duties.
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(L) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(M) "Executive" shall mean the individual named in the first paragraph
of this Agreement.
(N) "Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) after any Change in Control, or prior to a Change in Control under the
circumstances described in clauses (ii) and (iii) of the second sentence of
Section 6.1 hereof (treating all references in paragraphs (I) through (VII)
below to a "Change in Control" as references to a "Potential Change in
Control"), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in
paragraph (I), (V), (VI) or (VII) below, such act or failure to act is corrected
prior to the Date of Termination specified in the Notice of Termination given in
respect thereof:
(I) the assignment to the Executive of any duties inconsistent
with the Executive's status with the Company or a substantial
adverse alteration in the nature or status of the Executive's
responsibilities from those in effect immediately prior to the
Change in Control;
(II) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be
increased from time to time;
(III) the relocation of the Executive's principal place of
employment to a location more than 25 miles from the Executive's
principal place of employment immediately prior to the Change in
Control or the Company's requiring the Executive to be based
anywhere other than such principal place of employment (or
permitted relocation thereof) except for required travel on the
Company's business to an extent substantially consistent with the
Executive's present business travel obligations;
17
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(IV) the failure by the Company to pay to the Executive any
portion of the Executive's current compensation or to pay to the
Executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company, within
seven (7) days of the date such compensation is due;
(V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control which is material to the
Executive's total compensation, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been
made with respect to such plan, or the failure by the Company to
continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount or timing of payment of
benefits provided and the level of the Executive's participation
relative to other participants, as existed immediately prior to
the Change in Control;
(VI) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, savings, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in
Control, the taking of any other action by the Company which would
directly or indirectly materially reduce any of such benefits or
deprive the Executive of any material fringe benefit enjoyed by the
Executive at the time of the Change in Control, or the failure by the
Company to provide the Executive with the number of paid vacation days
to which the Executive is entitled on the basis of years of service
with the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control; or
(VII) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
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the requirements of Section 7.1 hereof; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
For purposes of any determination regarding the existence of Good
Reason, any claim by the Executive that Good Reason exists shall be presumed to
be correct unless the Company establishes to the Board by clear and convincing
evidence that Good Reason does not exist.
(O) "Notice of Termination" shall have the meaning set forth in
Section 7.1 hereof.
(P) "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except
that such term shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
(Q) "Potential Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
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(III) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing 15% or more of
either the then outstanding shares of common stock of the Company or
the combined voting power of the Company's then outstanding securities
(not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates); or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(R) "Retirement" shall be deemed the reason for the termination by the
Executive of the Executive's employment if such employment is terminated in
accordance with the Company's retirement policy, including early retirement,
generally applicable to its salaried employees.
(S) "Severance Payments" shall have the meaning set forth in Section
6.1 hereof.
(T) "Tax Counsel" shall have the meaning set forth in Section 6.2
hereof.
(U) "Term" shall mean the period of time described in Section 2 hereof
(including any extension, continuation or termination described therein).
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(V) "Total Payments" shall mean those payments so described in
Section 6.2 hereof.
[COMPANY NAME]
By: ______________________________
Name:
Title:
---------------------------
EXECUTIVE
Address:
---------------------------
---------------------------
---------------------------
(Please print carefully)
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EXHIBIT 99.11
Dynamics Corporation of America
April 14, 1997
CTS Corporation
905 West Boulevard North
Elkhart, Indiana 46514
Attention: Joseph P. Walker
Gentlemen:
In connection with a possible transaction, each of us may furnish certain
information to the other. Accordingly, each agrees to treat any information
concerning the other that is furnished to it in accordance with the terms of
this letter. As used herein "Confidential Information" means all information
(whether it be in written, oral or other tangible or intangible form) concerning
Dynamics Corporation of America ("DCA") or CTS Corporation ("CTS"), as the case
may be (the "Provider"), its affiliates and subsidiaries which the Provider or
any of its Representatives (as hereinafter defined) provides to CTS or DCA, as
the case may be, or any of its Representatives (the "Recipient"), together with
analyses, compilations, studies, drawings or other documents, whether prepared
by the Provider or by others, which contain or otherwise reflect such
information. The term "Representatives" as used in this agreement shall mean
the directors, officers, employees, representatives, advisors or affiliates of
DCA or CTS, as the case may be.
The term "Confidential Information" shall not include information which (i)
is or becomes publicly known, other than as a result of a disclosure by or
through the Recipient or its Representatives in violation of this agreement, or
(ii) is or becomes known by the Recipient on a nonconfidential basis from a
source other than the Provider or its Representatives which is not, to the
knowledge of the Recipient, bound by a confidentiality
<PAGE>
CTS Corporation
April 14, 1997
Page 2
agreement with or other obligation of secrecy to the Provider.
As a condition to, and in consideration of each Provider providing
Confidential Information, each Recipient acknowledges and agrees as follows:
1. Except as required by applicable law, all Confidential Information will be
used solely for the purpose of evaluating or implementing a possible
transaction between the parties hereto and will be kept confidential by the
Recipient and its Representatives. The Recipient will be responsible for
any breach of this agreement by any of its Representatives. If the parties
determine not to proceed with the transaction, each party shall promptly
return to the other all copies of written or electronically stored
Confidential information concerning the other party in the possession of
such party or its Representatives or promptly destroy such Confidentiality
Information and confirm such destruction in writing.
2. If a Recipient or any of its Representatives is requested or required (by
oral question, interrogatories, requests for information or documents,
subpoena, civil investigative demand, any informal or formal investigation
by any government or governmental agency or authority or similar procedure)
to disclose any Confidential Information, it will endeavor promptly to
provide the Provider with written notice of any such request or requirement
in order to afford the Provider time either to seek an appropriate
protective order or other appropriate remedy to enforce compliance with the
provisions of this agreement, or to waive such compliance. If such order
or other remedy is not obtained, the Recipient will disclose only that
portion of the Confidential Information which it is advised by counsel
should be disclosed and will cooperate with the Provider, to the extent
requested by and at the expense of the Provider, to obtain reliable
assurance that confidential treatment will be accorded the Confidential
Information so disclosed.
2
<PAGE>
CTS Corporation
April 14, 1997
Page 3
3. The Recipient acknowledges that neither the Provider nor any of its
Representative makes any representation or warranty, either express or
implied, as to the accuracy and completeness of the Confidential
Information so disclosed.
4. The parties agree that unless and until a definitive written agreement
between the parties has been executed and delivered with respect to a
possible transaction, neither party will be under any obligation to the
other with respect thereto.
5. It is understood and agreed that a Provider would be irreparably injured by
a breach of this agreement by the applicable Recipient or its
Representatives, that money damages would not be sufficient remedy for any
such breach and that such Provider shall be entitled to equitable
performance, as a remedy for any such breach (which shall not be the
exclusive remedy for its breach of this agreement but shall be in addition
to all other remedies available at law and equity).
6. This agreement shall constitute the entire agreement between the parities
with regard to the subject matter hereof. No modification, amendment or
waiver shall be binding without the written consent of the parties.
7. This agreement may be executed in counterparts, each of which shall be
deemed to be an original, but both of which shall constitute the same
agreement.
3
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CTS Corporation
April 14, 1997
Page 4
8. This agreement shall be governed by and constructed in accordance with the
laws of the State of New York, without regard to the principles of conflict
of laws thereof.
Very truly yours,
DYNAMICS CORPORATION OF AMERICA
By: /s/ Henry V. Kensing
----------------------------
Name: Henry V. Kensing
Title: Vice President
Accepted and Agreed to:
CTS CORPORATTION
By: /s/ Joseph P. Walker
--------------------------
Name: Joseph P. Walker
Title: President
<PAGE>
May 9, 1997
Board of Directors
Dynamics Corporation of America
475 Steamboat Road
Greenwich, Connecticut 06830-7197
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to the holders of the Common Stock, par value $0.10 per
share (the "Shares"), of Dynamics Corporation of America (the "Company") of the
consideration to be received by such holders pursuant to the terms of the
Agreement and Plan of Merger, dated as of May 9, 1997 (the "Merger Agreement"),
among the Company, CTS Corporation ("CTS") and a wholly owned subsidiary of CTS
("Sub"). The Merger Agreement provides for, among other things, a cash tender
offer by Sub to acquire up to 49.9% of the issued and outstanding Shares at a
price of $55 per Share (the "Tender Offer"), and for a merger of the Company
with and into Sub (the "Merger" and, together with the Tender Offer, the
"Transaction"), pursuant to which each outstanding Share not owned directly or
indirectly by CTS, Sub or the Company will be converted into 0.88 shares of
common stock, without par value, of CTS ("CTS Common Stock"). Pursuant to the
Merger Agreement, the Merger may be consummated, at the election of CTS and Sub,
in certain circumstances if no Shares are purchased in the Tender Offer. The
shares of CTS Common Stock issuable in the Merger and, in the event Shares are
purchased in the Tender Offer, the cash price paid for such shares, are referred
to collectively as the "Consideration".
In connection with rendering our opinion, we have reviewed the Merger
Agreement. We have also reviewed and analyzed certain publicly available
business and financial information relating to the Company and CTS for recent
years and interim periods to date, as well as certain internal financial and
operating information, including financial forecasts, analyses and projections
prepared by or on behalf of the Company and CTS and provided to us for purposes
of our analysis, and we have met with the managements of the Company and CTS to
review and discuss such information and, among other matters, the Company's and
CTS' respective businesses, operations, assets, financial condition and future
prospects.
We have reviewed and considered certain financial and stock market data
relating to the Company and CTS, and we have compared that data with similar
data for certain other companies, the securities of which are publicly traded,
that we believe may be relevant or comparable in certain respects to the Company
and CTS or one or more of their respective businesses or assets, and we have
reviewed and considered the financial terms of certain recent acquisitions and
business combination transactions which we believe to be reasonably comparable
to the
<PAGE>
Board of Directors of Dynamics Corporation of America
May 9, 1997
Page 2
Transaction or otherwise relevant to our inquiry. We have also performed such
other studies, analyses, and investigations and reviewed such other information
as we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also relied upon the reasonableness and accuracy of the
financial projections, forecasts and analyses provided to us and we have
assumed, with your consent, that such projections, forecasts and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's and CTS' management, and we
express no opinion with respect to such projections, forecasts and analyses or
the assumptions upon which they are based. In addition, we have not reviewed
any of the books and records of the Company or CTS, or assumed any
responsibility for conducting a physical inspection of the properties or
facilities of the Company or CTS, or for making or obtaining an independent
valuation or appraisal of the assets or liabilities of the Company or CTS, and
no such independent valuation or appraisal was provided to us. We have assumed
that the transactions described in the Merger Agreement will be consummated on
the terms set forth therein, without material waiver or modification. We have
also assumed that the Merger will qualify as a tax-free reorganization under the
Internal Revenue Code. Our opinion is necessarily based on economic and market
conditions and other circumstances as they exist and can be evaluated by us as
of the date hereof. In rendering this opinion, we are not expressing any
opinion as to the price at which the shares of CTS Common Stock will actually
trade at any time, or the market value of the Consideration that the Company's
shareholders will receive upon consummation of the Transaction.
It should be noted that in the context of our current engagement by the
Company, at the direction of the Company, we have not solicited alternative
offers for the Company or its assets, although we have (with the Company's
permission) engaged in preliminary discussions with one company (other than CTS
and WHX Corporation ("WHX")). Today such company delivered a written proposal
to the Company to acquire all of the outstanding Shares for $54 per Share in
cash, subject to certain conditions, including the negotiation of a mutually
satisfactory merger agreement.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a major portion of which is
contingent upon the consummation of the Transaction.
Our opinion addresses only the fairness from a financial point of view to
the shareholders of the Company of the Consideration to be received by such
shareholders pursuant to the Transaction, and we do not express any views on any
other terms of the Transaction. Specifically, our opinion does not address the
Company's underlying business decision to effect the transactions contemplated
by the Merger Agreement.
<PAGE>
Board of Directors of Dynamics Corporation of America
May 9, 1997
Page 3
It is understood that this letter is for the benefit and use of the Board
of Directors of the Company in its consideration of the Transaction, and except
for inclusion in its entirety in the Company's Schedule 14D-9 relating to the
tender offer by WHX for any and all of the Shares, the Company's Schedule 14D-9
relating to the Tender Offer and any proxy statement of the Company relating to
the Merger, may not be quoted, used or reproduced for any other purpose without
our prior written consent. This opinion does not constitute a recommendation to
any shareholder with respect to whether such holder should tender Shares
pursuant to the Tender Offer or as to how such holder should vote with respect
to the Merger, and should not be relied upon by any shareholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof
the Consideration to be received by the shareholders of the Company pursuant to
the Merger Agreement is fair to the shareholders of the Company from a financial
point of view.
Very truly yours,
/s/ WASSERSTEIN PERELLA & CO., INC.
WASSERSTEIN PERELLA & CO., INC.
<PAGE>
May 16, 1997
Dear Fellow Shareholders:
I am pleased to inform you that the Company has signed a merger agreement
with CTS Corporation under which a subsidiary of CTS has commenced a tender
offer to purchase up to 49.9% of the outstanding Company shares at $55 per share
in cash. The tender offer will be followed by a merger of the Company into such
subsidiary in which each remaining Company share will be converted into the
right to receive 0.88 CTS shares.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT, THE TENDER OFFER AND THE MERGER AND DETERMINED
THAT THE TENDER OFFER AND MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
COMPANY AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THOSE SHAREHOLDERS WHO WISH TO RECEIVE CASH FOR THEIR SHARES
ACCEPT THE CTS OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its determination and recommendation, the Board gave careful
consideration to a number of factors that are described in the enclosed Schedule
14D-9, including the opinion of Wasserstein Perella & Co., Inc., the Company's
financial advisor, that the consideration to be received by the Company's
shareholders in the tender offer and the merger, taken together, is fair to the
Company's shareholders from a financial point of view.
Additional information with respect to the Board's decision is contained in
the enclosed Schedule 14D-9, and we urge you to consider this information
carefully.
Your Board of Directors and I greatly appreciate your continued support and
encouragement.
Sincerely,
Andrew Lozyniak
Chairman of the Board and President
