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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
ECHLIN INC.
(Name of Subject Company)
ECHLIN INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
(including the associated Series A Participating Cumulative Preferred Stock
purchase rights)
(Title of Class of Securities)
278749106
(CUSIP Number of Class of Securities)
Jon P. Leckerling, Esq.
Senior Vice President,
General Counsel and Corporate Secretary
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405
(203) 481-5751
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications
on Behalf of the Person(s) Filing Statement)
With a copy to:
John J. McCarthy, Jr., Esq.
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
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Item 1. Security and Subject Company.
The name of the subject company is Echlin Inc. ("Echlin" or the
"Company"), a corporation organized under the laws of Connecticut. The
principal executive offices of Echlin are located at 100 Double Beach Road,
Branford, Connecticut 06405. The title of the class of equity securities to
which this Statement relates is the Common Stock, par value $1.00 per share
(the "Common Shares"), of Echlin, including the associated Series A
Participating Cumulative Preferred Stock purchase rights (the "Rights") issued
pursuant to the Rights Agreement dated as of June 21, 1989, as amended (the
"Rights Agreement"), between Echlin and The First National Bank of Boston, as
Rights Agent.
Item 2. Exchange Offer of the Bidder.
This Statement relates to the proposed exchange offer by SPX
Corporation ("SPX"), a Delaware corporation, disclosed in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated April 30, 1998 to
exchange each outstanding Common Share (including the associated Right) for an
amount equal to $12.00 net in cash and 0.4796 shares of common stock, par
value $10.00 per share, of SPX (the "Consideration"), upon the terms and
subject to the conditions set forth in the Offer to Purchase dated April 30,
1998 (the "Offer to Purchase") and the related Letter of Transmittal (which,
together with the Offer to Purchase, constitutes the "SPX Exchange Offer").
According to the Schedule 14D-1, if the SPX Exchange Offer
succeeds, SPX intends to consummate a merger (the "Proposed Merger" and,
together with the SPX Exchange Offer, the "SPX Transaction"), pursuant to
which each Common Share then outstanding (other than Common Shares owned by
SPX or its subsidiaries or held in the Company's treasury) will be converted
into the right to receive the Consideration.
According to the Schedule 14D-1, the principal executive
offices of SPX are located at 700 Terrace Point Drive, Muskegon, Michigan
49443.
Item 3. Identity and Background.
(a) The name and business address of Echlin, which is the
person filing this Statement, are set forth in Item 1 above.
(b) (1) Certain information with respect to certain contracts,
agreements, arrangements or understandings between Echlin or its affiliates
and certain of its executive officers, directors and affiliates is set forth
in pages 9-20 of Echlin's Proxy Statement Soliciting Revocation of Demands for
the Special Meeting of Echlin Shareholders (the "Revocation Proxy Statement")
dated March 12, 1998, copies of which pages are attached as Exhibit 4 to this
Statement and are incorporated herein by reference.
Change in Control Severance Policy
The Company has established a Change In Control Severance
Policy, dated as of December 19, 1990 and amended as of April 23, 1998, (the
"Severance Policy") covering some 259 designated employees of the Company and
its domestic U.S. subsidiaries, including (i) the "named executive officers"
as such term is defined in Item 402(a)(3) of Regulation S-K for the fiscal
year ended August 31, 1997 ("Fiscal Year 1997") (the "Named Executive
Officers") and (ii) certain executive officers of the Company and officers of
subsidiaries of the Company (the "Officer Participants," and together with the
Named Executive Officers, "Designated Officers"). A change of control event
of the Company is defined as the occurrence of one of the following events,
coupled with a declaration by the Company's Board of Directors (the "Board")
that such event qualifies or will qualify as a change of control (a "Qualified
Change of Control") for the purposes of the Severance Policy: (i) 30 percent
or more of the Company's outstanding Common Stock being beneficially held or
acquired by a third party; (ii) 20 percent or more of the Company's outstanding
Common Stock being purchased pursuant to a tender or exchange offer by a third
party; (iii) shareholder approval of the Company merging or consolidating with
or selling substantially all of its assets to another entity and the Company
not being the surviving corporation; or (iv) during any two year period, a
majority of individuals who are members of the Board ("Directors") at the
beginning of the period ceasing to be Directors by the end of the period,
unless the nomination of each new Director is approved by a two-thirds
majority of those who are Directors at the beginning of the period, but
explicitly excluding from those persons who can be so approved any individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest or other actual or threatened solicitation of
proxies or consents. If the Board were to so declare, and the SPX Transaction
were to be consummated according to its terms, it would constitute a Qualified
Change of Control.
Employees covered by the policy receive special severance
benefits if, within two years after a Qualified Change of Control, the
employee is laid off, the employee's employment is involuntarily terminated
without "cause" (as defined in the Severance Policy) or the employee
terminates employment for "good reason" because (i) there have been certain
adverse change in the employee's duties, responsibilities, title, position,
compensation, benefits or general status; (ii) the employee is required to
relocate to a place of business more than 50 miles from the location where the
employee works at the time of the Qualified Change of Control; (iii) the
Severance Policy is not expressly assumed by a successor to or assign of the
Company; or (iv) for certain Company corporate officers, including certain of
the Designated Officers, the employee elects to terminate his or her
employment during the 30-day period commencing one year after the Qualified
Change of Control.
Severance benefits are payable within 30 days of termination
and consist of a lump sum payment equivalent to the sum of the higher of the
employee's annual base salary and most recent executive bonus, if applicable,
either as of the date of the Qualified Change of Control or the date of the
termination for a period varying from 7.5 months to 36 months depending upon
the employee's employment level. The Designated Officers other than Mr. Jones
and Mr. Mancheski (who has retired) qualify for payments equivalent to 24 or
36 months. Employees covered by the policy continue to receive other benefits
such as medical insurance for a period equivalent to the period associated
with their severance payment. In some cases, severance payments are increased
to compensate for any excise taxes resulting from the payment and any other
benefits extended based upon the Qualified Change of Control.
If a covered employee's employment ends after a Qualified
Change of Control because of death, disability or for cause, or if the
employee voluntarily terminates employment, other than for good reason as
provided in the Severance Policy, the employee will get no special severance
benefits.
Severance and Indemnification Agreements
The Company has entered into Severance and Indemnification
Agreements, dated as of April 23, 1998, with certain of the Designated
Officers (the "Severance Agreements"). The Severance Agreements, like the
Severance Policy described above, provide the officers with severance benefits
if, within two years after a Qualified Change of Control, the officer is laid
off, the officer's employment is involuntarily terminated without "cause"
(defined in the same way as in the Severance Policy) or the officer terminates
employment for "good reason" (defined in the same way as in the Severance
Policy). In the Severance Agreements with some of the officers, the Board
must make a determination that a particular event will constitute a Qualified
Change of Control, and in other cases, any of the four "change of control"
events shall automatically constitute a Qualified Change of Control triggering
rights under the Severance Agreement without a separate determination by the
Board. The benefits provided by the Severance Agreements are only intended
to accrue to the extent that such benefits exceed benefits otherwise provided
under the Severance Policy or any other plan or arrangement of the Company.
Severance benefits are payable within 30 days of termination
and consist of a lump sum payment equivalent to, either two or three times
(depending upon the officer) the sum of the higher of the officer's annual
base salary and his most recent paid or targeted annual executive bonus,
either as of the date of the Qualified Change of Control or the date of the
termination.
For purposes of calculating the officers' benefits under the
qualified and nonqualified defined benefit plans in which they participate,
(i) they receive additional years of service credit for all purposes under
such plans equivalent to the period associated with their severance payment,
(ii) all severance compensation paid is treated as pensionable earnings for
purposes of computing their benefits under the plan and (iii) all years of
employment with the Company are counted as valid years of service for all
purposes under the plans, regardless of when served. In addition, certain of
the Severance Agreements provide for pension benefits, unreduced for early
commencement, payable under the nonqualified defined benefit plans in a lump
sum immediately upon termination. The Severance Agreements, like the
Severance Policy, provide the officers with continued benefits such as medical
insurance for the period associated with their severance payment.
If a covered officer's employment ends after a Qualified Change
of Control for cause, or if the officer voluntarily terminates employment,
other than for good reason as described above, the officer will get no special
severance benefits.
On April 23, 1998, Echlin entered into indemnification
agreements with Messrs. Creamer, Dauch, DeVane, Echlin, Jensen, Jones, Nusbaum
and Rivard (each a "Director Indemnitee"), the nonmanagement directors of
Echlin, pursuant to which Echlin has agreed, subject to certain limitations,
to indemnify each Director Indemnitee for all costs, losses, and expenses
(including, without limitation, attorneys' and other fees and expenses,
judgments, and amounts paid in settlement) which any Director Indemnitee may
incur or become liable for in connection with any threatened, pending or
completed action, suit, proceeding or inquiry by reason of the fact that the
Director Indemnitee is or was a director of Echlin, or is or was or had agreed
to serve at the request of Echlin as a director, officer, employee or agent of
another entity including any subsidiary of Echlin. Echlin has agreed to
advance any such amounts to each Director Indemnitee prior to the final
disposition of any action, suit, proceeding or inquiry and each Director
Indemnitee has agreed to repay any advances made on his behalf if it is
ultimately determined that such Director Indemnitee is not entitled to
indemnification. Echlin has also agreed to obtain and maintain insurance
policies providing for customary directors and officers liability insurance in
appropriate amounts, subject to certain limitations.
Benefits Upon a Change in Control
The occurrence of a Qualified Change of Control will have the
following effects with respect to benefits of Directors and Designated
Officers who participate in the following benefit plans of the Company:
Unfunded, Non-Qualified Deferred Compensation Plan
The unpaid balance, if any, of a Designated Officer's account
under the Company's 1976 Unfunded Non-Qualified Deferred Compensation Plan
(the "Deferred Compensation Plan") will be paid to such officer in a lump sum
within 30 days of the Qualified Change of Control.
Performance Unit Plan
All outstanding performance units under the Company's
Performance Unit Plan immediately vest on the date of the Qualified Change of
Control. Performance units are valued at 100 percent of their original
targeted value multiplied by a fraction representing the number of months
elapsed in the three-year vesting cycle.
Stock Option Plans
On the occurrence of a Qualified Change of Control all options
granted under the Company's 1992 Stock Option Plan, and any relevant
predecessor employee stock option plan, (the "1992 Stock Option Plan") will
become immediately exercisable and will be deemed to have been granted with
related stock appreciation rights ("SARs"). Payment upon surrender of any
such SAR shall be made immediately in cash.
All options granted under the Company's 1996 Non-Executive
Director Stock Option Plan will become immediately exercisable for the
remainder of their respective terms on the occurrence of a Qualified Change of
Control.
Pension Plan
Participants vest in pension benefits on the date of the
Qualified Change of Control to the extent not otherwise vested and, as
applicable, receive service credit under the pension plan equivalent to the
period of time associated with any severance payment made under the Severance
Policy or a Severance Agreement.
Supplemental Executive Retirement Plan
Participants vest in plan benefits on the date of the Qualified
Change of Control. If, within two years after the Qualified Change of
Control, a participant's employment is involuntarily terminated without cause
or the participant terminates employment for good reason, the participant's
plan benefit becomes immediately payable in a lump sum.
Incentive and Savings Investment (401(k)) Plan
Participants vest in their accounts on the date of the
Qualified Change of Control to the extent not otherwise vested.
Grantor Trust
The Company has established a grantor trust with a trust
company for the purpose of paying amounts due under any of the Company's
compensation and benefit plans or arrangements including, without limitation,
those described herein. Approximately $9.3 million has been contributed to
the trust. Amounts contributed to the trust become irrevocable on the date of
a change in control.
On April 23, 1998, the Board established a Trust Administration
Committee to control and manage the administration of the grantor trust, with
the following officers of the Company initially appointed to serve as members
of such Committee: Jon P. Leckerling (Chair), Joseph A. Onorato and Robert F.
Tobey.
(b)(2) There are no contracts, agreements, arrangements or
understandings or any actual or potential conflict of interest between Echlin
and its affiliates and SPX or its executive officers, directors or affiliates.
Other than as disclosed or incorporated by reference herein,
there are no contracts, agreements, arrangements or understandings or any
actual or potential conflicts of interest between Echlin or its affiliates and
(i) Echlin, its executive officers, directors or affiliates or (ii) SPX, its
executive officers, directors or affiliates.
Item 4. The Solicitation or Recommendation
(a) and (b) Recommendation and Reasons.
THE BOARD HAS UNANIMOUSLY DETERMINED THAT THE SPX TRANSACTION,
INCLUDING THE SPX EXCHANGE OFFER, IS INADEQUATE AND NOT IN THE BEST INTERESTS
OF THE COMPANY, AS DESCRIBED IN MORE DETAIL BELOW. ACCORDINGLY, THE BOARD
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY REJECT THE SPX
TRANSACTION AND NOT TENDER THEIR SHARES PURSUANT TO THE SPX EXCHANGE OFFER.
On May 3, 1998, the Board of Directors of Echlin (the "Board")
met with its legal and financial advisors and unanimously concluded that the
SPX Exchange Offer was inadequate and not in the best interests of Echlin,
Echlin's shareholders and other constituencies of Echlin. At the same
meeting, the Board decided to enter into a strategic business combination with
Dana Corporation, a Virginia corporation ("Dana"). At that meeting the Echlin
Board determined that the interests of the Company, its shareholders and its
other constituencies would be better served if Echlin were to consummate the
transaction with Dana, rather than the SPX Transaction. In reaching its
conclusion, the Board received the opinion of Salomon Brothers Inc. and Smith
Barney Inc. (doing business as Salomon Smith Barney) ("Salomon Smith Barney")
that as of May 3, 1998, the Consideration to be paid pursuant to the SPX
Exchange Offer was inadequate, from a financial point of view, to the
shareholders of Echlin other than SPX and its affiliates. All members of the
Board were present. A copy of the opinion of Salomon Smith Barney setting
forth the qualifications, limitations and assumptions of Salomon Smith Barney
related to such opinion, and matters considered by Salomon Smith Barney is
attached as Exhibit 3 hereto. Shareholders are urged to read such opinion in
its entirety.
The Board recommends that shareholders reject the SPX Exchange
Offer and not tender their Common Shares pursuant to the SPX Exchange Offer.
As further described in Item 7, the Board approved the merger
(the "Dana Merger") of the Company and a wholly-owned subsidiary of Dana.
The terms of the Dana Merger are set forth in an Agreement and Plan of
Merger (the "Merger Agreement") dated as of May 3, 1998, among the Company,
Dana and Echo Acquisition Corp which is attached as Exhibit 11 hereto. In
the Dana Merger, each share of Common Stock of the Company will be
converted into the right to receive 0.9293 shares of common stock, par
value $1.00 per share, of Dana (the "Dana Exchange Ratio").
As a result of the Dana Merger, the Company will become a
wholly-owned subsidiary of Dana and the shareholders of the Company at the
consummation of the Dana Merger will own approximately 36% of the outstanding
common stock of Dana.
In connection with the execution of the Merger Agreement,
Echlin entered into a Stock Option Agreement (the "Option Agreement") dated as
of May 3, 1998, with Dana which is attached as Exhibit 12 hereto. Pursuant to
the Option Agreement, Echlin granted to Dana an option (the "Option"),
exercisable under certain circumstances, to purchase the number of Common
Shares equal to 19.9% of Echlin's issued and outstanding Common Shares, at an
aggregate price of $55 per share.
Copies of the press release announcing the Board's actions and
determinations, and a letter to the shareholders of the Company communicating
the Board's recommendations, are filed as Exhibits 1 and 2 hereto,
respectively, and are incorporated herein by reference.
In reaching its determinations and recommendations, the Board
considered numerous factors in addition to the Salomon Smith Barney opinion
referred to above, including among other things the following:
(i) the inferior value of the SPX Transaction to the Company's
shareholders, as compared to the value of the Dana Merger to the
Company's shareholders;
(ii) as required by Section 33-756(d) of the Connecticut Business
Corporation Act, the effects of the SPX Transaction on the
interests of the Company's employees, customers, creditors and
suppliers and on the interests of communities in which the
offices and facilities of the Company are located as well as the
effects of the Dana Merger on the interests of these
constituencies;
(iii) the Board's familiarity with, and management's view of, the Company's
business, financial condition, results of operations, business
strategy and future prospects, including in particular the
strategy and prospects reflected in the Company's strategic plan,
the nature of the markets in which Echlin operates and Echlin's
position in such markets, and the Board's belief, based on the
factors described herein, that the SPX Exchange Offer does not
reflect the inherent value of the Company;
(iv) the numerous conditions to which the SPX Exchange Offer is subject,
including obtaining of the financing (the conditions to which are
not disclosed in the Schedule 14D-1), as well as many other
conditions that are in the sole discretion of SPX;
(v) the lack of sufficient disclosure in the Schedule 14D-1 regarding
the proposed terms of the financing of the SPX Exchange Offer,
the possibility that restrictive covenants or other conditions to
such financing would have a negative impact on the ability of SPX
to maintain and/or expand the proposed combined business and/or
conduct the share repurchase programs promised by SPX and the
effect of the SPX Transaction on the combined entity's capital
structure and credit ratings;
(vi) the Board's belief that the SPX Exchange Offer appears to be based
on a seriously flawed analysis of the benefits of a combination
of the two companies, including
o the apparent view by SPX's management that it is possible to
eliminate wholesale distributors from the distribution chain
without suffering serious loss of sales and revenues from the
reaction by such distributors to any attempt to eliminate them
from the distribution chain;
o the apparent failure of SPX's management to take into account the
negative reaction by many of the Company's large customers to the
takeover by SPX of Echlin, with the potential for a significant
losses of revenues and operating income of the combined entity;
o the unsupported view by SPX's management that the cost-savings
targets which are contained in the Schedule 14D-1 are attainable
without inflicting serious damage on the combined entity's
long-term earnings potential and the likelihood that, as a result
of SPX's inability to meet these targets, the SPX Transaction will
be dilutive to the shareholders of the combined entity;
o the potential difficulties involved in a takeover by SPX of a
significantly larger company such as Echlin, which has annual
revenues that are four times greater than the revenues of SPX, and
of the negative consequences to the combined entity if such
difficulties are not overcome on a timely basis;
o the lack of significant commonality between the products of the
Company and SPX;
o the lack of significant commonality between the distribution
channels used by the Company and SPX; and
o the difficulties that might arise in integrating dissimilar
cultures and workforces;
(vii) the absence of any specific credible information from SPX which would
substantiate SPX's claims of potential synergies between Echlin and
SPX as well as the Board's belief that there is a lack of such
synergies, combined with the Board's view that the Dana Merger will
result in significant synergies for the combined entity and will
therefore benefit Echlin's shareholders and other constituents;
(vii) certain risks associated with the SPX Transaction identified in
Schedule 14D-1; and
(viii) the fact that the SPX Exchange Offer is taxable to Echlin
shareholders, thereby further reducing the current value of the SPX
Exchange Offer.
The foregoing discussion of the information and factors
considered and given weight by the Board is not intended to be exhaustive. In
view of the variety of factors considered in its evaluation, the Board did not
find it practicable to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determinations and
recommendation. In addition, individual members of the Board may have given
different weights to different factors.
Background
In February 1997, Trevor O. Jones, then Chairman and interim
Chief Executive Officer of the Company, met informally with John B. Blystone,
Chairman and Chief Executive Officer of SPX to discuss a number of general
topics concerning the vehicle industry. No specific proposal regarding a
business combination between the two companies was made at the meeting.
In November 1997, Larry McCurdy, who had succeeded Mr. Jones as
President and Chief Executive Officer of the Company, met with Mr. Blystone to
discuss business in general. A possible business combination between the two
companies was discussed at the meeting. General discussion regarding a
business combination also took place on November 24, 1997, between Robert F.
Tobey, the Company's Vice President - Corporate Development and Patrick J.
O'Leary, SPX's Vice President - Finance and Chief Financial Officer. However,
SPX did not come forward in either meeting with any specific proposal
regarding any business combination or with specific evidence of synergies that
would result from a business combination. During the course of his meeting
with Mr. O'Leary, Mr. Tobey stated that in order to understand SPX's views
regarding potential synergies, the parties should exchange confidential
information subject to appropriate protections. Mr. O'Leary categorically
rejected the suggestion. Accordingly, Mr. Tobey advised that in these
circumstances further discussions would not be fruitful.
On December 12, 1997, following a conversation between Mr.
McCurdy and Mr. Blystone, Mr. McCurdy received a letter from Mr. Blystone
setting out Mr. Blystone's thoughts on a business combination of the two
companies. The letter stated that SPX was thinking about a price "in the
$40's range", and contained a suggestion that the letter itself be shared with
the Board.
On December 17, 1997, the Board had a full discussion of the
views expressed in Mr. Blystone's letter. Based on all of the information
available to the Board at the time, including the contents of Mr. Blystone's
letter, the Board determined that it had no interest in pursuing further
discussions with SPX regarding a business combination. That same day, Mr.
McCurdy wrote a letter to Mr. Blystone stating that Mr. McCurdy had shared Mr.
Blystone's views with the Board, and that the Company's position remained that
the Company had no interest in further discussions with SPX regarding a
business combination.
On December 18, 1997, each member of the Board received a
letter from Mr. Blystone enclosing a copy of his December 12 letter and
reiterating his views on the merits of a business combination.
On December 23, 1997, Mr. McCurdy discussed by telephone Mr.
Blystone's letters of December 12 and December 18 with each member of the
Board. Following these discussions, Mr. McCurdy sent a letter to Mr. Blystone
stating that the Board was of the unanimous view that the Company did not have
an interest in pursuing discussions with SPX.
On January 6, 1998, the Company was notified by SPX that it was
filing a Premerger Notification and Report Form under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 ("HSR") seeking to acquire up to 100% of
the voting securities of the Company.
On January 8, 1998, Mr. McCurdy wrote to Mr. Blystone
acknowledging receipt of notice of SPX's HSR filing and advising SPX that the
Company and its advisors stood ready to aggressively defend Echlin's
shareholders' interests.
On February 17, 1998, the Board of Directors of the Company
received a letter from SPX indicating that it was prepared to make an
unsolicited offer to acquire all of the outstanding shares of Echlin and
stating that SPX desired to enter into negotiations with the Company regarding
a business combination, as well as offer materials in connection with the
proposed offer, preliminary solicitation materials to solicit demands that a
special meeting be called and held, and certain other materials which were
filed by SPX with the Securities and Exchange Commission that day. On the
same day SPX publicly announced details of its proposed offer and the Company
issued the following press release:
ECHLIN INC. COMMENTS ON HOSTILE TAKEOVER PROPOSAL
BY SPX CORPORATION
-- Auto Parts Company Says It Will Continue To Implement Its Own
Strategic Plan To Build Economic Value --
BRANFORD, Conn., February 17, 1998--Echlin Inc. (NYSE: ECH) confirmed
today, in response to SPX Corporation's unsolicited takeover proposal
and consistent with its fiduciary responsibilities, that its board of
directors will review the SPX proposal in due course. To that end,
Echlin has retained Salomon Smith Barney and Davis Polk & Wardwell to
assist it in its review of the proposal.
Echlin stated that shareholders need not take any action at this time
with respect to the proposal, and requested they await the
recommendation of Echlin's board.
Echlin Chairman, President and CEO Larry McCurdy said, "Echlin's
management and board of directors had previously been contacted by SPX,
and after careful evaluation of a proposed combination, unanimously
rejected the idea based upon two major concerns: the lack of market
synergies between the two companies, and, our significantly different
views on the future of the automotive parts business and how it may best
be served. At that time, Echlin's board communicated to SPX that such a
combination did not make good business sense, and that it was clearly
not in the best interests of Echlin's shareholders, customers or
employees. Echlin informed SPX that it had no interest in pursuing the
matter."
"The board and management of Echlin reiterated their conviction that
prospects for the company are extremely bright. Echlin is making
significant progress in implementing its previously announced, strategic
repositioning plan," Mr. McCurdy continued. "Key elements of the plan
include divestiture of underperforming or non-strategic businesses;
factory rationalizations; aggressive cost cutting aimed at profit
improvements; heightened asset management and cash flows gains; and, a
steadfast commitment to incorporating the EVA framework to enhance
value."
Mr. McCurdy concluded, "Echlin will continue to implement its
well-conceived strategic plan to build economic value."
Echlin, with annual sales of $3.6 billion, manufactures a wide scope of
safety-and efficiency-related products for the world's 650 million
motor vehicles. It employs 30,000 associates in over 150 operations
spread across six continents.
Certain statements included above are forward-looking, and involve risks
and uncertainties which could cause actual results to differ materially
from those implied. Information about potential factors identified by
the company, which could affect its actual financial results, is
included in the company's Form 10-K filed in November 1997 with the SEC."
On March 25, 1998 SPX announced that it has delivered to Echlin
demands from more than 35% of Echlin shareholders requesting that Echlin call
a special meeting of Echlin shareholders and further announced that such
special meeting will be held no later than June 23, 1998.
On April 6, 1998, the Company issued the following press
release:
ECHLIN ANNOUNCES THAT SPX FAILED TO DELIVER VALID DEMANDS
NECESSARY TO CALL A SPECIAL MEETING; INITIATES SUIT AGAINST SPX FOR MAKING
MISLEADING STATEMENTS
BRANFORD, CONN., April 6, 1998 -- Echlin Inc. (NYSE:ECH), global motor
vehicle parts manufacturer, today announced that, contrary to SPX
Corporation's announcement on March 24, 1998, SPX has not delivered
sufficient valid demands to Echlin to require Echlin to call a special
meeting of Echlin shareholders.
Echlin's Secretary and General Counsel, Jon Leckerling, stated, 'Echlin
retained an independent public accounting firm, Coopers & Lybrand, to
conduct the count of demands delivered by SPX. Based on the count
provided by Coopers & Lybrand, Echlin has determined that, on March 25,
1998, SPX delivered valid, unrevoked demands to call a special meeting
of shareholders of Echlin amounting to approximately 2% of the total
outstanding shares.'
Echlin is taking appropriate legal actions in connection with the
actions of SPX and the statements made by SPX in claiming to deliver
valid demands which were deficient. Mr. Leckerling stated, 'Echlin is
filing today a complaint in the Connecticut federal district court
against SPX alleging violations of federal securities laws by SPX in
connection with SPX's actions and its false statements.'
A letter sent by Mr. Leckerling to John Blystone, Chairman, President
and Chief Executive Officer of SPX, follows.
"Dear Mr. Blystone:
We received from you on March 25, 1998, demands for a special meeting of
Echlin shareholders, which purported to represent in excess of 35% of
the outstanding shares of Echlin. SPX made a public announcement that
Echlin will be required to call a special meeting of its shareholders
due to the delivery of such demands, and repeated that claim on numerous
occasions. As Secretary of Echlin, I have retained the independent
public accounting firm of Coopers & Lybrand to conduct the count of the
demands and revocations Echlin received. Based on the work of Coopers &
Lybrand, I have determined that shareholders representing only 1,189,040
shares (or 1.9% of the total outstanding stock) delivered valid demands
on March 25, 1998. Of course, this means that Echlin is not required to
call a special meeting of shareholders under Connecticut law and, absent
such requirement, Echlin does not intend to call such a special meeting.
The vast majority of demands delivered by you were deficient in several
respects. First, although you selected February 17, 1998 as the record
date by signing and delivering your demand on that date, a large number
of the demands delivered by you were solicited using a different record
date. Therefore, those demands are invalid. Second, a large number of
the demands delivered by you cannot be traced by this corporation to the
registered holder of Echlin's stock. Specifically, you have delivered
demands from persons and institutions who do not have a necessary proxy
from a registered holder of this corporation's stock and, therefore,
such demands come from persons and institutions who are not authorized
to vote on the affairs of this corporation. Again, those demands are
invalid.
Echlin believes that your misuse of the proxy solicitation process and
your false and misleading announcement that SPX obtained sufficient
valid demands to call for a special shareholder meeting irreparably
tainted the solicitation process, misled our shareholders and created
uncertainty in the marketplace. Moreover, you and your management team
have put Echlin and its shareholders through considerable, unnecessary
expense and disturbance when you knew or should have known that the
entire process you initiated was fatally flawed. Accordingly, Echlin
has today filed an action in the Connecticut federal court with the
objective, inter alia, of ensuring future compliance by SPX with the
requirements of the federal securities laws."
Certain subsequent litigation related to the demands
solicitation is described further in Item 8 below.
From time to time over the last year, senior executive officers
of the Company and Dana had held discussions regarding possible areas of
cooperation between the two companies and the benefits to their shareholders,
customers and employees that might result from such cooperation. In late
March, 1998, Mr. Southwood J. Morcott, Chairman, Chief Executive Officer and
President of Dana suggested to Mr. McCurdy that they meet to discuss a possible
transaction between the companies. Mr. McCurdy met Mr. Morcott in New York
City on March 31, 1998. At the end of the meeting, Mr. McCurdy and Mr.
Morcott concluded that exploration of synergies between Echlin and Dana as
well as mutual due diligence would be required before either company could
determine whether it would enter into discussions regarding a business
transaction.
On April 20 and 21, Mr. Morcott and certain other senior
officers of Dana met with Mr. McCurdy and certain other senior officers of
Echlin at Echlin's offices. Echlin representatives made presentations on the
basis of publicly available information regarding Echlin regarding the
business of Echlin.
On April 23, the Board held a telephonic meeting and heard a
status presentation by Mr. McCurdy on the contacts with Dana. Later that day,
Dana and Echlin entered into a Confidentiality and Standstill Agreement which
contained customary confidentiality and standstill provisions. Beginning on
April 25, due diligence was conducted by Dana and its legal, financial and
accounting representatives with respect to Echlin's businesses and by Echlin
and its legal, financial and accounting representatives with respect to Dana's
businesses. In addition, the two companies and their financial advisors
discussed the possible synergies that could result from a combination of the
businesses of the two companies and the range of possible valuations and
commenced preliminary discussions about the terms of the proposed transaction.
On April 30, 1998, SPX commenced the SPX Offer.
On May 1, 1998, the Board held a special meeting to continue
their consideration of the SPX Offer and to hear presentation from Mr. McCurdy
on the status of discussions with Dana concerning synergy analyses and status
of a possible transaction with Dana. Financial and legal advisors to the
Company discussed financial and legal issues relating to both the SPX Exchange
Offer and a possible transaction with Dana. The Board authorized management to
continue to explore the possibility of a transaction with Dana.
On May 2 and May 3, 1998, the parties and their financial and
legal advisors engaged in negotiations regarding the Exchange Ratio, the terms
and structure of a transaction and other issues. On May 3, 1998, the Board
held another meeting to discuss the SPX Exchange Offer and to hear
presentations from the management and advisors regarding the proposed terms of
the transaction with by Dana and to discuss the transaction and its impact on
the Company's shareholders and its other constituencies. Salomon Smith Barney
rendered its opinions to the Company's Board of Directors that, as of such
date and subject to the qualifications, limitations and assumptions set forth
in each opinion, the Consideration to be paid pursuant to the SPX Exchange
Offer was inadequate from a financial point of view to the shareholders of
Echlin other than SPX and its affiliates, and that the Dana Exchange Ratio was
fair from a financial point of view to the shareholders of Echlin other than
SPX and its affiliates or Dana and its affiliates. After careful
consideration, the Board unanimously concluded that the SPX Exchange Offer was
inadequate, unanimously recommended that shareholders of the Company reject
the SPX Transaction and unanimously approved the Merger Agreement.
Item 5. Persons Retained, Employed or to be Compensated.
Echlin has engaged Salomon Smith Barney to act as its financial
advisor in connection with the SPX Exchange Offer and related matters.
Pursuant to the terms of an engagement letter dated February 17, 1998, Echlin
has agreed to pay Salomon Smith Barney the following fees for its financial
advisory and investment banking services:
(i) a quarterly retainer fee of $250,000, payable on the first day of
each three-month period during which Salomon Smith Barney provides such
services;
(ii) a fee of $1,000,000, payable upon the rendering of an opinion by
Salomon Smith Barney as to the adequacy of the consideration to be paid
to Echlin shareholders pursuant to the SPX Exchange Offer, the sale of
20% or more of the Common Shares or assets of Echlin, or certain other
specified transactions (an "Alternative Transaction");
(iii) a fee of $10,000,000 (less any fees paid under (i) and (ii)),
payable on February 11, 1999, if (a) members of the Board as of December
31, 1997 (the "Current Board"), together with any new members who were
elected by and recommended for nomination by the Current Board,
constitute a majority of the Board or (b) no third party has acquired
more than 20% of the Common Shares;
(iv) additional fees equal to 0.350% of the aggregate consideration
paid in connection with the SPX Transaction or any other transaction
relating to the sale of more than 20% of the Common Shares or assets
of Echlin up to $48.00 per Common Share, plus 0.750% of the aggregate
consideration paid in excess of $48.00 per Common Share (less any fees
paid under (i), (ii) and (iii)), contingent upon the consummation of
the SPX Transaction or such other transaction; and
(v) additional fees, customary under the circumstances, upon which
Echlin and Salomon Smith Barney shall agree from time to time, in
connection with any Alterative Transaction.
Echlin has agreed to reimburse Salomon Smith Barney for
reasonable out-of pocket expenses arising from the engagement, including legal
fees and expenses. Echlin will also indemnify Salomon Smith Barney against
certain liabilities, including liabilities under the federal securities laws.
In the ordinary course of business, Salomon Smith Barney may from time to time
effect transactions and hold positions in securities of the Company, SPX and
Dana.
The Company has retained Morrow & Co., Inc. ("Morrow") to
assist the Company in connection with its communications with its shareholders
with respect to the SPX Exchange Offer, and to provide other services to the
Company in connection with, the SPX Exchange Offer and the related matters.
Echlin has agreed that Morrow will be paid a reasonable and customary
solicitation fee, plus reimbursement for reasonable out-of-pocket expenses.
Echlin has also agreed to indemnify Morrow against certain liabilities and
expenses, including certain liabilities and expenses under the federal
securities laws.
Echlin has retained Kekst & Co. ("Kekst") as its public
relations advisor in connection with the SPX Exchange Offer and related
matters. Echlin has agreed that Kekst will receive reasonable and customary
compensation for its services plus reimbursement for reasonable out-of-pocket
expenses. Echlin has also agreed to indemnify Kekst against certain
liabilities and expenses, including liabilities and expenses under the federal
securities laws.
Echlin has retained Merlis Automotive Inernational ("Merlis")
and Kendrick Communications ("Kendrick") as its public relations advisors in
connection with the SPX Exchange Offer and related matters. Merlis and
Kendrick were retained on customary terms and conditions and will receive
reasonable and customary compensation for its services plus reimbursement for
reasonable out-of-pocket expenses.
Except as set forth above, neither Echlin nor any person acting
on its behalf has employed, retained or compensated any person or class of
persons to make solicitations or recommendations on its behalf with respect to
the SPX Exchange Offer.
Item 6. Recent Transactions and Intent with Respect to Securities.
(a) Except as described in Schedule I hereto, no transactions
in Common Shares (or associated Rights) have been effected during the past 60
days by Echlin, or, to the best knowledge of Echlin, any executive officer,
director, affiliate or subsidiary of Echlin.
(b) To the best knowledge of Echlin, none of its executive
officers, directors, affiliates or subsidiaries currently intends to tender
Common Shares pursuant to the proposed SPX Exchange Offer or to sell any
Common Shares that are owned beneficially or held of record by such persons,
in each case, subject to and consistent with any fiduciary obligations in the
case of Common Shares held by a fiduciary.
Item 7. Certain Negotiations and Transactions by the Subject Company.
For the reasons discussed in Item 4 above, the Board has
concluded that the SPX Exchange Offer is inadequate and not in the best
interests of Echlin, its shareholders and its other constituents, and that the
interests of Echlin and its shareholders would be best served if Echlin were
to enter into the transactions contemplated by the Merger Agreement.
At a meeting of the Board held on May 3, 1998, the Board
approved the Dana Merger and the terms of the Merger Agreement and of the
Stock Option Agreement between the Company and Dana (the "Stock Option
Agreement"), entered into in connection with the Merger Agreement, and
pursuant to which Dana has the option, in the event that the Merger Agreement
is terminated under certain circumstances, to acquire up to 19.9% of the
Company's outstanding shares at an exercise price of $55 per share. The
Board's decision to enter into the Merger Agreement was based on the Board's
review and consideration of the interests of the Company's shareholders and
all other factors required or permitted by applicable law, including the
interests of the Company's employees, suppliers, creditors and customers; the
interests of the communities in which the Company operates and of society; and
the long and short-term interests of the Company and its shareholders.
The Board also considered a presentation by Salomon Smith
Barney concerning the Company and Dana and the financial aspects of the Dana
Merger, and the opinion of Salomon Smith Barney to the effect that, as of May
3, 1998, and subject to the qualifications, limitations and assumptions set
forth in such opinion, the Dana Exchange Ratio was fair from a financial point
of view to the shareholders of Echlin other than SPX and its affiliates or
Dana and its affiliates. In addition, the Board considered the terms and
condition[Bs of the Merger Agreement and of the Stock Option Agreement (Exhibit
11 and Exhibit 12 hereto, respectively).
Having considered these and a number of other factors, the
Board concluded that the Dana Merger is fair and in the best interests of the
Company, its shareholders and Company's other constituencies.
Except for the negotiations with Dana in connection with the
Dana Merger, Echlin is not now engaged in any negotiations which relate to or
would result in (i) an extraordinary transaction, such as a merger or
reorganization, involving Echlin or any subsidiary of Echlin, (ii) a purchase,
sale or transfer of a material amount of assets by Echlin or a subsidiary of
Echlin, (iii) a tender offer for or other acquisition of securities by or of
Echlin, or (iv) any material change in the present capitalization or dividend
policy of Echlin. Except in connection with the Dana Merger, there are no
transactions, board resolutions, agreements in principle or signed contracts
in response to the SPX Exchange Offer which relate to or would result in one
or more of the matters referred to in the preceding sentence. As of the date
hereof, there have been contacts with parties (other than Dana) who have
expressed interest in the possibility of pursuing various types of
transactions with Echlin.
Notwithstanding the foregoing, the Board, subject to its
obligations under the Merger Agreement, may, in the future, engage in
negotiations in response to the SPX Exchange Offer that could have one of the
effects specified in the preceding paragraph and it has determined that
disclosure of the parties thereto, and of the possible terms of any
transaction or proposal of the type referred to in the preceding paragraph
would jeopardize the initiation or continuation of any discussions or
negotiations with respect to such transactions or proposals that Echlin may
conduct. Accordingly, the Board has adopted a resolution instructing
management not to disclose the possible terms of any such transaction or
proposals, or the parties thereto, unless and until an agreement in principle
relating thereto has been reached or, upon advice of counsel, as otherwise may
be required by law.
Item 8. Additional Information to be Furnished.
Certain Litigation
On or about February 18, 1998, Geoffrey and Jordana Miller
filed a complaint (the "Miller Complaint") in the Superior Court of
Connecticut, Judicial District of New Haven, against Echlin and certain
directors of Echlin. The Miller Complaint is brought on behalf of a purported
class of all shareholders of Echlin and alleges that Echlin and the director
defendants have breached their fiduciary duties to Echlin shareholders by
failing to negotiate with SPX concerning its acquisition overtures and failing
to take steps to maximize shareholder value and Echlin's attractiveness as a
potential acquisition candidate. The Complaint seeks to enjoin defendants
from taking any action that does not maximize the shareholder value of Echlin
and unspecified monetary damages.
On or about February 19, 1998, Park East, Inc. filed a
complaint (the "Park East Complaint") in the United States District Court for
the District of Connecticut against Echlin and certain directors of Echlin.
The Park East Complaint is brought on behalf of a purported class of all
shareholders of Echlin and alleges the same fiduciary duty claims as are
alleged in the Miller Complaint, as well as claims that the Connecticut
Anti-Takeover Statutes are unconstitutional. The Park East Complaint seeks to
order the defendants to cooperate fully with any entity proposing a
transaction, as well as unspecified monetary damages and a declaration that
the Connecticut Anti-Takeover Statutes are unconstitutional.
The Company and the Board believe that the allegations in both
the Miller Complaint and the Park East Complaint are without merit.
On April 6, 1998, Echlin filed a complaint (the "Echlin
Complaint") in the United States District Court for the District of
Connecticut against SPX. The Echlin Complaint states that SPX has committed
violations of the rules promulgated under federal securities laws in
connection with SPX's false and misleading statement that over 35% of the
shareholders of Echlin have delivered valid unrevoked demands requesting a
special meeting of Echlin shareholders and that such meeting must be held by
June 23, 1998. The Echlin Complaint seeks to enjoin SPX from continuing its
solicitation efforts until the false and misleading statements made by SPX
have been cured. The Echlin Complaint also seeks monetary damages from SPX.
On April 13, 1998, SPX filed a counterclaim (the "SPX
Counterclaim") for declaratory and injunctive relief. The counterclaim
alleges that Echlin improperly refused to call a special meeting of Echlin
shareholders in violation of Connecticut law and Echlin's own By-laws, and
that Echlin made false and misleading statements in connection with its
refusal to call for such a meeting in violation of the Williams Act. SPX's
motion for a preliminary injunction (the "SPX Motion"), which was filed
with its complaint, seeks an order from the district court (i) directing
Echlin to hold a special meeting within 60 days of April 24, 1998 or by
June 1, 1998 and (ii) enjoining Echlin from making further false and
misleading statements concerning SPX's solicitation of demands for the
special meeting.
On April 14, 1998, Echlin filed a motion for a preliminary
injunction (the "Echlin Motion") seeking to enjoin SPX from continuing to
solicit demands for a special meeting of Echlin shareholders unless and
until SPX issues and circulates to Echlin shareholders statements
correcting SPX's false and misleading statements that were described in
Echlin's complaint.
A hearing on the cross motions for preliminary injunctions
has been scheduled by the district court for May 7, 1998.
The foregoing description of litigation is qualified in its
entirety by reference to Exhibits 5 through 10 hereto.
Item 9. Material to be Filed as Exhibits.
*Exhibit 1 Letter to Shareholders of Echlin dated May 4, 1998.
*Exhibit 2 Press release dated May 4, 1998.
*Exhibit 3 Opinion of Salomon Smith Barney to the Board of Directors
of Echlin Inc. dated May 3, 1998.
Exhibit 4 Pages 9-20 of Echlin's Revocation Proxy Statement.
Exhibit 5 The Miller Complaint.
Exhibit 6 The Park East Complaint.
Exhibit 7 The Echlin Complaint.
Exhibit 8 The SPX Counterclaim.
Exhibit 9 The Echlin Motion.
Exhibit 10 The SPX Motion.
Exhibit 11 The Merger Agreement.
Exhibit 12 The Option Agreement.
- ------------
* Included in material sent to shareholders.
* * * *
Certain statements included herein are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act"),
and are made in good faith by Echlin pursuant to the Act's "safe harbor"
provisions. To the extent that such statements are deemed issued in
connection with a tender or exchange offer, it should be noted that the safe
harbor provisions of the Act do not apply to tender or exchange offers. Such
forward-looking statements are not guarantees of future performance, and may
involve known and unknown risks, uncertainties and other factors that could
cause actual results to differ materially from those expressed or implied.
Risks and uncertainties include, without limitation, global and regional
economic conditions, business conditions in the overall automotive industry,
and the cost and timing of the Company's repositioning plan implementation.
They also include other factors discussed herein and those detailed from time
to time in the Company's filings with the Securities and Exchange Commission.
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.
ECHLIN INC.
By: /s/ Jon P. Leckerling
---------------------------------
Name: Jon P. Leckerling
Title: Senior Vice President,
General Counsel and
Corporate Secretary
Dated: May 4, 1998
SCHEDULE I
RECENT TRANSACTIONS IN ECHLIN COMMON SHARES
Set forth below is a summary of transactions which were
effected during the past 60 days by Echlin, or, to the best of the knowledge
of Echlin, any executive officer, director, affiliate or subsidiary of Echlin.
Individual Share Activity
- ---------- --------------
None None
[ECHLIN LETTERHEAD]
May 4, 1998
Dear Shareholder:
On April 30, 1998, SPX Corporation ("SPX") announced an exchange
offer (the "Exchange Offer") for 66 2/3% of the outstanding shares of Echlin's
common stock at a price of $12 in cash per share of Echlin common stock and
SPX common stock at an exchange ratio of 0.4796 shares of SPX common stock for
each share of Echlin stock. SPX has also announced that, if the Exchange
Offer succeeds, it will merge Echlin with a subsidiary of SPX (such merger,
together with the Exchange Offer, the "SPX Transaction"). In such proposed
merger all shares of Echlin common stock not accepted in the Exchange Offer
would be converted into $12 in cash per share of Echlin common stock and SPX
common stock at an exchange ratio of 0.4796 shares of SPX common stock for
each share of Echlin stock.
At its meeting on May 3, 1998, your board of directors, after
careful deliberation, unanimously determined that the SPX Transaction,
including the Exchange Offer, is inadequate and not in the best interests of
Echlin. Accordingly, the Board of Directors unanimously recommends that you
reject the SPX Transaction and not tender your shares to SPX pursuant to the
Exchange Offer. At the same meeting, your board approved the merger agreement
with Dana Corporation ("Dana") pursuant to which each share of Echlin common
stock will be exchanged into 0.9293 shares of Dana common stock. As of May 1,
1998, this represented a value of $55 per each Echlin share. Your Board
believes that the Dana transaction provides greater value for Echlin
shareholders and is also superior from the viewpoint of other Echlin
constituencies. The agreement with Dana is described in greater detail in the
attached Schedule 14D-9.
In arriving at their decision that the SPX Transaction,
including the Exchange Offer, is inadequate and not in the best interests of
Echlin, your board gave careful consideration to the interests of Echlin's
shareholders and all other factors required or permitted by applicable law.
Your board reviewed, among other items, the opinion of Salomon Smith Barney,
Inc., Echlin's financial advisor, that the consideration to be received by
Echlin's shareholders pursuant to the SPX Transaction, including the Exchange
Offer, is inadequate. We urge you to read carefully the attached Schedule
14D-9 in its entirety so that you will be fully informed as to the board's
recommendation.
Your board of directors and the management of Echlin believe
that the proposed merger with Dana presents a superior alternative to the
Exchange Offer and in due course you will be receiving materials outlining
this transaction, including its benefits.
Please be assured that your board of directors and the
management of Echlin will continue to act in the best interests of Echlin and
its stockholders. Your Directors thank you for your support.
Very truly yours,
/s/ Larry McCurdy
--------------------------------
Larry McCurdy
Chairman of the Board, President
and Chief Executive Officer
[ECHLIN LOGO]
May 4, 1998
ECHLIN INC. BOARD REJECTS SPX OFFER AS INADEQUATE; SAYS
INTERESTS OF SHAREHOLDERS, OTHER CONSTITUENCIES WILL
BE BEST SERVED BY A MERGER WITH DANA
Branford, CT, May 4, 1998 -- Echlin Inc. (NYSE:ECH), the global motor
vehicle parts manufacturer, announced today that its board of directors voted
unanimously to recommend that Echlin shareholders reject SPX Corporation's
exchange offer as not adequate and not in the best interests of Echlin,
Echlin's shareholders or other Echlin constituencies. In connection with its
deliberation on the SPX offer, the board received the opinion of its financial
advisor, Salomon Smith Barney, that the SPX offer is inadequate. The board of
directors also voted to approve and recommend to its shareholders a business
combination with Dana Corporation. The board determined that the strategic
merger with Dana was also superior from the viewpoint of Echlin's employees,
suppliers, creditors, customers and communities in which Echlin operates.
Larry McCurdy, chairman, president and chief executive officer of Echlin
said, "We are delighted that the board has approved the combination with Dana.
The board considered several factors in determining that the transaction is
desirable, including the significantly superior immediate value it will
provide to shareholders, along with the opportunity for all stakeholders to
participate in the upside potential of a combined Echlin and Dana. In
addition, the combined company will offer customers a full range of
high-quality automotive products, building on both companies' strong brands
and long-standing distribution relationships."
Echlin will be filing its Schedule 14D-9 with the Securities and Exchange
Commission today in which the reasons for the board's determinations will be
described in greater detail.
[SALOMON SMITH BARNEY LETTERHEAD]
May 3, 1998
Board of Directors
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of common stock, par value $1.00 per share and
the associated Series A Participating Cumulative Preferred stock purchase
rights (together, "Company Common Stock"), of Echlin Inc. (the "Company"), a
Connecticut corporation, other than SPX Corporation ("SPX"), a Delaware
corporation and its affiliates or Dana Corporation ("Parent"), a Virginia
corporation and its affiliates, of the consideration to be received by such
holders in connection with the proposed merger (the "Merger") of the Company
with Echo Acquisition Corp. ("Sub"), a Connecticut corporation and a wholly
owned subsidiary of Parent, pursuant to a draft dated May 2, 1998 of a merger
agreement and plan of merger, among the Company, Parent and Sub. Upon the
effectiveness of the Merger, each issued and outstanding share of Company
Common Stock (other than shares owned by Parent, any subsidiary of Parent, the
Company or any subsidiary of the Company will be converted into and represent
the right to receive .9293 (the "Exchange Ratio") shares of the common stock,
par value $1.00 per share ("Parent Common Stock"), of Parent including
attached rights issued pursuant to the Rights Agreement, dated as of April 25,
1996, between Parent and the Rights Agent named therein. We understand that
the Merger will be accounted for as a pooling-of-interests in accordance with
generally accepted accounting principles as described in Accounting Principles
Board Opinion Number 16.
In connection with rendering our opinion, we have reviewed certain
publicly available information concerning the Company and Parent and certain
other financial information concerning the Company and Parent, including
financial forecasts, that were provided to us by the Company and Parent,
respectively. We have discussed the past and current business operations,
financial condition and prospects of the Company and Parent and of the
proposed combined entity with certain officers and employees of the Company
and Parent, respectively. We have reviewed the Tender Offer Statement on
Schedule 14D-1 dated April 30, 1998 filed by SPX that sets forth an
alternative proposal to acquire all the outstanding Company Common Stock. For
purposes of this opinion, we have assumed the Company and Dana will enter into
a definitive merger agreement with financial terms at least as favorable to
the Company's shareholders as those in such draft agreement. We have also
considered such other information, financial studies, analyses, investigations
and financial, economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of the information
reviewed by us for the purpose of this opinion and we have not assumed any
responsibility for independent verification of such information. With respect
to the financial forecasts of the Company and Parent, including the forecasted
synergies of the Merger, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgements of the respective managements of the Company and Parent, and we
express no opinion with respect to such forecasts or the assumptions on which
they are based. We have not assumed any responsibility for any independent
evaluation or appraisal of any of the assets (including properties and
facilities) or liabilities of the Company or Parent. We were not asked to and
did not formally solicit other proposals to acquire the Company.
Our opinion is necessarily based upon conditions as they exist and can
be evaluated on the date hereof. Our opinion as expressed below does not
imply any conclusion as to the likely trading range for Parent Common Stock
following the consummation of the Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the
price of securities. Our opinion does not address the Company's underlying
business decision whether or not to effect the Merger, and we express no view
on the effect on the Company of the Merger and related transactions. Our
opinion is directed only to the fairness, from a financial point of view, of
the Exchange Ratio to holders of Company Common Stock other than SPX and its
affiliates or Parent and its affiliates and does not constitute a
recommendation concerning how holders of Company Common Stock should vote with
respect to the Merger Agreement or the Merger.
We have acted as financial advisor to the Board of Directors of the
Company in connection with the Merger and will receive a fee for our services
a portion of which is contingent upon the consummation of certain transactions
or the occurrence of certain events. In the ordinary course of business, we
and our affiliates may actively trade the securities of the Company and Parent
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities. In addition, we
and our affiliates have previously rendered certain investment banking and
financial advisory services to the Company for which we have received
customary compensation. We and our affiliates (including Travelers Group
Inc.) may have other business relationships with the Company or Parent in the
ordinary course of their businesses.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio is fair from a financial point of view to
the holders of Company Common Stock other than SPX and its affiliates or
Parent and its affiliates.
Very truly yours,
SALOMON SMITH BARNEY
[SALOMON SMITH BARNEY LETTERHEAD]
May 3, 1998
Board of Directors
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405
Members of the Board:
You have requested our opinion as to the adequacy, from a financial
point of view, to the holders of common stock, par value $1.00 per share and
the associated Series A Participating Cumulative Preferred Stock purchase
rights (together, "Company Common Stock"), of Echlin Inc. (the "Company"), a
Connecticut corporation, other than SPX Corporation ("SPX"), a Delaware
corporation, and its affiliates, of the consideration available under the
Offer to Exchange dated April 30, 1998 of SPX (the "Offer"). Pursuant to the
Offer each issued and outstanding share of Company Common Stock may be
exchanged for .4796 shares of Common Stock Par Value $10 per share of SPX
("SPX Common Stock") and $12 cash (together, the "Consideration").
In connection with rendering our opinion, we have reviewed certain
publicly available information concerning the Company and SPX, and certain
other financial information concerning the Company, including financial
forecasts, that were provided to us by the Company. We have discussed the
past and current business operations, financial condition and prospects of the
Company with certain officers and employees of the Company. We have reviewed
the Tender Offer Statement on Schedule 14D-1 dated April 30, 1998 filed by SPX
and a draft dated May 2, 1998 of a merger agreement and plan of merger among
the Company, Dana Corporation, a Virginia corporation ("Dana") and Echo
Acquisition Sub, a Connecticut corporation. We also have reviewed publicly
available information concerning Dana and certain other financial information
concerning Dana, including financial forecasts, that were provided to us by
Dana. For purposes of this opinion, we have assumed the Company and Dana will
enter into a definitive merger agreement with financial terms at least as
favorable to the Company's shareholders as those in such draft agreement. We
have also considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of the information
reviewed by us for the purpose of this opinion and we have not assumed any
responsibility for independent verification of such information. With respect
to the financial forecasts reviewed by us, we have assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgements of the management of the corporation providing such forecasts,
and we express no opinion with respect to such forecasts or the assumptions on
which they are based. We have not made, obtained or assumed any
responsibility for any independent evaluation or appraisal of any of the
assets (including properties and facilities) or liabilities of the Company or
any other entity, nor have we been furnished with any such evaluations or
appraisals.
Our opinion is necessarily based upon conditions as they exist and can
be evaluated on the date hereof. Our opinion as expressed below does not
imply any conclusion as to the likely trading range for Company Common Stock,
SPX Common Stock, or the common stock par value $1.00 per share, of Dana at any
time in the future, which, in each case, may vary depending upon, among other
factors, changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. Our opinion does not address the Company's underlying business
decision whether to accept or to reject the Offer. Our opinion is directed
only to the adequacy, from a financial point of view, of the Consideration to
holders of Company Common Stock other than SPX and its affiliates and does not
constitute a recommendation concerning whether or not holders of Company
Common Stock should tender their shares pursuant to the Offer.
We have acted as financial advisor to the Board of Directors of the
Company in connection with the Offer and will receive a fee for our services a
portion of which is contingent upon the consummation of certain transactions or
the occurrence of certain events. In the ordinary course of business, we and
our affiliates may actively trade the securities of the Company, SPX or Dana
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities. In addition, we
and our affiliates have previously rendered certain investment banking and
financial advisory services to the Company for which we have received
customary compensation. We and our affiliates (including Travelers Group
Inc.) may have other business relationships with the Company, SPX or Dana in
the ordinary course of their businesses.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration is inadequate from a financial point of
view to the holders of Company Common Stock other than SPX and its affiliates.
Very truly yours,
SALOMON SMITH BARNEY
The Company estimates that its total expenditures relating to
the solicitation (excluding costs representing salaries and wages of regular
employees and officers of the Company) will be approximately $1,000,000. The
Company to date has incurred estimated total expenses of approximately
$600,000. In addition to the members of the Board (which consists of Messrs.
Creamer, Dauch, DeVane, Echlin, Jensen, Jones, McCurdy, Nusbaum and Rivard),
Company's executive officers and certain officers of its subsidiaries may
solicit Revocations. The business address for each of the members of the Board
and the officers named above is, and the Company's executive offices are
located at, 100 Double Beach Road, Branford, Connecticut 06405. For further
information with respect to participants in the solicitation, including the
names of its executive officers and certain officers of its subsidiaries who
may solicit Revocations, and certain transactions by those participants in the
Company's shares of Common Stock, see Schedules A and B.
Change in Control Severance Policy
The Company has established a Change In Control Severance
Policy covering some 350 designated employees of Echlin Inc. and its domestic
U.S. subsidiaries, including the Named Executive Officers. A "change in
control" event of Echlin Inc. is defined as: (i) more than 30 percent of
Echlin's outstanding Common Stock being beneficially held or acquired by any
person or entity; (ii) more than 20 percent of Echlin's outstanding Common
Stock being purchased pursuant to a tender or exchange offer; (iii) Echlin
Inc. merging or consolidating with or selling substantially all of its assets
to another entity and Echlin Inc. not being the surviving corporation; or (iv)
during any two year period, a majority of individuals who are Directors of
Echlin Inc. at the beginning of the period ceasing to be Directors by the end
of the period, unless the nomination of each new Director is approved by a
two-thirds majority of those who are Directors at the beginning of the period.
If the Special Meeting is held, removal of the Board of Directors from office
would constitute a "change of control" event. The Board of Directors must
declare whether such an event qualifies as a change in control event under the
Echlin Inc. Change In Control Severance Policy.
Employees covered by the policy receive special severance
benefits if, within two years after a qualified change in control, the
employee terminates for "good reason" because (i) there has been an adverse
change in the employee's duties, responsibilities, title, position,
compensation, benefits or general status; (ii) the employee is required to
relocate to a place of business more than 50 miles from the location where the
employee works at the time of the change in control; (iii) the employee is
terminated for reasons other than for cause; or (iv) for Echlin Inc. corporate
officers, including the Named Executive Officers other than Mr. Jones and Mr.
Mancheski (who has retired), the employee elects to terminate his or her
employment during the 30-day period commencing one year after the change in
control.
Severance benefits are payable within 30 days of termination
and consist of a lump sum payment equivalent to the sum of the higher of the
employee's annual base salary and most recent executive bonus, if applicable,
either as of the date of the change in control or the date of the termination
for a period varying from 7.5 months to 36 months depending upon the
employee's employment level. The Named Executive Officers other than Mr. Jones
and Mr. Mancheski qualify for the payment equivalent to 36 months. Employees
covered by the policy continue to receive other benefits such as medical
insurance for a period equivalent to the period associated with their
severance payment. The policy also provides that all outstanding performance
units under the Company's long-term incentive plan immediately vest on the
date of the change in control. Performance units are valued at 100 percent of
their original targeted value multiplied by a fraction representing the number
of months lapsed in the three-year vesting cycle. Further, if the Board of
Directors declares a qualifying change in control event, all options will be
deemed to have stock appreciation rights attached. In some cases, such
severance payments are increased to compensate for any excise taxes resulting
from the payment and any other benefits extended based upon the change in
control.
If a covered employee's employment ends after a change in
control because of death, disability or for cause, or if the employee
voluntarily terminates employment, other than as provided in the severance
policy, the employee will get no special severance benefits.
Security Ownership of Certain Beneficial Owners and Management
The following shareholders are beneficial owners of more than
five percent (5%) of the shares of Common Stock as of February 17, 1998. The
Company has no other class of equity security outstanding:
The following table sets forth information as to the only
persons known to the Company to be the beneficial owner of more than five
percent of the Company's Common Stock:
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percentage of Class
- ------------------------------------ -------------------- -------------------
<S> <C> <C>
Scudder Kemper Investments, Inc.
Two International Place
Boston, MA 02110-4103 4,579,317(1) 7.24%
McKay-Shields Financial Corporation
Investment Advisors
9 West 57th Street
New York, New York 10019 4,349,380(2) 6.88%
The Capital Group Companies, Inc
333 South Hope Street
Los Angeles, California 90071 3,582,400(3) 5.66%
</TABLE>
- ------------
(1) Scudder Kemper Investments, Inc., has sole voting power with respect to
969,650 shares, shares voting power with respect to 3,358,544, sole
dispositive power with respect to 4,549,973 and shares dispositive power
with respect to 29,344 shares as reported on Schedule 13G filed with the
Securities and Exchange Commission on February 12, 1998.
(2) McKay-Shields Financial Corporation, Investment Advisors, has shared voting
and shared dispositive power with respect to 4,349,380 shares as reported on
Schedule 13F filed with the Securities and Exchange Commission on February
13, 1998.
(3) The Capital Group Companies, Inc., through its wholly-owned subsidiaries,
including Capital Research and Management Company (acting as investment
advisor), has sole voting power with respect to 491,400 shares and sole
dispositive power with respect to 3,582,400 as reported on Schedule 13G
filed with the Securities and Exchange Commission on February 10, 1998.
The following table sets forth information with respect to
beneficial ownership as of February 17, 1998 by the Company's current
directors, the Company's "named executive officers" for 1997 fiscal year, the
Company's chief executive officer, the Company's "named executive officers"
for the 1998 fiscal year and by all directors and current executive officers
as a group, together with the percentage of the outstanding shares of Common
Stock which such ownership represents. Unless otherwise indicated, the
beneficial ownership consists of sole voting and investment power with respect
to the shares indicated, except to the extent that authority is shared by
spouses under applicable law.
<TABLE>
<CAPTION>
Number of Shares of
Common Stock Percentage of
Name Beneficially Owned Class
- ---------------------------- ------------------- -------------
<S> <C> <C>
John F. Creamer, Jr.(1)..... 21,750 shares
Richard E. Dauch ......... 1,135 shares *
Milton P. DeVane(2)......... 13,600 shares *
John E. Echlin, Jr.(3)...... 634,392 shares 1.00%
Donald C. Jensen(4)......... 9,050 shares *
Trevor O. Jones(5).......... 118,350 shares *
Jon P. Leckerling(6)........ 34,589 shares *
Milton J. Makoski(7)........ 41,395 shares *
Larry W. McCurdy(8)......... 108,000 shares *
William P. Nusbaum.......... 3,000 shares *
Joseph A. Onorato(9)........ 40,880 shares *
Jerome G. Rivard(10)........ 6,800 shares *
Edward D. Toole(11)......... 27,264 shares *
</TABLE>
- ------------
* Less than 1 percent of class.
(1) Includes 6,750 shares exercisable currently or within 60 days of February
17, 1998, under the Echlin Inc. 1996 Non-Executive Director Stock Option
Plan.
(2) Includes 12,600 shares exercisable currently or within 60 days of February
17, 1998, under the Echlin Inc. 1996 Non-Executive Director Stock Option
Plan.
(3) Includes 125,200 shares held in an irrevocable charitable foundation of
which Mr. Echlin is a trustee with shared voting rights over such shares
and 61,907 shares owned by Mrs. John E. Echlin, Jr. and 12,900 shares
exercisable currently or within 60 days of February 17, 1998 under the
Echlin Inc. 1996 Non-Executive Director Stock Option Plan.
(4) Shares held indirectly by the Donald C. Jensen Revocable Living Trust dated
September 6, 1990. Includes 6,050 shares exercisable currently or within
60 days of February 17, 1998 under the Echlin Inc. 1996 Non-Executive
Director Stock Option Plan.
(5) Includes 100,000 shares exercisable within 60 days of February 17, 1998
under the Echlin Inc. 1992 Executive Stock Option Plan and 10,850 shares
exercisable currently or within 60 days of February 17, 1998 under the
Echlin Inc. 1996 Non-Executive Director Stock Option Plan.
(6) Includes 29,029 shares either exercisable currently or within 60 days of
February 17, 1998 under the Echlin Inc. 1992 Executive Stock Option Plan or
credited to Mr. Leckerling's account in the Echlin Incentive Savings and
Investment Plan as of August 31, 1997.
(7) Includes 35,045 shares either exercisable currently or within 60 days of
February 17, 1998 under the Echlin Inc. 1992 Executive Stock Option Plan or
credited to Mr. Makoski's account in the Echlin Incentive Savings and
Investment Plan as of August 31, 1997.
(8) Includes 100,000 shares either exercisable currently or within 60 days of
February 17, 1998 under the Echlin Inc., 1992 Executive Stock Option Plan.
(9) Includes 32,780 shares either exercisable currently or within 60 days of
February 17, 1998 under the Echlin Inc. 1992 Executive Stock Option Plan or
credited to Mr. Onorato's account in the Echlin Incentive Savings and
Investment Plan as of August 31, 1997.
(10) Includes 3,800 shares exercisable currently or within 60 days of February
17, 1998, under the Echlin Inc. 1996 Non-Executive Director Stock Option
Plan.
(11) Includes 21,814 shares either exercisable currently or within 60 days of
February 17, 1998 under the Echlin Inc. 1992 Executive Stock Option Plan or
credited to Mr. Toole's account in the Echlin Incentive Savings and
Investment Plan as of August 31, 1997.
Committees and Meetings of the Board of Directors
During the fiscal year ended August 31, 1997, there were ten
meetings of the Board of Directors (four of which were telephone meetings).
Each director attended at least 75 percent of the aggregate of (i) the total
number of meetings of the Board and (ii) the total number of meetings held by
all Committees of the Board on which the director served.
The Board of Directors has established the following committees
with responsibilities as described:
The Executive Committee may exercise all powers that the Board
of Directors possesses except those powers delineated in the By-Laws including
the power to change the Certificate of Incorporation or By-Laws and the power
to declare any dividend or other distribution with respect to the stock of the
Company. During the fiscal year, seven meetings of the Executive Committee
were held. Messrs. Jones (Chairman), Creamer, DeVane, Echlin, Jensen and
McCurdy are members of this Committee.
The Audit Committee reviews the accounting policies and
procedures of the Company and the performance of the internal audit staff,
monitors compliance with such policies and procedures and makes
recommendations thereon to the full Board. The Audit Committee meets with the
Company's independent accountants and reviews and approves in advance the
scope of the annual audit and other audits and the type and scope of each
non-audit professional service rendered by the Company's independent
accountants. The Committee also considers the possible effect that rendering
such services might have on the independence of such accountants. The
Committee recommends to the Board the appointment of independent accountants
for ratification by the shareholders at the Annual Meeting. During the fiscal
year, five meetings of the Audit Committee were held. Messrs. Jensen
(Chairman), Dauch, DeVane, Echlin and Gustafson are members of this Committee.
The Compensation and Management Development Committee reviews
and approves the Company's basic compensation philosophy covering executive
officers and senior management employees as well as the competitiveness of the
Company's total compensation practices. The Committee reviews and recommends
to the Board the compensation package and employee benefits of the President
and Chief Executive Officer and any other officers who are also directors. It
also reviews and approves base salaries and short-term incentive awards of
officers and key management executives, sets performance measures for the
Echlin Inc. Performance Unit Plan (see page 16) and makes recommendations to
the Board with respect to the granting of options under the Echlin Inc. 1992
Executive Stock Option Plan. This Committee also reviews and reports to the
Board on the status of the Company's organization and succession plans for all
key executive positions and the continuity for such positions. During the
fiscal year, seven meetings of the Compensation and Management Development
Committee were held. Messrs. Jensen (Chairman) and DeVane are members of this
Committee.
The Corporate Governance Committee advises and makes
recommendations to the Board on all matters concerning directorships and
corporate governance practices, including the structure and membership of all
committees of the Board, compensation of directors and the review and
recommendation of candidates for election as directors. The Committee will
consider shareholder nominations for director sent in accordance with the
procedures set forth in the By-Laws to the Corporate Governance Committee, c/o
Jon P. Leckerling, Secretary, Echlin Inc., 100 Double Beach Road, Branford,
Connecticut 06405. The Committee also reviews and makes recommendations to the
Board concerning succession planning for the positions of Chairman of the
Board and President and Chief Executive Officer. During the fiscal year, four
meetings of the Corporate Governance Committee were held. Messrs. DeVane
(Chairman), Creamer, Echlin and Jensen are members of this Committee.
The Finance Committee reviews periodically the capital
structure, financing, dividend and risk management strategies of the Company.
The Committee also monitors the performance of management's Investment Advisory
Committee and Benefits Committee as to the management and administration of
the Company's various defined benefit and defined contribution retirement
plans. During the fiscal year, two meetings of the Finance Committee were held.
Messrs. Echlin (Chairman) and Nusbaum are members of this Committee.
The Board established three advisory committees which were
discontinued as Board committees as of December 31, 1997. The Scientific
Advisory Committee reviewed production and research activities of the various
units of the Company and reported on scientific and technological developments
with potential impact on the Company's operations. During the fiscal year,
four meetings of the Scientific Advisory Committee were held. Phillip S. Myers
(Chairman), who has retired as a director as of the Annual Meeting of
Stockholders, and Mr. Rivard were members of this Committee. The Asian
Development Advisory Council was a Committee of the Board with membership
comprised of experienced business executives who had conducted business over a
period of years within various countries in the Asian region, and which
assisted and advised corporate and Asian-based management and the Board on the
conduct and expansion of the Company's business in Asia. During the fiscal
year, the Council had one meeting. Dr. Myers served as Chairman of this
Council. The European Advisory Council was comprised of experienced automotive
industry executives from various countries within the region and assisted and
advised corporate and European-based management and the Board on developments
and strategic opportunities in Europe. During the fiscal year, the Council had
two meetings. Mr. Jones served as Chairman of this Council.
Compensation of Directors
The annual retainer paid to outside directors is $25,000. Mr.
Jones, as Non-Executive Chairman of the Board, received a monthly retainer of
$30,000 and for service as Non-Executive Vice-Chairman of the Board receives a
retainer of $25,000 per month for Fiscal Year 1998, in lieu of all other Board
and Committee fees and retainers. Mr. Creamer served as Non-Executive Vice
Chairman of the Board until December 31, 1997, received a special retainer of
$57,777 for Board service from February 20, 1997 through June 30, 1997 and
thereafter received Board fees and retainers at twice the normal rate for
service as Vice Chairman which ended December 31, 1997. The fee for attendance
at each meeting of the Board is $1,200 and $800 is payable for participation
in telephone meetings. The standard fee for attendance at each Committee
meeting, other than the European Advisory Council and the Asian Development
Advisory Council, is $1,000. Chairmen of each Committee, other than the
European Advisory Council and the Asian Development Advisory Council are paid
an annual retainer of $6,000 and a per meeting fee of $2,000. Scientific
Advisory Committee members received a $3,000 annual retainer. European
Advisory Council and Asian Development Advisory Council members received an
annual retainer of $24,000 and each Council's Chairman received a $36,000
annual retainer.
Under the 1996 Non-Executive Director Stock Option Plan,
directors who are not employees of the Company, annually receive 2,000 options
for Board service, 500 options for service as a Board committee chairman,
1,000 options for service on the Executive Committee, 4,000 options for
service as Vice Chairman of the Board and 8,000 options for service as
Chairman of the Board. The Board also established Non-Executive Director Stock
Ownership Guidelines on June 18, 1997 which require outside directors to own
Common Stock equal in value to four times the annual retainer. These
guidelines are phased in over three years for then current directors and five
years for new directors. Options held under the 1996 Non-Executive Director
Stock Option Plan do not count as shares held under the guidelines.
Mr. Creamer is President of Distribution Marketing Services,
Inc. Distribution Marketing Services, Inc. provides advice regarding
distribution and marketing strategies to various subsidiaries of the Company
at a cost in Fiscal Year 1997 of $108,200.
Dr. Myers provides consulting services to the Company in regard
to existing and new technologies within the automotive industry. He was paid a
total of $4,289 in Fiscal Year 1997 for these services.
Mr. Rivard is President of Global Technology and Business
Development. Global Technology and Business Development provides consulting
services to the Company in regard to patented technologies and business
opportunities and was paid a total of $51,581 in Fiscal Year 1997 for these
services.
Mr. DeVane is a former partner in the law firm of Tyler Cooper
& Alcorn. Tyler Cooper & Alcorn has been retained by the Company on various
legal matters and it is expected that this relationship will continue. Legal
fees paid under this arrangement did not exceed five percent of the gross
revenues of Tyler Cooper & Alcorn.
Certain Transactions
In September, 1996, the Company purchased Long Manufacturing
Ltd. ("Long") for approximately $173,000,000 from Long's shareholders. Mr.
Nusbaum was the principal shareholder of Long, controlling some 40 percent of
the shares acquired by the Company. The Company settled a claim for adjustment
of the purchase price by approximately $1,000,000 against an escrow provided
by the selling shareholders in connection with certain contingencies. Mr.
Nusbaum is currently a director of the Company.
As of February 17, 1998, the directors and twelve executive
officers of the Company (including the Named Executive Officers other than Mr.
Mancheski, who is neither a director nor executive officer of the Company) as a
group owned beneficially 1,161,089 shares of Common Stock or 1.84 percent
thereof. Such shares include 441,075 shares either exercisable currently or
within 60 days of February 17, 1998 under the Echlin Inc. 1992 Executive Stock
Option Plan and the Echlin Inc. 1996 Non-Executive Director Stock Option Plan
or, with respect to officers of the Company, held in their respective accounts
in the Echlin Incentive Savings and Investment Plan as of February 17, 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's directors and executive officers and persons
who own more than ten percent of Echlin's common stock to file initial stock
ownership reports and reports of changes in ownership with the Securities and
Exchange Commission and the New York Stock Exchange. SEC regulations require
that the Company be furnished with a copy of these reports. Based on its
review of these reports and on written representations from the reporting
persons that no other reports were required, the Company believes that all
applicable Section 16(a) reporting requirements have been met.
Compensation Committee Interlocks And Insider Participation
The members of the Compensation and Management Development
Committee during Fiscal Year 1997 were Donald C. Jensen (Chairman), Milton P.
DeVane and Trevor O. Jones until his election as Chairman and Interim Chief
Executive Officer in February, 1997. All Committee members are outside
directors and no Committee member has ever been an officer or employee of the
Company or any of its subsidiaries.
Summary Compensation Table
The following table summarizes the annual and long-term compensation for
services to the Company for Fiscal Years 1997, 1996 and 1995 paid to the
executives serving as Chief Executive Officer during Fiscal Year 1997 and to
each of the four other most highly compensated officers of the Company at
August 31, 1997 (such officers being referred to as the "Named Executive
Officers").
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term Compensatin
------------------------------------------
Annual Compensation Awards Payouts
--------------------------------------------------- ------------- ----------
Incentive Long-Term
Other Annual Securities Plan All Other
Bonus Compensation Underlying Payouts Compensation
Name and Principal Position Year Salary($) (A)($) (B)($) Options(#)(C) ($)(D) (E)($)
- --------------------------- ----- --------- ------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
L.W. McCurdy (*)........... 1997 283,330 300,000 3,200,000(1) 100,000 0 0
President and Chief
Executive Officer
T.O. Jones (**)............ 1997 869,900(2) 0 110,850(3) 0 0
Chairman and Interim
Chief Executive
Officer
F.J. Mancheski (***)....... 1997 360,577 0 12,975 0 248,600(4)
Chairman and Chief 1996 700,000 264,000 1,446(5) 50,000 788,163 900
Executive Officer 1995 625,000 600,000 57,000 1,702,575 2,610
(retired)
J.P. Leckerling............ 1997 202,500 58,300 1,700 0 1,146
Executive Vice President 1996 172,500 34,700 131(5) 3,000 72,443 1,445
Administration, 1995 164,000 65,000 6,300 192,465 2,612
General Counsel and
Corporate Secretary
J.A. Onorato............... 1997 184,000 53,700 1,775 0 1,148
Vice President and 1996 152,500 37,200 3,000 72,443 1,538
Chief Financial 1995 145,000 65,000 6,300 192,465 2,610
Officer
M.J. Makoski............... 1997 178,000 38,200 1,700 0 1,046
Vice President--Human 1996 164,100 34,700 3,000 79,770 1,445
Resources 1995 157,000 65,000 6,300 211,995 2,612
E.D. Toole................. 1997 158,200 32,300 1,250 0 938
Vice President, 1996 150,700 32,700 1,400 47,282 1,608
Associate General 1995 143,500 39,200 2,050 131,040 2,624
Counsel and Assistant
Secretary
</TABLE>
- ------------
* Mr. McCurdy was elected President and Chief Executive Officer on March 7,
1997.
** Mr. Jones was elected Chairman and Interim Chief Executive Officer on
February 20, 1997. He became Non-Executive Chairman upon the election of
Mr. McCurdy as President and Chief Executive Officer.
*** Mr. Mancheski retired as Chairman and Chief Executive Officer on February
20, 1997.
(A) Annual bonuses received under the Company's Executive Bonus Plan are
reported in the year earned, although paid in the subsequent year.
(B) Except as noted, no amounts of "Other Annual Compensation" were paid to
each Named Executive Officer, except for perquisites and other personal
benefits, securities or properties which for each executive officer did
not exceed the lesser of $50,000 or 10% of such individual's salary plus
bonus.
(C) Options may have stock appreciation rights attached in accordance with the
provisions of the Change in Control Severance Policy described below (see
page 19).
(D) Long-term incentive payouts received for three-year performance periods
under the Company's Performance Unit Plan are reported in the last year of
the performance period during which they were earned, although paid in the
subsequent year. Performance unit payouts may be accelerated in accordance
with the provisions with the Change in Control Severance Policy described
below (see page 19).
(E) Except as noted, the Company contribution under the Echlin Inc. Incentive
and Savings Investment Plan (a qualified salary deferral plan under
Section 401(k) of the Internal Revenue Code).
(1) Includes amount awarded to Mr. McCurdy to replace unvested long-term
compensation benefits forfeited with his prior employer when he joined the
Company as President and Chief Executive Officer in March, 1997 which was
deferred by Mr. McCurdy under the Company's 1976 Deferred Compensation
Plan until the year 2001 and thereafter and $200,000 paid in lieu of Mr.
McCurdy's participation in the Performance Unit Plan during Fiscal Year
1997.
(2) Includes $179,900 in Board fees earned by Mr. Jones from September 1, 1996
through February 20, 1997; $630,000 in Chairman and Interim Chief
Executive Officer's fees paid February 20, 1997 through June 30, 1997; and
$60,000 Non-Executive Chairman's fees paid July 1, 1997 through August 31,
1997.
(3) Includes 100,000 options granted in March, 1997 under the Echlin Inc. 1992
Executive Stock Option Plan when Mr. Jones became Chairman of the Board
and Interim Chief Executive Officer and 10,850 options granted in
December, 1996 under the 1996 Non- Executive Director Stock Option Plan.
(4) Includes $247,000 paid to Mr. Mancheski under the Supplemental Executive
Retirement Plan and the Supplemental Senior Executive Retirement Plan.
(5) Under the Company's 1976 Deferred Compensation Plan, as amended, directors
can defer up to 100 percent of their directors' fees and designated
officers and key executives can defer up to 25 percent of their salary and
bonus and up to 100 percent of their performance unit plan award payment
each year. Interest is accrued on deferred accounts at the greater of the
average rate of interest paid by the Company on its commercial paper
borrowings or the Company's return on assets. The amount shown is the
interest accrued on deferred compensation accounts equal to the Company's
return on assets but in excess of 120 percent of the Federal long-term
interest rate on December 31, 1995 (5.982 percent).
Option/SAR Grants in Fiscal Year 1997
Shown below is further information on grants of stock options pursuant to
the Company's 1992 Executive Stock Option Plan, and in the case of Mr. Jones,
options granted under the Echlin Inc. 1996 Non-Executive Director Stock Option
Plan during the fiscal year ended August 31, 1997 to the Named Executive
Officers. Such grants are reflected in the Summary Compensation Table.
Option/SAR Grants in FY 1997 and FY 1997 Grant Date Value
<TABLE>
Individual Grants Grant Date Value
----------------------------------------------- ------------------------------------
Grant Date
(December 18,
1996, March 7,
1997 and
December 20,
Options Granted 1996)
Options Granted to Employees in Exercise Price Expiration Date Present Value
Name (#)(A) Fiscal Year ($/SH)(B) (C) ($)(D)
- --------------------------------- --------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Larry W. McCurdy................. 100,000 29.2453 34.8750 3/07/07 1,100,000
Trevor O. Jones.................. 10,850* 3.1731 31.1250 12/20/06 108,066
Frederick J. Mancheski........... 12,975 3.7645 30.7500 12/18/06 127,674
Jon P. Leckerling................ 1,700 0.4971 30.7500 12/18/06 16,728
Milton J. Makoski................ 1,700 0.4971 30.7500 12/18/06 16,728
Joseph A. Onorato................ 1,775 0.5191 30.7500 12/18/06 17,466
Edward D. Toole.................. 1,250 0.3655 30.7500 12/18/06 12,300
</TABLE>
- -------------------
* 1996 Non-Executive Director Stock Option Plan.
(A) No stock appreciation rights ("SAR") were granted in Fiscal Year 1997.
(B) The exercise price is based on the fair market value of the Company's
common stock on the date of the grant of the option.
(C) Options may be exercised during a period that begins one year after the
date of grant and ends ten years after the date of the grant of the
option.
(D) Valuation based on Black-Scholes option pricing model. The Company does not
advocate or necessarily agree that the Black-Scholes model can properly
determine the value of an option. The actual value, if any, a Named
Executive Officer may realize will depend on the excess of the stock price
over the exercise price on the date the option is exercised so that there
is no assurance the value realized by a Named Executive Officer will be at
or near the value estimated by the Black-Scholes model. The value
calculations for the options listed above are based on the following
assumptions for the December 18, 1996 and December 20, 1996 stock option
grants: interest rate of 6.3%; annual dividend yield of 2.6%; and
volatility as measured by the standard deviation of .212. For the March 7,
1997 stock option grant, the assumptions were: interest rate of 6.42%;
annual dividend yield of 2.6% and volatility as measured by the standard
deviation of .207.
Aggregate Option Exercises in Fiscal Year 1997 and
Fiscal Year-End Option Value
Shown below is information with respect to options exercised by the Named
Executive Officers during Fiscal Year 1997 and unexercised options to purchase
the Company's Common Stock granted in Fiscal Year 1997 and prior years under
the Echlin Inc. 1992 Executive Stock Option Plan to the Named Executive
Officers and held by them as of August 31, 1997.
Aggregated Option/SAR Exercises in FY 1997 and FY 1997
Year End Option/SAR Values
<TABLE>
Value of Unexercised
Number of Unexercised in-the-money Options at
Shares Value Options at FY End (#) FY End ($) (B)
Acquired on Realized -------------------------- --------------------------
Name Exercise (#) ($)(A) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------------------ ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry W. McCurdy.................... 0 0 0 100,000 0 218,750
Trevor O. Jones..................... 0 0 0 110,850 0 283,171
Frederick J. Mancheski.............. 23,175 312,862 523,465 12,975 9,009,71 81,904
Jon P. Leckerling................... 1,425 29,450 27,700 1,700 338,612 10,731
Milton J. Makoski................... 1,375 18,562 34,720 1,700 491,270 10,731
Joseph A. Onorato................... 1,625 21,734 31,140 1,775 426,027 11,204
Edward D. Toole..................... 4,350 66,815 21,045 1,250 345,32 7,890
</TABLE>
- -------------------
(A) The Value Realized is ordinary income, before taxes, and represents the
amount equal to the excess of the fair market value of the shares at the
time of exercise over the exercise price.
(B) Represents the fair market value as of August 29, 1997 ($37.0625 per share
closing stock price) of the option shares less the exercise price of the
options.
Performance Unit Plan
The Company sponsors a long-term incentive plan known as the Performance
Unit Plan for certain key employees of the Company, including the Named
Executive Officers other than Mr. Jones, whose responsibilities and job
performance can have an impact upon the growth and performance of the Company.
At the beginning of each fiscal year, the Compensation and Management
Development Committee of the Board, no member of which is a participant under
the plan, may award performance units for a forward three-year cycle period to
eligible employees.
The target value for each participant is based on a percentage of
benchmark total compensation of executives with similar positions and
responsibilities at the Market Median Group. The targeted percentage of total
compensation attributable to performance units for the Named Executive Officers
varied for Fiscal Year 1997 from 56 percent for Mr. Mancheski, who was serving
as Chief Executive Officer at the time of the grant, to 30 percent for Mr.
Toole. The actual number of performance units awarded depends on the then
current performance rating for the individual and his or her business unit and
a target compounded, annual growth rate in earnings per share over the
three-year cycle as established by the Compensation and Management Development
Committee. The value of each unit will equal the actual earnings per share of
the Company's Common Stock over the three-year performance period multiplied by
a factor based upon the compounded annual growth rate in earnings per share
over such three-year period. The value of each unit will be zero if the actual
compounded earnings per share growth rate over the three-year period is less
than one-half the targeted growth rate and will be increased by a factor of two
if the targeted growth rate is exceeded by 50 percent. The value of a
performance unit cannot be determined and does not vest in the participant
until the end of the three-year period following the fiscal year in which the
performance unit was granted, when the actual earnings per share and compound
growth rate can be computed.
The following table shows estimated future threshold, target and maximum
payouts for performance unit awards made during Fiscal Year 1997.
Long-term Incentive Plans--Fiscal 1997 Awards
<TABLE>
Estimated Future Payouts under Non-Stock Price-Based Plans
- -------------------------------------------------------------------------------------------------------------------------
Performance
Period Until
Number Maturation or
Name of Units (#) Payout (A) Threshold ($)(B) Target ($)(B) Maximum (S)(D)
- --------------------------------- ------------ ------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Larry W. McCurdy................. 0
Trevor O. Jones.................. 0
Frederick J. Mancheski........... 44,750 8/31/99 13,276* 60,189* 136,786*
Jon P. Leckerling................ 5,825 8/31/99 10,369 47,008 106,831
Milton J. Makoski................ 5,825 8/31/99 10,369 47,008 106,831
Joseph A. Onorato................ 6,100 8/31/99 10,858 49,227 111,874
Edward D. Toole.................. 4,300 8/31/99 7,654 34,701 78,862
All Executive Officers as a
group (12) including those
above......................... 86,325 8/31/99 87,279 395,697 899,271
All employees who are not
Executive Officers, as a
group......................... 526,100 8/31/99 870,078 3,944,682 8,964,744
</TABLE>
- -------------------
* Mr. Mancheski, having retired after only six months of the thirty-six month
long-term incentive cycle, is only eligible for one-sixth of the future
payout. The reduced estimated future payout is, therefore, shown.
(A) Performance Unit payouts may be accelerated as a result of a change in
control and the value of such units would then be determined in accordance
with the provisions of the Change in Control Severance Policy described
below.
(B) The threshold amount will be earned if 50 percent of the target compounded
growth rate of earnings per share over the three year cycle is achieved.
(C) The target amount will be earned if 100 percent of the target compounded
growth rate of earnings per share over the three year cycle is achieved.
(D) The maximum amount will be earned if 150 percent of the target compounded
growth rate of earnings per share over the three year cycle is achieved.
Pension Plans
The Company maintains a noncontributory Pension Plan for Echlin Employees
(the "Plan") which includes, among the participants, the Named Executive
Officers of the Company other than Mr. Jones. A director who is not also an
employee is ineligible to participate. The Plan provides that a participant who
retires with 30 years of service will receive a pension of 26 percent of final
average earnings up to the Average Social Security Covered Compensation plus 44
percent of final average earnings in excess of such Average Social Security
Compensation. Final average earnings is based upon cash compensation (comprised
of base salary and annual bonus) computed as of the highest five consecutive
calendar years of the participant's final ten calendar years of service
preceding his or her termination date. Normal retirement occurs at the later of
age 65 or completion of five years of service. Participants vest in pension
benefits after five years of service or, if the Board of Directors declares a
qualifying change in control event (as defined below under the Change In
Control Severance Policy), on the date of a change in control of Echlin. In
addition, employees receiving lump sum payments under the Change In Control
Severance Policy receive credit for years of service equivalent to the period
of time associated with their lump sum payment. The Company has also put into
effect two supplemental executive retirement plans. The Code limits both the
annual pension which may be paid by an employer from plans which are qualified
under the Code for federal income tax purposes and the maximum amount
of earnings utilized to compute benefits under such plans. The Supplemental
Executive Retirement Plan ("SERP") was established by the Board of Directors to
provide designated executive employees with the benefits they would have
received under the Pension Plan for Echlin. Employees but for the limitations
imposed by the Code. All Named Executive Officers other than Mr. Jones
participate under the SERP. The second plan, the Supplemental Senior Executive
Retirement Plan ("SSERP"), was established by the Board of Directors to provide
designated senior executive employees with a benefit increasing the Plan
benefit from 44 percent of final average earnings in excess of the Average
Social Security Covered Compensation to 60 percent of such final average
earnings. Mr. Mancheski is currently the only participant under the SSERP.
The following illustrative table provides the total annual pension
benefits under various years of credited service assuming retirement in 1997 at
age 65.
Illustrative total annual benefits from both the Echlin Inc. Pension Plan
and the SERP:
<TABLE> Years of Service at Age 65
-----------------------------------------------------
Final Average Earnings 15 20 25 30
- ------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 100,000............................................. 19,363 25,817 32,271 38,725
200,000............................................. 41,363 55,150 68,938 82,725
400,000............................................. 85,363 113,817 142,271 170,725
600,000............................................. 129,363 172,484 215,604 258,725
800,000............................................. 173,363 231,150 298,938 346,725
1,000,000............................................. 217,363 289,817 362,271 434,725
1,200,000............................................. 261,363 348,484 435,604 522,725
</TABLE>
The current covered five-year compensation average and the current years
of credited service for the Named Executive Officers are as follows: Larry W.
McCurdy, (not yet eligible) $0.00 and 1 year; Jon P. Leckerling, $212,580 and 7
years; Milton J. Makoski, $206,907 and 11 years; Joseph A. Onorato, $193,660
and 16 years; Edward D. Toole, $180,577 and 11 years and Frederick J.
Mancheski, $1,041,633 and 34 years. Mr. Jones is not a participant under any of
the Company's pension or retirement plans. In addition to the benefit shown in
the table above, Mr. Mancheski's annual benefit from the SSERP is $164,080.
The Company has also authorized the establishment of a grantor trust with
a trust company for the purpose of paying amounts due under the 1976 Deferred
Compensation Plan and the SERP and SSERP described above.
Deadline for Submission of Shareholder Proposals
Proposals of shareholders intended to be presented at the next Annual
Meeting must be received by the Secretary, Echlin Inc., 100 Double Beach Road,
Branford, Connecticut 06405 no later than July 17, 1998.
The Board of Directors
By: /s/ Jon P. Leckerling
----------------------------------------
Name: Jon P. Leckerling
Title: Senior Vice President
and Corporate Secretary
Date: March 12, 1998
RETURN DATE: March 10, 1998
GEOFFREY MILLER and JORDANA MILLER, : SUPERIOR COURT
on behalf of themselves and all others
similarly situated, : J.D. OF NEW HAVEN
Plaintiffs, : AT NEW HAVEN
v. :
ECHLIN, INC., TREVOR O. JONES, :
LARRY McCURDY, JOHN F. CREAMER,
MILTON P. DEVANE, JOHN E. ECHLIN, JR., :
DONALD C. JENSEN, WILLIAM P. NUSBAUM,
JEROME G. RIVARD and :
RICHARD E. DAUCH,
Defendants. : FEBRUARY 18, 1998
CLASS ACTION COMPLAINT
Plaintiffs, by their attorneys, allege upon information and belief,
except with respect to their ownership of Echlin, Inc. ("Echlin" or the
"Company") common stock, and their suitability to serve as class
representatives, which are alleged upon personal knowledge, as follows:
PARTIES
1. Plaintiffs Geoffrey and Jordana Miller, are the owners of shares of
defendant Echlin.
2. Defendant Echlin is a corporation organized and existing under the
laws of the State of Connecticut. Echlin maintains its principal offices at 100
Double Beach Road, Branford, Connecticut 06405. Echlin is a manufacturer of auto
parts and tools.
3. Defendant Trevor O. Jones ("Jones") is Chairman of the Board of
defendant Echlin.
4. Defendant Larry McCurdy ("McCurdy") is President, Chief Executive
Officer and a Director of defendant Echlin.
5. Defendants John F. Creamer, Milton P. Devane, John E. Echlin, Jr.,
Donald C. Jensen, William P. Nusbaum, Jerome G. Rivard and Richard E. Dauch are
Directors of defendant Echlin.
6. The foregoing individual directors of Echlin (collectively, the
"Director Defendants"), owe fiduciary duties to Echlin and its shareholders.
CLASS ACTION ALLEGATIONS
7. Plaintiffs bring this action on their own behalf and as a class
action on behalf of all shareholders of defendant Echlin (except defendants
herein and any person, firm, trust, corporation or other entity related to or
affiliated with any of the defendants) or their successors in interest, who have
been or will be adversely affected by the conduct of defendants alleged herein.
8. This action is properly maintainable as a class action for the
following reasons:
(a) The class of shareholders for whose benefit this action is brought
is so numerous that joinder of all class members is impracticable. As of
December 31, 1997, there were more than 63 million shares of defendant Echlin's
common stock outstanding owned by tens of thousands of shareholders of record
scattered throughout the United States.
(b) There are questions of law and fact which are common to members of
the class and which predominate over any questions affecting any individual
members. The common questions include, inter-alia, the following:
(i) Whether the Director Defendants have breached their fiduciary
duties owed by them to plaintiffs and members of the class, and/or have aided
and abetted in such breach, by failing to act in such a way as to maximize
shareholder value of Echlin;
(ii) Whether the Director Defendants have wrongfully failed and
refused to seek a purchaser of Echlin at the highest possible price and,
instead, have sought to chill potential offers;
(iii) Whether plaintiffs and the other members of the
class will be irreparably damaged by the conduct complained of herein; and
(iv) Whether defendants have breached or aided and abetted the
breaches of the fiduciary and other common law duties owed by them to plaintiffs
and the other members of the class.
9. Plaintiffs are committed to prosecuting this action and have
retained competent counsel experienced in litigation of this nature. The claims
of plaintffs are typical of the claims of the other members of the class and
plaintiffs have the same interest as the other members of the class.
Accordingly, plaintiffs are adequate representatives of the class and will
fairly and adequately protect the interests of the class.
10. Plaintiffs anticipate that there will not be any difficulty in the
management of this litigation.
11. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action.
FACTUAL BACKGROUND
12. On February 17, 1998, SPX Corp. ("SPX"), a rival auto parts and
tools manufacturer, announced a stock-and-cash offer for the Company valued at
$48 a share, i.e., a 23% premium over Echlin's closing price on Friday, February
13, 1998. SPX filed a Proxy Statement with the Securities and Exchange
Commission on February 17, 1998, pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (the "Proxy Statement"). SPX is offering a fixed ratio of
0.4796 of its shares for each Echlin share. The offer consists of stock
currently valued at $36 a share and $12 a share in cash. SPX announced that it
was taking these steps after being unable to reach a friendly deal with the
Company for a year or so.
13. Echlin refused to comment on the deal in an apparent continuation
of a long-held position of refusing to entertain the advances of SPX. The Proxy
Statement details in its "Background" section how SPX has attempted, since as
early as February 1997, to have defendants consider a possible combination of
the two companies. The Proxy Statement details how meetings were held in
November 1997 and a letter was sent to the Company's Board on December 12, 1997,
detailing the "strategic rationale" and the benefits of a combination of the two
companies. On December 17, 1997, defendant McCurdy responded by letter to the
December 12, 1997 letter from SPX, wherein he stated that the Company had no
interest in further discussions with SPX. Separate letters to each individual
Board member on December 18, 1997, met with the same rejection by defendant
McCurdy on December 23, 1997.
14. On January 6, 1998, SPX notified the Company that it was filing a
Premerger Notification and report form under the Hart-Scott-Rodino Antitrust
Improvement Act of 1976 ("HSR Act"), seeking to acquire up to 100% of the
Company's voting securities (the "HSR Filing").
15. On January 8, 1998, McCurdy wrote to SPX acknowledging receipt of
notice of the HSR Filing and advising SPX that the Company and its advisors
stood ready to aggressively defend its shareholders' interests.
16. The Director Defendants, however, fearing that the result of any
such transaction would mean their ouster from the board, took no action to
advance the proposed deal even though it would provide shareholders with a
premium of 23% and with the opportunity to perhaps increase the price offered by
SPX.
17. Defendants, by refusing to give adequate consideration to the
proposed offer of $48 a share by SPX, are denying plaintiffs and other class
members of the possibility of receiving the fair value of Echlin' assets and
business in exchange for their shares.
CAUSE OF ACTION AGAINST ALL DEFENDANTS
18. Defendants, acting in concert, have violated their fiduciary duties
owed to the public shareholders of Echlin and put their own personal interests
ahead of the interests of the Echlin public shareholders and are using their
control positions as officers and directors of Echlin for the purpose of
retaining their positions and perquisites as board members at the expense of
Echlin's public shareholders.
19. The Director Defendants apparently failed to (1) seriously evaluate
the benefits to the Company's shareholders of the SPX offer; (2) undertake an
adequate evaluation of Echlin's worth as a potential acquisition candidate; (3)
take adequate steps to enhance Echlin's value and/or attractiveness as an
acquisition candidate; (4) effectively expose Echlin to the marketplace in an
effort to create an active and open auction for Echlin; or (5) act independently
so that the interests of public shareholders would be protected. Instead,
defendants have sought to chill potential offers for Echlin.
20. While the Director Defendants of Echlin should negotiate with SPX
to achieve the highest possible price for Echlin shareholders and seek out other
possible purchasers of the assets of Echlin or its stock in a manner designed to
obtain the highest possible price for Echlin's shareholders, or seek to enhance
the value of Echlin for all its current shareholders, they have instead resolved
to ignore the overtures of SPX in order to protect the positions of the current
board of directors and the compensation, prestige and perquisites that flow
therefrom.
21. These tactics pursued by the defendants are, and will continue to
be, wrongful, unfair and harmful to Echlin' public shareholders, and are an
attempt by certain defendants to aggrandize their personal positions, interests
and finances at the expense of and to the detriment of the Echlin public
stockholders. These maneuvers by the defendants will deny members of the class
their right to share appropriately in the true value of Echlin' valuable assets,
future earnings and profitable businesses.
22. In contemplating, planning and/or effecting the foregoing specified
acts and in pursuing the course of conduct described herein, defendants are not
acting in good faith toward plaintiffs and the class, and have breached, and are
breaching, their fiduciary duties to the plaintiffs and the class.
23. Because the Director Defendants (and those acting in concert with
them) dominate and control the business and corporate affairs of Echlin and
because they are in possession of private corporate information concerning
Echlin' businesses and future prospects, there exists an imbalance and disparity
of knowledge and economic power between the defendants and the public
shareholders of Echlin which makes it inherently unfair to Echlin's public
shareholders.
24. By reason of the foregoing acts, practices and course of conduct,
the Director Defendants have failed to use the required care and diligence in
the exercise of their fiduciary obligations owed to Echlin and its public
shareholders
25. As a result of the actions of the defendants, plaintiff and the
class have been and will be damaged in that they will not receive the fair value
of Echlin' assets and business in exchange for their shares, and have been and
will be prevented from obtaining a fair price for their shares of Echlin common
stock.
26. Unless enjoined by this Court, the Director Defendants will
continue to breach their fiduciary duties owed to plaintiffs and the class, all
to the irreparable harm of the class.
Plaintiffs have no adequate remedy at law.
WHEREFORE, plaintiffs demand judgment as follows:
(a) Declaring that this action may be maintained as a class
action;
(b) Declaring that the actions of the defendants are unfair,
unjust and inequitable to plaintiff and the other members of the class;
(c) Enjoining preliminarily and permanently the defendants
from taking any action which does not seek to maximize the shareholder value of
Echlin;
(d) Requiring defendants to compensate plaintiffs and the
members of the class for all losses and damages suffered and to be suffered by
them as a result of the acts complained of herein, together with pre-judgment
and post-judgment interest;
(e) Awarding plaintiffs the costs and disbursements of this
action, including reasonable attorneys', accountants' and experts' fees; and
(f) Granting such other and further relief as may be just and
proper.
THE PLAINTIFFS
BY /s/ J. Daniel Sagarin
----------------------------------
J. Daniel Sagarin
Elias A. Alexiades
HARRIS BEACH & WILCOX, LLP
147 N. Broad Street
Milford, Connecticut 06460
(203) 877-8000
Juris No. 413597
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4600
Chimicles, Jacobsen & Tikellis
One Rodney Square
Wilmington, DE 19899
(302) 656-2500
RETURN DATE: March 10, 1998
GEOFFREY MILLER and JORDANA MILLER, : SUPERIOR COURT
on behalf of themselves and all others
similarly situated, : J.D. OF NEW HAVEN
Plaintiffs, : AT NEW HAVEN
:
v.
:
ECHLIN, INC., TREVOR O. JONES,
LARRY McCURDY, JOHN F. CREAMER, :
MILTON P. DEVANE, JOHN E. ECHLIN, JR.,
DONALD C. JENSEN, WILLIAM P. NUSBAUM, :
JEROME G. RIVARD and
RICHARD E. DAUCH, :
Defendants. : FEBRUARY 18, 1998
STATEMENT OF AMOUNT IN DEMAND
The amount, legal interest or property in demand is greater than
$15,000.00, exclusive of interest and costs. Plaintiff claims other relief in
addition to money damages.
THE PLAINTIFFS
BY /s/ J. Daniel Sagarin
--------------------------------
J. Daniel Sagarin
Elias A. Alexiades
HARRIS BEACH & WILCOX, LLP
147 N. Broad Street
Milford, Connecticut 06460
(203) 877-8000
Juris No. 413597
WOLF HALDENSTEIN ADLER
FREEMAN & HERZ LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4600
Chimicles, Jacobsen & Tikellis
One Rodney Square
Wilmington, DE 19899
(302) 656-2500
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - - - - -x
PARK EAST INC. on behalf of itself :
and all others similarly situated, :
: Civil Action No:
Plaintiff, :
: CLASS ACTION COMPLAINT
- against - : 398CV00345 PCD
:
ECHLIN INC., LARRY W. MCCURDY, :
JOHN F. CREAMER, JR., MILTON P. :
DEVANE, DONALD C. JENSEN, :
TREVOR O. JONES, JEROME G. :
RIVARD, JOHN E. ECHLIN, JR., :
WILLIAM P. NUSBAUM and :
RICHARD E. DAUCH, : PLAINTIFF DEMANDS A
: TRIAL BY JURY
:
Defendants, :
- - - - - - - - - - - - - - - - - - - - - - -x
Plaintiff, by its attorneys, for its complaint against defendants,
alleges upon personal knowledge with respect to paragraph 9, and upon
information and belief based, inter alia, upon the investigation of counsel, as
to all other allegations herein, as follows:
NATURE OF THE ACTION
1. Plaintiff brings this action as a class action on behalf of itself
and all other stockholders of Echlin Inc. ("Echlin" or the "Company") against
the directors and/or senior officers of Echlin to enjoin certain actions of the
Company and the Director Defendants (as defined herein) which are intended to
thwart any takeover of the Company, as more fully described below.
2. In particular, Echlin's shareholders are currently being deprived of
the opportunity to realize the full benefits of their investment in Echlin.
Among other things, the director defendants have failed to adequately consider
and embrace a premium offer to acquire control of Echlin by SPX Corp. ("SPX").
The director defendants are utilizing their fiduciary positions of control over
Echlin to thwart SPX and others in their legitimate attempts to acquire the
Company.
3. In addition, defendants, in anticipation of such unsolicited bids,
have implemented or are using several antitakeover devices, including, but not
limited to, a "poison pill." Unless defendants are prevented from using these
defensive devices improperly, SPX and other potential suitors will effectively
be prevented from consummating any legitimate offers for Echlin. Also, certain
Connecticut statutes, which are discussed in detail below, will similarly thwart
any legitimate SPX offer or other offers from any potential acquiror, unless
Echlin takes affirmative steps to disarm the impact of these statutes. The
statutes, therefore, violate the Commerce Clause, the Supremacy Clause and the
Due Process Clause of the United States Constitution.
4. Such action and inaction represent an effort by the Director
Defendants to entrench themselves in office so that they may continue to receive
the substantial salaries, compensation and other benefits and perquisites of
their offices.
5. The Director Defendants are abusing their fiduciary positions of
control over Echlin to thwart legitimate attempts at acquiring the Company and
are seeking to entrench themselves in the management of the Company. The actions
of the Director Defendants constitute a breach of their fiduciary duties to
maximize shareholder value, to not consider their own interests over those of
the Company, and to respond reasonably and on an informed basis to bona fide
offers for the Company.
JURISDICTION AND VENUE
6. This action is brought pursuant to the Supremacy Clause (art.
VI, cl. 2), the Commerce Clause (art. I,section 8, cl. 3) and the Due
Process Clause (amends. V and XIV) of the United States Constitution;
principles of common law; and the federal Declaratory Judgments Act, 28
U.S.C.section 2201. Pursuant to Rule 24(c) of the Federal Rules of Civil
Procedure, plaintiff calls the attention of the Court to 28 U.S.C.section
2403, pursuant to which the Court shall notify the state attorney general
of any action in which the constitutionality of any statute of a state is
drawn into question.
7. The Court has jurisdiction of the subject matter of this action
pursuant to 28 U.S.C. sections 1331 and 1367(a).
8. Venue is proper in this district pursuant to 28 U.S.C. sections
1391(a)-(c).
THE PARTIES
9. Plaintiff Park East Inc. is and has been, at all time relevant to
this action, the owner of Echlin common stock.
10. Defendant Echlin is a Connecticut corporation with its principal
executive offices located at 100 Double Beach Road, Branford, Connecticut 06405.
Echlin is a worldwide manufacturer of a range of motor vehicle parts. The
Company manufactures and distributes motor vehicle brake, engine, power
transmission, steering and suspension system parts.
11. Defendants Larry W. McCurdy ("McCurdy"), John F. Creamer, Jr.,
Milton P. Devane, Donald C. Jensen, Trevor O. Jones, Jerome G. Rivard, John E.
Echlin, Jr., William P. Nusbaum and Richard E. Dauch. In addition, defendant
McCurdy is the Chairman, President and Chief Executive Officer of the Company
and defendant Jones is Vice Chairman of the Company.
12. By virtue of their positions as directors and/or officers of Echlin
and their exercise of control over the business and corporate affairs of Echlin,
the Echlin officers and directors named as defendants herein (the "Director
Defendants") have and at all relevant times had the power to control and
influence, and did control and influence and cause Echlin to engage in the
practices complained of herein. Each individual Defendant owed and owes Echlin
and its public stockholders fiduciary obligations and were and are required to:
(i) use their ability to control and manage Echlin in a fair, just and equitable
manner, (ii) act in furtherance of the best interests of Echlin and its
stockholders; (iii) act to maximize shareholder value; (iv) refrain from abusing
their positions of control; and (v) not favor their own interests at the expense
of Echlin and its stockholders. By reason of their fiduciary relationships,
these defendants owed and owe plaintiff and other members of the Class (as
herein defined) the highest obligations of good faith, fair dealing, loyalty,
complete candor and due care.
13. By virtue of the acts and conduct alleged herein, the Director
Defendants, who control the actions of Echlin, are breaching their fiduciary
duties to the public shareholders of Echlin.
14. Each defendant herein is sued individually as a conspirator and/or
aider and abettor, or, as appropriate, in his capacity as a director of the
Company, and the liability of each arises from the fact that he or it has
engaged in all or part of the unlawful acts, plans, schemes or transactions
complained of herein.
CLASS ACTION ALLEGATIONS
15. Plaintiff brings this action pursuant to Rule 23 of the Federal
Rules of Civil Procedure on their own behalf and as a class action on behalf of
all shareholders of Echlin (except defendants herein and any person, firm,
trust, corporation or other entity related to, controlled by or affiliated with
any of the defendants) and their successors in interest (the "Class").
16. This action is properly maintainable as a class action for the
following reasons:
(a) The Class of shareholders for whose benefit this action is
brought is so numerous that joinder of all Class members is impracticable. As of
December 31, 1997, Echlin reported that it had over 63.1 million shares of
common stock outstanding, owned by thousands of shareholders of record and
beneficial owners who are scattered throughout the United States.
(b) There are questions of law and fact common to members of the
Class which predominate over any questions affecting only individual members.
The common questions include, inter alia:
(i) whether the anti-takeover protections of Connecticut Gen.
Stat. sections 33-841, 33-842 and 33-844 are unconstitutional on their face or
applied;
(ii) whether the Director Defendants are unlawfully
impeding a potential acquisition of Echlin to the detriment of the shareholders
of the Company, and have breached their fiduciary and other common law duties
owed by them to plaintiff and other members of the Class by failing and refusing
to attempt in good faith to maximize shareholder value by adopting strategies,
policies and plans designed to thwart officers for Echlin and entrench
defendants in their positions of control and failing to act with complete
candor;
(iii) whether the Director Defendants have engaged and are
continuing to engage in an unlawful plan or scheme to perpetuate their control
over and enjoyment of the perquisites of office at the expense of Echlin's
public shareholders;
(iv) whether defendants have breached and/or aided and
abetted the breach of fiduciary duties and other common law duties owed by them
to plaintiff and other members of the Class; and
(v) whether plaintiff and other members of the Class
are being and will continue to be irreparably injured by the wrongful conduct
alleged herein and, if so, what is the proper remedy and/or measure of damages.
(c) The claims of plaintiff are typical of the claims of other members
of the Class and plaintiff has no interests that are adverse or antagonistic to
the interests of the Class.
(d) Plaintiff is committed to the vigorous prosecution of this action
and has retained competent counsel experienced in litigation of this nature.
Accordingly, plaintiff is an adequate representative of the Class and will
fairly and adequately protect the interests of the Class.
(e) Plaintiff anticipates that there will not be any difficulty in the
management of this litigation as a class action.
17. For the reasons stated herein, a class action is superior to other
available methods for the fair and efficient adjudication of this action and the
claims asserted herein. Because of the size of the individual Class members'
claims, few, if any, Class members could afford to seek legal redress
individually for the wrongs complained of herein. Absent a class action, the
Class members will continue to suffer damage and defendants' violations of law
will proceed without remedy. Defendants are acting in a manner which affects all
shareholders in the same or similar fashion and would be subjected to
potentially differing legal requirements or standards of conduct if this
litigation were not certified to proceed as a class action on behalf of all
Echlin shareholders.
SUBSTANTIVE ALLEGATIONS
A. The Companies
18. Echlin is a worldwide manufacturer of a range of motor vehicle
parts. The Company manufactures and distributes motor vehicle brake, engine,
power transmission, steering and suspension system parts.
19. SPX is a Delaware corporation with its principal place of business
located at 700 Terrace Point drive, Muskegon, Michigan. SPX is a global provider
of vehicle service solutions to franchised dealers of motor vehicle
manufacturers and independent service locations, service support to vehicle
manufacturers and vehicle components to the worldwide motor vehicle industry.
B. Echlin Ignores And Rebuffs SPX's Overtures
20. On or about February 1997, John S. Blystone ("Blystone"), Chairman
and Chief Executive Officer of SPX, met with defendant Jones -- who at the time
was the Chairman and interim President and Chief Executive officer of the
Company -- to explore the possibility of a business combination of the two
companies. Despite the potential benefits to the Company of further discussing
such a possibility or, at the very least, maintaining a dialogue with SPX,
defendant Jones made no effort to follow-up on this initial contact.
21. In the face of the Director Defendants' apathy towards discussing
and considering a potential transaction between the companies, SPX continued to
aggressively pursue discussions in an apparent effort to engage the Director
Defendants in a meaningful dialogue. For example, in or about November 1997,
Blystone met with defendant McCurdy -- who had succeeded Jones as President and
CEO -- to discuss a strategic merger between the two companies. Then, on
November 24, 1997, Patrick J. O'Leary, SPX's Vice President-Finance and Chief
Financial Officer, met with Robert Tobey, Echlin's Vice President-Corporate
Development. Following these meetings, SPX was informed that Echlin had no
interest in pursuing a transaction.
22. Unable to dislodge the Director Defendants from their unwillingness
to seriously consider and evaluate a proposed transaction between the companies,
on December 12, 1997, Blystone sent a letter to defendant McCurdy which
described the strategic rationale of a business combination between the two
companies and the benefits to Echlin's shareholders of a transaction. In that
letter, Blystone also indicated that a potential offer would be in the $40ish
range and that SPX was willing to revise its thinking on price if Echlin would
be share information identifying more value in the transaction. In effect,
Blystone was communicating a willingness to raise SPX's officer price if Echlin
would engage in a meaningful exchange of business information with SPX beyond
what was publicly available -- the Director Defendants never took any steps in
this regard, thereby disregarding the possibility that they could have
negotiated a significantly increased premium to the market price. Finally,
Blystone asked McCurdy to share the letter with Echlin's Board of Directors.
23. On December 17, 1997, Blystone received a letter from McCurdy that
indicated that McCurdy had purportedly shared the letter with Echlin's Board.
The Board was purportedly not interested in pursuing further discussions with
SPX.
24. On December 18, 1997, Blystone sent a letter to each member of
Echlin's Board enclosing a copy of his December 12th letter and reiterating the
benefits of a strategic merger of the companies. McCurdy responded by letter on
December 23, 1997, and advised that the Echlin Board was of the "unanimous" view
that the Company did not have an interest in the transaction.
25. With its efforts to negotiate with Echlin frustrated by the
Director Defendants' stonewalling, SPX took steps to take its offer directly to
Echlin's shareholders. On January 6, 1998, SPX notified Echlin that it was that
day filing a Premerger Notification and Report Form under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 seeking to acquire up to 100% of the voting
securities of the Company.
26. Two days later, McCurdy wrote to Blystone, acknowledging the filing
and indicating that Echlin was prepared to utilize its takeover defenses to
thwart SPX's interest.
27. On February 17, 1998, SPX sent a letter to Echlin's Board setting
forth the proposed business combination and its merits and reaffirming its
desire to negotiate a transaction with the Director Defendants. That same day,
SPX also made a demand on Echlin that a special meeting of shareholders be
called and held and, by separate letter, requested access to the Company's
shareholder list for the purpose of communicating directly with the Company's
shareholders.
C. SPX Announces Offer To Buy Echlin For A Substantial Premium To
the Prevailing Market Price
28. On February 17, 1998, SPX issued a press release announcing that it
had made an offer to acquire Echlin for cash and SPX shares valued at $48 per
Echlin share, for a total value of $3 billion. According to the press release,
the offer consists of $12.00 cash and 0.4796 SPX share per Echlin share which,
in aggregate, represents a 32% premium over the 30-day average trading price of
Echlin.
29. SPX further announced that it had received antitrust approval for
the transaction on February 5, 1998, and that it had filed a registration
statement with the Securities and Exchange Commission and will start an exchange
offer for all outstanding Echlin shares as soon as its registration statement is
cleared.
30. SPX also described Echlin's takeover defenses and its plans to
mount a proxy contest to challenge those defenses:
Echlin has a poison pill, which purports to prevent the acquisition of
more than 20% of Echlin shares without approval of Echlin's Board.
Accordingly, SPX is filing preliminary materials today with the SE to
solicit shareholder demands to call a special meeting to replace
Echlin's entire Board with SPX's nominees. The SPC nominees, if
elected, will take all action needed to facilitate consummation of
SPX's offer, subject to their fiduciary duties as Echlin directors.
Echlin is incorporated in Connecticut and, under that state's law, must
give notice of a special meeting within 30 days of receiving demands by
holders of 35% of its outstanding shares, and must hold the meeting
within 60 days of giving notice. Because Echlin does not have a
staggered board, the existing Board would be removed if more
shareholders vote at the meeting in favor of removal than vote against
removal; new directors would be elected by a plurality vote.
31. SPX also revealed that it was going to solicit demands from the
Echlin shareholders that a special meeting (the "Special Meeting") be called and
held for the purpose of removing Echlin's Board of Directors. Under Connecticut
law, Echlin is required to call a Special Meeting if 35% of the shareholders
make such a demand on the Company.
D. Echlin's Poison Pill And Other Defensive Measures
32. Echlin has at its disposal various anti-takeover devices and
other defensive measures -- including a Shareholder Rights Plan (i.e., a
Poison Pill), various corporate by-laws structured to entrench management
and the provisions of Connecticut Gen. Stat., Business Corporations,
Business Combinations, sections 33- 841, 33-842 and 33-844, which the
Director Defendants, in the pursuit of their entrenchment scheme, can and
will utilize to block the Offer and fend off any threats to their control.
1. The Poison Pill
33. Echlin has a number of anti-takeover provisions in place, such as
its shareholders' "rights plan," better known as a "poison pill." In the event
that a third-party (like SPX) acquires 20% or more of Echlin's shares, the
"poison pill" enables all Echlin shareholders other than that third-party to
purchase Echlin preferred shares at a substantial discount from market value.
34. The Poison Pill has the effect of making it extraordinarily
difficult, expensive and/or impossible for any potential acquiror not approved
by management to acquire Echlin. As a result, the Poison Pill has the effect of
precluding successful completion of even the most attractive offer for Echlin
unless the Board acquiesces or approves, thus denying the Company's shareholders
an opportunity to make their own choice.
35. By adopting the Poison Pill, the Company's directors caused a
fundamental shift of power from Echlin shareholders to themselves. The Poison
Pill thus permits the Director Defendants to act as the prime negotiators of --
and, in effect, totally to preclude -- any and all acquisition offers through
their power to redeem or to refuse to redeem the Rights.
36. This fundamental shift of control of the Company's destiny from its
public shareholders to Echlin's Board of Directors results in a heightened
fiduciary duty on the part of the Board to consider, in good faith, a
third-party bid, and further requires the directors to pursue a third-party's
bona fide interest in acquiring the Company and to negotiate in good faith with
a bidder on behalf of the Company's shareholders.
2. The Connecticut Business Combination Statutes
37. The Company and the Director Defendants also have at their
disposal the anti-takeover protections of Connecticut Gen. Stat., Business
Corporations, Business Combinations, sections 33-841, 33-842 and 33-844.
38. Under sections 33-841 and 33-842 of Connecticut Gen. Stat.,
Business Corporations, Business Combinations, any business combination with an
"Interested Shareholder" (i.e. an owner of 10% or more of the shares) that was
not approved by the Board of Directors prior to the 10% Acquisition must be
approved by the Board of Directors, plus 80% of the voting power of the
outstanding shares of voting stock of the corporation plus two-thirds of the
voting power not controlled by the Interested Shareholder or meet certain
stringent conditions regarding minimum price and type of consideration.
39. Under section 33-844 of Connecticut Gen. Stat., Business
Corporations, Business Combinations (together with sections 33-841 and 33-842,
the "Connecticut Anti-Takeover Statutes"), an Interested Shareholder (like SPX)
cannot engage in a business combination with a Connecticut corporation for five
years following the date upon which the Interested Shareholder became such
unless the acquisition of the shares or the business combination is approved by
the Connecticut Corporation's Board in advance and by the majority of the
non-employee directors on the Board before the date of the 10% acquisition.
40. The combined effect of the Connecticut Anti-Takeover Statutes is to
frustrate and impede the ability of Echlin shareholders to decide for themselves
whether they wish to receive the benefits of any unsolicited offer, including
the SPX tender offer and proposed second-step merger. These devices unreasonably
and inequitably frustrate and impede the ability of the shareholders to maximize
the value of their Echlin holdings. The failure of Echlin and its Board to adopt
a by-law opting out of the Connecticut Anti-Takeover Statute, to adopt a
resolution approving the SPX tender offer and any other unsolicited bid, or
alternatively, to employ such defenses in a fair and non-coercive manner, are or
will breach, or threaten to breach the Director Defendant's fiduciary duties to
stockholders and thus are a violation of Connecticut law. In addition, the
effect of the Connecticut Anti-Takeover Statutes generally, and specifically as
applied here, is to unconstitutionally interfere with interstate commerce and
the Class members due process rights, particularly in light of SPX's announced
and imminent takeover efforts.
Declaratory and Injunctive Relief
41. The Court may grant the declaratory and injunctive relief sought
herein pursuant to 28 U.S.C.section 2201 and Fed. R. Civ. paragraph 57 and 65. A
substantial controversy presently exists, as demonstrated by: (a) Echlin's
rebuff of SPX's overtures of February 1997 for the acquisition of Echlin, (b)
Echlin's unwillingness even to seriously consider or discuss a combination or
merge with SPX or any other possible acquiror and (c) Echlin's failure to redeem
or amend the Poison Pill, and/or retract any of its other takeover defenses
including those in Echlin's by-laws and those unconstitutionally and
impermissibly afforded by the Connecticut Anti-Takeover Statutes or to use those
defenses in a proper way. The shareholders' interests in maximizing the value of
their Echlin holdings is adverse to "the interests of the Director Defendants in
their desire to retain their positions on the Echlin Board. The existence of
this controversy is causing confusion and uncertainty in the market tor public
securities because investors do not know whether they will be able to avail
themselves of an advantageous financial offer. The granting of the requested
declaratory and injunctive relief will serve the public interest by affording
relief from such uncertainty and by avoiding delay.
COUNT I
For Injunctive and Declaratory Relief --
Unconstitutionality of the Connecticut Business Statute
42. Plaintiff repeats and realleges each allegation set forth herein.
43. This claim arises under the Commerce, Supremacy and Due Process
Clauses of the United States Constitution.
44. SPX's offer constitutes a substantial securities transaction in
interstate commerce, employing interstate instrumentalities and facilities in
the communication of the Offer, and in transactions for the purchase and sale of
Echlin's securities occurring across state lines.
45. The Connecticut Anti-Takeover Statutes violate the Commerce Clause
because they impose direct, substantial and adverse burdens on interstate
commerce that are excessive in relation to the local interests purportedly
served by the statutes. Among other things, the Statutes make it more difficult
to accomplish transactions which Echlin shareholders may otherwise deem to be in
their best interests, because the Statutes vest the boards of Connecticut
companies with ultimate power to thwart potential business combinations.
46. The Connecticut Anti-Takeover Statutes are unconstitutional and
null and void on their face under the Commerce Clause. In addition, the
Connecticut Anti-Takeover Statutes are unconstitutional and null and void under
the Commerce Clause in their application under the circumstances of this case.
Echlin shareholders may be effectively prevented from accepting the SPX offer or
any other offer to the extent the Board of Echlin exercises its rights under the
Connecticut Anti-Takeover Statutes in furtherance of its course of entrenchment.
Accordingly, the undue burden on interstate commerce that is created by these
statutes has a direct and substantial impact in this case.
47. The Connecticut Anti-Takeover Statutes also violate the Supremacy
Clause of the United States Constitution. SPX's offer is subject to, among other
things, the federal laws and regulations governing tender offers, including the
Williams Act amendments to the Securities Exchange Act, 15 U.S.C. sections 78m
and 78n, and the rules and regulations promulgated thereunder. The Williams Act
is intended to establish even-handed regulation of tender offers which favors
neither the offeror nor incumbent management of the target but leaves the
decision concerning the merits of the offer to the target's stockholders.
48. By establishing policies, standards and procedures that conflict
with and are obstacles to the policies implemented by Congress by means of the
Williams Act and the rules and regulations promulgated thereunder, the
Connecticut Business Combination Statutes are invalid and unconstitutional as
applied to the SPX's offer under the Supremacy Clause of the United States
Constitution, art. VI, cl. 2, which accords supremacy to federal law over
conflicting state law, and violate and are preempted by Section 28(a) of the
Securities Exchange Act of 1934, (the "Exchange Act") 15 U.S.C.section 78bb,
which prohibits and preempts state regulation that conflicts with the provisions
of the Exchange Act and the rules and regulations thereunder.
49. The Connecticut Anti-Takeover Statutes also violate the Due Process
Clause of the United States Constitution. The Statutes prevent plaintiff and the
other members of the Class from maximizing the value of their Echlin holdings
due to the Director Defendant's entrenching efforts. Thus, those persons, acting
under color of state law, are diminishing the property interest of all class
members. The class members are thus being deprived of fundamental freedoms and
property interests guaranteed by the Due Process Clause of the United States
Constitution.
50. Plaintiff seeks declaratory relief with respect to the
unconstitutionality of the Connecticut Anti-Takeover Statutes, pursuant to the
Federal Declaratory Judgments Act, 28 U.S.C.section 2201, and injunctive relief
against the application and enforcement of these unconstitutional Statutes.
Plaintiff and the Class members are or will be irreparably and imminently
injured by the wrongs alleged herein.
51. Plaintiff and the class have no adequate remedy at law.
COUNT II
Against All Defendants
For Breach Of Fiduciary Duties
52. Plaintiff repeats and realleges each of the foregoing allegations
as if fully set forth in this paragraph.
53. The Company and Director Defendants have taken no affirmative steps
to facilitate SPX's premium offer. To act consistent with their fiduciary
duties, the Director Defendants should evaluate all available alternatives,
including further negotiating with SPX, which they have failed to do.
54. The Director Defendants owe fundamental fiduciary obligations under
the present circumstances to take all necessary and appropriate steps to
maximize shareholder value and explore in good faith the SPX proposal. In
addition, the Director Defendants have the responsibility to act independently
so that the interests of Echlin's public stockholders will be protected, to
seriously consider all bona fide offers for the Company, and to conduct fair and
active bidding procedures or other mechanisms for checking the marker to assure
that the highest possible price is achieved. Further, the directors of the
Company must adequately ensure that no conflict of interest exists between
defendants' own interests and their fiduciary obligations to maximize
stockholder value and act in the shareholders' best interests or, if such
conflicts exist, to ensure that they will be resolved in the best interests of
the Company's public stockholders.
55. Echlin represents a highly attractive acquisition candidate.
Defendants' conduct has deprived and will continue to deprive the Company's
public shareholders of the very substantial control premium which SPX is
prepared to pay or of the enhanced premium which further exposure of the Company
to the market could provide. Defendants are precluding the shareholders'
enjoyment of the full economic value of their investment by failing to proceed
expeditiously and in good faith to evaluate and pursue a premium acquisition
proposal which would provide for an acquisition for all shares at a very
attractive price.
56. Echlin's Board and its top management have frustrated SPX's current
acquisition overtures and offers, even though these proposals would result in
Echlin's shareholders receiving a substantial premium over the then market-price
of Echlin stock. The Director Defendants have done this because they know that
in the event Echlin were acquired by any potential bidders, most or all of the
directors of Echlin and its senior management would, either in connection with
the acquisition or shortly thereafter, be removed from the Board of the
surviving company because their services would not be necessary and they would
be mere surplusage and thus an acquisition would bring an end to their power,
prestige and profit. In so acting, Echlin's directors and those in management
allied with them have been aggrandizing their own personal positions and
interests over those of Echlin and its broader shareholder community to whom
they owe fundamental fiduciary duties not to entrench themselves in office.
57. The Poison Pill and Echlin's other anti-takeover defenses are
wrongfully being used in a discriminatory manner to preclude SPX's premium
acquisition proposal or any other competing bid. Given the premium and
non-coercive nature of SPX's offer, and its substantial value to Echlin's
stockholders, the Director Defendants should not be permitted to deny the
Company's stockholders this opportunity. Defendants' use of Echlin's poison pill
or other anti-takeover devices to block SPX's offer constitutes an unreasonable
and draconian response thereto in violation of the fiduciary duties owed to
Echlin's stockholders.
58. By virtue of the acts and conduct alleged herein, the Director
Defendants, who control the actions of the Company, have carried out a
preconceived plan and scheme to place their own personal interests ahead of the
interests of the shareholders of Echlin and thereby entrench themselves in their
offices, and positions within the Company. The Director Defendants have violated
their fiduciary duties owed to plaintiff and the Class in that they have not and
are not exercising independent business judgment and have acted and are acting
to the detriment of the Company's public shareholders for their own personal
benefit.
59. Plaintiff seeks preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiff and the Class of their rights to realize a full and fair
value for their stock at a substantial premium over the market price and to
compel defendants to carry out their fiduciary duties to maximize shareholder
value in selling Echlin.
60. Only through the exercise of this Court's equitable powers can
plaintiff be fully protected from the immediate and irreparable injury which
defendants' actions are inflicting or threaten to inflict.
61. Unless enjoined by the Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and other members of the Class, and/or
aid and abet and participate in such breaches of duty, will continue to entrench
themselves in office, and will prevent the sale of Echlin at a substantial
premium, all to the irreparable harm of plaintiff and the other members of the
Class.
62. Plaintiff and the Class have no adequate remedy at law.
WHEREFORE, plaintiff demands judgment as follows:
A. Declaring this to be a proper class action and certifying plaintiff
as class representative;
B. Declaring that the Connecticut Anti-Takeover Statutes, either
generally or as applied here, are unconstitutional;
C. Ordering the Director Defendants to carry out their fiduciary duties
to plaintiff and other members of the Class by announcing their intention to:
(i) cooperate fully with any entity or person, including, but
not limited to, SPX, having a bona fide interest in proposing any transaction
which would maximize shareholder value, including, but not limited to, a buy-out
or takeover of the Company;
(ii) immediately undertake an appropriate evaluation of
Echlin's worth as a merger or acquisition candidate;
(iii) make all appropriate steps to effectively expose Echlin
to the marketplace in an effort to create an active auction of the Company;
(iv) act independently so that the interests of the Company's
public shareholders will be protected; and
(v) adequately ensure that no conflicts of interest exist
between the Director Defendants' own interest and their fiduciary obligation to
maximize shareholder value or, in the event such conflicts exist, to ensure that
all conflicts of interest are resolved in the best interests of the public
shareholders of Echlin.
D. Declaring that the Director Defendants have violated their fiduciary
duties to the Class;
E. Enjoining defendants from abusing the corporate machinery of the
Company for the purpose of entrenching themselves in office or to unduly impede
the Offer, including, without limitation, any by-law amendments that impair the
Company's stockholders' existing rights to amend the by-laws and/or to call a
special stockholders' meeting;
F. Ordering the Director Defendants to take steps to facilitate a
premium acquisition by utilizing the Company's antitakeover defenses, including
the Rights Plan and the Connecticut Anti-Takeover Statutes (if they are not
stricken) exclusively in a manner designed to maximize shareholder value;
G. Ordering the Director Defendants, jointly and severally, to account
to plaintiff and the Class for all damages suffered and to be suffered by them
as a result of the acts and transactions alleged herein;
H. Awarding plaintiff the costs and disbursements of this action,
including a reasonable allowance for plaintiff's attorneys' and experts' fees;
and
I. Granting such other and further relief as may be just and proper.
JURY DEMAND
Plaintiff demands a trial by jury of all issues so triable.
DATED: February 19, 1998
HARRIS BEACH & WILCOX
By: /s/ J. Daniel Sagarin
------------------------------
J. Daniel Sagarin
Federal Bar No. CT04289
Elias A. Alexiades
Federal Bar No. CT03543
147 N. Broad Street
P.C. Box 112
Milford, Connecticut 06460
(203) 877-8000
MILBERG WEISS BERSHAD
HYNES & LERACH LLP
David J. Bershad
Steven O. Schulman
Samuel H. Rudman
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Harold E. Soicher, Esq.
600 Old Country Road
Garden City, NY 11530
(516) 228-9514
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - - - - - x
:
ECHLIN INC., Civil Action No.:
:
Plaintiff,
:
- against -
: COMPLAINT
---------
SPX CORPORATION, :
Defendant. :
- - - - - - - - - - - - - - - - - - - - - - - x
Plaintiff Echlin Inc. ("Echlin"), by its undersigned attorneys,
for its complaint in this action, alleges, upon knowledge as to itself and
upon information and belief as to others:
NATURE OF THE CASE
------------------
1. This is an action for a declaratory judgment and
injunctive relief pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (the "Exchange Act"), 15 U.S.C. Section 78n(a), and the rules and
regulations of the Securities and Exchange Commission (the "SEC")
promulgated thereunder.
2. This action seeks preliminary and permanent injunctive
relief to prevent SPX Corporation ("SPX") from continuing to pursue a
flawed and corrupted solicitation of Echlin shareholders. SPX's stated
purpose in soliciting demands from Echlin shareholders is to call a special
meeting of shareholders to attempt to replace Echlin's entire incumbent
board of directors with five SPX nominees, in furtherance of SPX's scheme
to acquire control of Echlin.
3. SPX's scheme is intended to circumvent Connecticut's
"business combination" statute which, in the circumstances of an SPX offer
for Echlin's shares, would require approval from Echlin's board of
directors. SPX also hopes to assure the success of an SPX offer for Echlin
shares by making announcements that cause many long-term Echlin
shareholders to sell their shares to arbitrageurs whose only interest is
short-term profit and who consequently may be more receptive to an SPX
offer.
4. This manipulative plan has had the intended effect of
causing significant turnover among Echlin shareholders. In fact, February
17, 1998, the date SPX publicly announced its plan, was the busiest day of
trading in Echlin shares in the history of the Company.
5. Under Connecticut law, the holders of 35% of a
corporation's shares may demand that a special meeting of shareholders be
called, and (absent board action) the record date for determining the
shareholders that are entitled to demand that a special meeting be called
is the date the first shareholder signs a demand. On February 17, 1998,
Cede & Co., a record holder of Echlin shares acting at the direction of
SPX, the beneficial holder of such shares, signed and delivered a demand to
Echlin's headquarters, thereby establishing February 17, 1998 as the record
date for the solicitation of demands (hereinafter the "Record Date"). In
subsequent communications with Echlin and in press releases and proxy
materials delivered to Echlin shareholders, SPX has repeatedly acknowledged
and confirmed the Record Date to be February 17, 1998.
6. On March 24, 1998, SPX announced to the world in a press
release and a Schedule 14A filing with the SEC that it had received and was
delivering to the Company demands calling for a special meeting from
holders of more than 35% of Echlin's outstanding shares. In fact, however,
contrary to its announcements, SPX did not solicit and deliver anything
approaching that number of demands from Echlin shareholders as of the
Record Date. In furtherance of its plan and with full knowledge that its
announcements caused a significant amount of market activity, SPX solicited
and delivered demands as of a different date -- February 18, 1998.
Moreover, a large number of the demands that SPX did deliver to Echlin
following SPX's misleading solicitation were invalid because they were
submitted on behalf of purported beneficial holders of Echlin shares
without any supporting proxy from the record holder of such shares -- Cede
& Co.
7. SPX's irresponsible actions have totally and completely
contaminated the proxy process. Contrary to its SEC filings and
announcements, SPX has not delivered the requisite number of demands from
shareholders on the Record Date. Moreover, SPX's actions have made it
impossible to conduct the proxy solicitation process in a fair and
equitable manner. While some Record Date shareholders may have received
proxy materials sent out by SPX and/or Echlin, many others have not. The
entire marketplace and the judgments of the proper body of shareholders as
to whether they should execute or revoke a demand have been infected by
SPX's false announcement that SPX has already obtained the requisite number
of valid demands. Moreover, that announcement has furthered SPX's scheme
of causing the transfer of shares from long-term Echlin shareholders to
arbitrageurs whose only interest is short-term profit.
8. The injunctive relief sought herein is therefore
necessary (1) to prevent SPX from the continued execution of its deceptive
and unlawful scheme and (2) to provide the correct body of Echlin
shareholders with a full and fair opportunity to decide questions that are
rightfully theirs to decide.
9. This Court should enjoin the continuation of SPX's flawed
proxy effort and any action of SPX based upon such proxy effort.
JURISDICTION AND VENUE
----------------------
10. This Court has subject matter jurisdiction over this
action pursuant to 28 U.S.C. Section Section 1331, sections 14 of the
Exchange Act, 15 U.S.C. Section Section 78n and the rules and regulations
promulgated thereunder, and section 27 of the Exchange Act, 15 U.S.C.
Section 78aa.
11. Venue is properly laid in this District under section
27 of the Exchange Act, 15 U.S.C. Section 78aa, and under 28 U.S.C. Section
1391(b).
THE PARTIES
-----------
12. Plaintiff Echlin is a corporation organized under the
laws of the State of Connecticut, with its principal place of business in
Branford, Connecticut. Echlin common stock is listed on the New York Stock
Exchange and is registered with the SEC pursuant to Section 12(b) of the
Exchange Act, 15 U.S.C. Section 78l(b). As of February 17, 1998, there
were 63,248,939 shares of Echlin common stock outstanding.
13. Defendant SPX is a corporation organized under the laws
of the State of Delaware, with its principal place of business in Muskegon,
Michigan. As of February 17, 1998, SPX reported that it held 1,150,150
shares of Echlin common stock, or approximately 1.82% of Echlin common
stock outstanding.
SUBSTANTIVE ALLEGATIONS
-----------------------
A. Background
14. Echlin is a Fortune 500 company that is a leading
producer of quality automotive parts for both original equipment
manufacturers and the aftermarket distribution channels. Although it has
extensive operations worldwide, Echlin's headquarters are in Connecticut,
the state of its incorporation, where it employs over 900 people in
manufacturing and administrative positions.
15. In comparison to Echlin, which had revenues of $3.568
billion for its fiscal year ended August 31, 1997, SPX is a much smaller
company, with reported revenues of $922 million for its fiscal year ended
December 31, 1997.
16. In November 1997, representatives of SPX and
representatives of Echlin had two meetings at which general discussions
regarding a business combination occurred. Notwithstanding Echlin's
response to SPX that further discussions regarding a business combination
would not be fruitful, SPX proceeded in December 1997 to send letters to
Echlin's chief executive officer and subsequently each member of Echlin's
board of directors formally suggesting such a business combination. The
Echlin board of directors, after giving careful consideration to SPX's
letters, unanimously determined that it had no interest in pursuing further
discussions with SPX, and Echlin reported this view to SPX.
B. SPX's Announcement and Intentions
17. On February 17, 1998, SPX publicly announced its
intention to make a hostile tender offer for shares of Echlin common stock.
The same day, SPX delivered to the members of Echlin's board of directors a
letter setting forth certain terms of the offer that SPX said it intended
to make. In the hypothetical SPX offer, Echlin shareholders would receive
$12 in cash and 0.4796 shares of SPX common stock for each of their Echlin
shares.
18. Unlike many hostile takeovers, however, SPX's "offer"
was not a formal offer subject to the securities laws and regulations. No
formal offer was made to Echlin shareholders nor has SPX to this date made
such an offer. Instead, SPX announced its intention to make an offer
someday in the future, subject to certain other significant conditions.
19. Like many other states, Connecticut has for 10 years
had a "business combination" statute that, in most circumstances, places a
corporation's decision whether to enter into a merger or other business
combination squarely in the hands of the corporation's board of directors.
See Conn. Gen. Stat. Ann. Section Section 33-840, et seq. This requirement
has the effect of preventing destructive acquisitions that sacrifice long-
term shareholder value for short-term gain, and that often result in
layoffs, plant closings and disruption to the community of which the
corporation is a significant member. The Connecticut business combination
statute would bar SPX's proposed acquisition of Echlin absent the approval
of Echlin's board of directors.
20. In addition to these provisions, Connecticut's
"constituency statute" requires directors to take a number of factors into
consideration when considering a proposed business combination, including
the long-term as well as short-term interests of the corporation and its
shareholders, the interests of the corporation's employees, customers,
creditors and suppliers, and community and societal considerations. Conn.
Gen. Stat. Ann. Section 33-756(d).
21. Because SPX recognized that the application of these
statutory provisions made approval of SPX's intended hostile offer
unlikely, SPX has chosen instead to try to call a special meeting of
Echlin's shareholders and then wage a proxy contest in connection with the
special meeting to replace Echlin's current, independent board of directors
with SPX's five hand-picked nominees. Three of those nominees are officers
of SPX. SPX's stated intention is for the SPX nominees, who would be
acting at the direction and under the control of SPX, to approve the
consummation of the proposed business combination.
22. SPX's stated intention to force through a transaction
between Echlin and SPX once it has obtained control of the Echlin board of
directors creates an immediate and irremediable conflict of interest
between the duties of SPX nominees to SPX, particularly the three nominees
who are also officers of SPX, and their duties to Echlin shareholders.
Under Connecticut law, including the constituency statute, directors of
Echlin owe a duty of undivided loyalty to Echlin and an obligation to
consider the best interests of the corporation's other constituencies as
well. From the moment of their election, however, the SPX nominees'
decisions will flow from their principal and conflicting duties to SPX and
its shareholders. Those duties to SPX will require the SPX nominees to
seek a transaction under which SPX will acquire Echlin at the lowest
possible price for SPX -- in direct conflict with their duties to Echlin's
shareholders and its other constituency interests.
C. SPX's Demand for a Special Meeting
23. On February 17, 1998, the same day as its public
announcement of its intentions, Cede & Co., the record holder of Echlin
shares, acting at the direction of Merrill Lynch, Pierce, Fenner & Smith,
Inc. for the benefit of SPX, signed and delivered to Echlin a letter
demanding a special meeting of the shareholders of Echlin. See Exhibit A
attached hereto. Pursuant to Connecticut law, holders of 35% of the
outstanding Echlin shares can demand a special meeting and "the Record Date
for determining shareholders entitled to demand a special meeting is the
date the first shareholder signs the demand". Conn. Gen. Stat. Ann.
Section 33-696(a) and (b). Thus, Cede & Co.'s demand letter established
February 17, 1998 as the Record Date for the solicitation of demands.
24. In SPX's Definitive Proxy Statement, SPX confirmed that
"SPX believes that the Demand Record Date is February 17, 1998". See
Exhibit B attached hereto at 13. In that proxy statement, SPX also
acknowledged receiving from Echlin a list of shareholders of record as of
February 17, 1998, and SPX calculated the number of shares as of February
17, 1998 that would have to sign demands for a special meeting in order to
achieve the 35% required before such a special meeting of shareholders
would be called. Id. at 12.
25. Additionally, on February 17, 1998, SPX delivered a
letter to Echlin's General Counsel requesting that, pursuant to Rule 14a-7
under the Exchange Act, Echlin either provide SPX with a list of all Echlin
shareholders of record or mail SPX's proxy materials to all such Echlin
shareholders. By letter dated February 23, 1998, Echlin responded that it
would agree to mail SPX's proxy materials to all of Echlin's shareholders
on SPX's behalf. SPX did not accept this offer by Echlin, choosing instead
to mail its own proxy materials.
D. The Solicitation Process
26. SPX retained the professional proxy solicitation firm
D.F. King & Co., Inc. ("D.F. King") to conduct solicitations of demands
on its behalf. As is the case with many Fortune 500 companies, a large
percentage of Echlin stock is held in "street name" at various banks and
financial institutions. In order to reach shareholders whose shares were
held in street name, D.F. King contacted a service organization called ADP
Proxy Services ("ADP") to obtain the client records of street name
organizations and to mail proxy materials to the owners of shares as of
that date. On March 11, 1998, D.F. King, through ADP, mailed SPX's proxy
materials to all owners of Echlin stock held in street name. A follow-up
solicitation was made by D.F. King through ADP to all street name holders
on March 13, 1998.
27. SPX and its agent, D.F. King, should have sent the
proxy materials to the Echlin shareholders who held shares on the Record
Date of February 17, 1998. Instead, SPX caused the proxy materials to be
delivered to shareholders who held shares as of February 18, 1998 -- the
wrong date. Thus, instead of soliciting demands from shareholders on the
Record Date, SPX and D.F. King solicited demands from a different
population of shareholders, namely shareholders on February 18, 1998. SPX
knew or should have known that the March 11, 1998 and March 13, 1998
mailings were sent to the wrong Echlin shareholders.
28. Echlin retained the proxy solicitation firm Morrow &
Co., Inc. ("Morrow") to conduct a solicitation that would encourage
shareholders to revoke any demand for a special meeting that any
shareholder had already submitted. In order to reach the beneficial
holders of shares held in street name that were being solicited for SPX by
D.F. King, Morrow contacted ADP and asked ADP to mail Echlin's proxy
materials. An initial mailing of Echlin's proxy materials to street name
holders was made by ADP on March 16, 1998 and a follow-up mailing was made
by ADP on March 20, 1998.
29. As a direct result of the instructions provided to ADP
by SPX, the March 16, 1998 and March 20, 1998 Echlin mailings were also
sent to the holders of Echlin shares as of February 18, 1998 -- the wrong
date.
30. In contrast, some of the mailings made on behalf of
both SPX and Echlin -- those made to the registered owners of Echlin shares
that were not held in street name -- were made to the record holders as of
the correct date, February 17, 1998. Thus, street name solicitations were
sent to holders as of one date (the wrong date) and other registered owner
solicitations were sent to holders as of another date (the correct date).
31. SPX furthered its scheme and further tainted the
process by making a false and misleading public announcement on March 24,
1998, an announcement which SPX subsequently incorporated into a proxy
filing. In that announcement, SPX falsely announced that it had received
valid demands from holders of more than 35% of the outstanding Echlin
shares:
SPX Corporation (NYSE: SPW) today announced that
shareholders of Echlin Inc. (NYSE: ECH) have demanded that
Echlin hold a special shareholder meeting to vote on
replacing the Echlin Board of Directors with SPX's nominees.
SPX has received demands from holders of more than 27
million Echlin shares, representing over 43% of Echlin's
outstanding shares, and will deliver these demands tomorrow
to Echlin.
See Exhibit C attached hereto.
32. In fact, contrary to SPX's false and misleading
announcement, only 1,142,878 valid and unrevoked demands, or 1.81% of
Echlin's outstanding shares, had been received by Echlin as of March 25,
1998. Through April 1, 1998, only 1,189,040 valid and unrevoked demands,
or 1.88% of Echlin's outstanding shares, had been received. These figures
were tabulated by Coopers & Lybrand L.L.P., which was retained by the
Secretary of Echlin to perform certain agreed upon procedures relating to
tabulation of demands.
33. According to Coopers & Lybrand's report, a large number
of purported demands delivered by SPX were invalid. Many of those
purported demands were invalid because they were apparently solicited by
SPX from shareholders as of February 18, 1998, which was not the Record
Date. In addition to those invalid demands, a large number of purported
demands were invalid because they were delivered by SPX without an
accompanying "omnibus proxy" from Cede & Co., the record holder of such
shares, establishing the purported beneficial shareholders' entitlement to
issue a demand as of the Record Date.
34. SPX knew the significance of such Cede & Co. proxies.
Indeed, in making its demand on February 17, 1998, SPX arranged for Cede &
Co. to deliver a demand letter to Echlin relating to the Echlin shares that
SPX beneficially owned. See Exhibit A. However, similar Cede & Co.
proxies were not submitted for the other demands that SPX delivered.
35. The confusion described above, created wholly by SPX,
has resulted in a solicitation process that is now in complete disarray.
Many Echlin shareholders as of the Record Date have not received proxy
materials mailed out by one or both of the parties. Some of these
shareholders may have seen or heard announcements or advertisements
generated by one or both of the parties, but they have not received the
comprehensive proxy materials cleared by the SEC and published by the
parties. Many of these shareholders thus have not had the opportunity to
consider all of the available information concerning this crucial decision.
Moreover, it is impossible for Echlin to reconstruct which Echlin
shareholders who held shares as of February 17, 1998 have received or have
been otherwise informed of SPX's proxy materials in order to ensure that
they receive Echlin's proxy materials as well. The subsequent passage of
time and additional announcements by SPX have only added to this confusion.
36. In addition, as a consequence of SPX's false and
misleading announcement, and the numerous reports in the press that
followed the announcement, the price of Echlin's shares on the New York
Stock Exchange rose making long-term holders of Echlin's stock more likely
to have sold their shares to arbitrageurs whose only interest is short-term
profit and who may be more receptive to an SPX offer. Moreover, as often
happens in elections for political office when election results are
announced while the polls are still open, those holders of Echlin shares as
of the Record Date who have already issued demands may now believe it
futile to submit a revocation to change their vote based on the mistaken
belief that a special meeting is a fait accompli.
CLAIM FOR RELIEF
SECTION 14(a) OF THE EXCHANGE ACT
---------------------------------
37. Echlin repeats and realleges the allegations of
paragraphs 1 through 36 as if fully restated herein.
38. Section 14(a) of the Exchange Act, 15 U.S.C. Section
78n(a), provides that it shall be unlawful for any person to solicit
proxies in contravention of the rules and regulations of the SEC. Rule
14a-9, promulgated thereunder, provides, in pertinent part:
No solicitation . . . shall be made by means of any proxy
statement, form of proxy, notice of meeting or other
communication, written or oral, containing any statement
which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect
to any material fact, or which omits to state any material
fact necessary in order to make the statements therein not
false or misleading . . .
17 C.F.R. Section 240.14a-9.
39. Note (d) to Rule 14a-9 further provides that a claim
made prematurely regarding the results of a solicitation is an example of a
statement that may be misleading under Rule 14a-9:
Note. The following are some examples of what, depending
upon particular facts and circumstances, may be misleading
within the meaning of this rule: . . .
(d) Claims made prior to a meeting regarding the results of a
solicitation.
17 C.F.R. Section 240.14a-9, Note (d).
40. On March 6, 1998, SPX filed with the SEC a Schedule 14A
and definitive proxy materials seeking proxies to demand a special meeting
of Echlin shareholders for the purpose of implementing SPX's plan to
acquire control of Echlin. The SPX Schedule 14A and definitive proxy
materials misrepresented that SPX would be soliciting proxies from Echlin
shareholders as of February 17, 1998, when in fact SPX knew or should have
known that it was soliciting proxies from Echlin shareholders using the
incorrect date of February 18, 1998.
41. On March 24, 1998, SPX issued a press release and filed
with the SEC a Schedule 14A and definitive additional materials
representing that SPX had received demands from the holders of more than
35% of the outstanding shares of Echlin. In fact, most of the demands
which SPX referred to were not valid demands because they had been
solicited and received from holders of Echlin stock as of a date other than
the Record Date, and there is no omnibus proxy.
42. These statements were false and misleading statements
pursuant to Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder.
43. These false and misleading statements have been made by
SPX under circumstances reasonably calculated to result in the procurement
of demands from Echlin's shareholders and the transfer of Echlin shares
from long-term to short-term holders, such as arbitrageurs.
44. These false and misleading statements have been and
will be material to the decisions of Echlin's shareholders as to whether or
not they issue demands pursuant to the SPX solicitation or submit
revocations of their prior submitted demands to Echlin, and whether or not
they submit to SPX's scheme to acquire control of Echlin.
45. As a consequence of the false and misleading statements
by SPX, a substantial number of Echlin shareholders who have the right to
decide whether to call for a special meeting have been disenfranchised.
Moreover, it will not be possible for Echlin to unscramble the confusion
that SPX has created or to determine the outcome of the demand solicitation
process that would have resulted from a proper solicitation directed
exclusively to the correct array of shareholders and uninfluenced by SPX's
false and misleading announcements and Schedule 14A filings.
46. Echlin's shareholders have reasonably relied, and will
in the future reasonably rely upon the false and misleading statements set
forth above to their detriment unless the relief requested herein is
granted.
47. The material false and misleading statements made by
SPX will cause Echlin's shareholders to be misled and to issue demands
pursuant to the SPX solicitation in an uninformed manner.
48. Unless an injunction is issued to enjoin the
continuation of SPX's current unlawful and contaminated demand effort,
Echlin and its shareholders will suffer irreparable harm.
49. Echlin has no adequate remedy at law.
50. Based upon the foregoing, Echlin respectfully requests
that this Court enter judgment (i) granting a declaratory judgment that the
SPX public statements and filings described above are false and misleading
and the conduct of SPX in soliciting proxies in violation of Section 14(a)
of the Exchange Act and Rule 14a-9 promulgated thereunder has corrupted the
proxy contest for demands from shareholders of Echlin as of February 17,
1998, and (ii) entering a preliminary and permanent injunction pursuant to
Federal Rule of Civil Procedure 65 enjoining SPX and its officers,
employees, attorneys and agents from continuing SPX's illegal proxy
solicitation for demands or from taking any further action based upon such
illegal solicitation.
PRAYER FOR RELIEF
-----------------
WHEREFORE, Echlin respectfully prays that this Court enter
judgment providing as follows:
(a) granting a declaratory judgment that the SPX public
statements and filings described above are false and misleading in
violation of Section 14(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder, and entering a preliminary and permanent injunction pursuant to
Federal Rule of Civil Procedure 65 enjoining SPX and its officers,
employees, attorneys and agents from continuing SPX's illegal proxy
solicitation for demands or from taking any further action based upon such
illegal solicitation;
(b) granting a declaratory judgment that the conduct of SPX
in soliciting proxies in violation of Section 14(a) of the Exchange Act and
Rule 14a-9 promulgated thereunder has corrupted the proxy contest for
demands from shareholders of Echlin as of February 17, 1998, and entering a
preliminary and permanent injunction pursuant to Federal Rule of Civil
Procedure 65 enjoining SPX and its officers, employees, attorneys and
agents from continuing SPX's illegal proxy solicitation for demands or from
taking any further action based upon such illegal solicitation;
(c) awarding Echlin the out-of-pocket costs it has been
forced to incur to respond to the illegal proxy solicitation conducted by
SPX and the false and misleading statements made by SPX, as set forth
herein, including Echlin's attorneys' fees and costs in bringing this
action; and
(d) granting Echlin such other and further relief as the
Court may deem just and proper.
Dated: New Haven, Connecticut
April 6, 1998
TYLER COOPER & ALCORN, LLP
/s/ Ronald J. Cohen
-----------------------------------
Ronald J. Cohen
Federal Bar No. CT 04158
David W. Schneider
Federal Bar No. CT 04159
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
DAVIS POLK & WARDWELL
Dennis E. Glazer
Federal Bar No. CT 02919
Kenneth M. Bernstein
John J. Clarke, Jr.
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- --------------------------------------------x
ECHLIN INC., :
:
Plaintiff and Counterclaim-Defendant, :
:
- against - : Civil Action No. 98-CV-635 (GLG)
:
SPX CORPORATION, : April 13,1998
:
Defendant and Counterclaimant. :
- --------------------------------------------x
ANSWER, AFFIRMATIVE DEFENSES
AND COUNTERCLAIM FOR
DECLARATORY AND INJUNCTIVE RELIEF
For its Answer, Affirmative Defenses and Counterclaim against plaintiff
Echlin Inc. ("Echlin"), defendant and counterclaimant SPX Corporation ("SPX")
states as follows:
1. The allegations in paragraph 1 of the Complaint assert a conclusion
of law for which no response is required.
2. Admits that a purpose of its demand solicitation was to call a
special meeting of shareholders to replace Echlin's entrenched Board with five
nominees who would fairly consider SPX's fair offer to acquire Echlin. Except as
expressly so admitted, the allegations of paragraph 2 are denied.
3. Denies the allegations in paragraph 3 of the Complaint.
4. Denies the allegations in paragraph 4 of the Complaint, except
denies knowledge or information sufficient to form a belief as to the truth of
the allegations in paragraph 4 of the Complaint as they relate to the history of
trading in Echlin shares.
5. Denies the allegations in paragraph 5 of the Complaint, and to the
extent the allegations in paragraph 5 of the Complaint assert a conclusion of
law, states that no response is required, and admits that on February 17, 1998,
Cede & Co., a record holder of Echlin shares acting at the direction of Merrill,
Lynch, Pierce, Fenner & Smith, Inc. for the benefit of SPX, the beneficial
holder of such shares, and signed a demand, thereby establishing February 17,
1998 as the record date for the solicitation of demands (hereinafter the "Record
Date").
6. Denies the allegations in paragraph 6 of the Complaint, except
admits that on March 24, 1998, SPX announced in a press release and a Schedule
14A filing with the SEC that it had received demands calling for a special
meeting from holders of shares representing more than 43% of Echlin's
outstanding shares as of the Record Date, and admits that on March 25, 1998, SPX
delivered these same demands to Echlin.
7. Denies the allegations in paragraph 7 of the Complaint, except
admits that Record Date shareholders have received the proxy materials sent out
by SPX.
8. The allegations in paragraph 8 of the Complaint assert a conclusion
of law for which no response is required. To the extent a response to the
allegations of paragraph 8 may be deemed to be required, the allegations are
denied.
9. The allegations in paragraph 9 of the Complaint assert a conclusion
of law for which no response is required. To the extent a response to the
allegations of paragraph 9 may be deemed to be required, the allegations are
denied.
10. The allegations in paragraph 10 of the Complaint assert a
conclusion of law for which no response is required.
11. The allegations in paragraph 11 of the Complaint assert a
conclusion of law for which no response is required.
12. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 12 of the Complaint.
13. Admits the allegations in paragraph 13 of the Complaint.
14. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 14 of the Complaint.
15. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 15 of the Complaint, except admits
that SPX reported revenues of approximately $922 million for its fiscal year
ended December 31, 1997, and that Echlin reported revenues of $3.568 billion for
its fiscal year ended August 31, 1997.
16. Denies the allegations in paragraph 16 of the Complaint, except
admits that in November 1997, representatives of SPX and Echlin had two meetings
at which discussions regarding a business combination occurred, and that in
December 1997, SPX sent letters to Echlin's CEO and Board suggesting a business
combination, and that Echlin responded by letter, and respectfully refers the
Court to these letters for their contents.
17. Denies the allegations in paragraph 17 of the Complaint, except
admits that on February 17, 1998, SPX delivered a letter with enclosures
addressed to the members of Echlin's board of directors, and respectfully refers
the Court to SPX's letter and enclosures of February 17, 1998, addressed to
Echlin's Board of Directors, for their contents.
18. Denies the allegations in paragraph 18 of the Complaint, and to the
extent the allegations in paragraph 18 assert a conclusion of law, states that
no response is required.
19. The allegations in paragraph 19 of the Complaint assert a
conclusion of law for which no response is required.
20. The allegations in paragraph 20 of the Complaint assert a
conclusion of law for which no response is required.
21. Denies the allegations in paragraph 21 of the Complaint, except
admits that SPX and Echlin's other shareholders have demanded that Echlin call a
special meeting, that in connection with that meeting, SPX seeks to elect five
new directors in a contested election to replace Echlin's entrenched board, and
that three of SPX's nominees are officers of SPX.
22. Denies the allegations in paragraph 22 of the Complaint, except to
the extent the allegations in paragraph 22 of the Complaint assert a conclusion
of law, states that as to those allegations no response is required.
23. Admits that on February 17, 1998, Cede & Co., a record holder of
Echlin shares, acting at the direction of Merrill Lynch, Pierce, Fenner & Smith,
Inc. for the benefit of SPX, signed a letter demanding a special meeting of the
shareholders of Echlin, and respectfully refers the Court to that letter for its
contents, and to the extent the allegations in paragraph 23 of the Complaint
assert a conclusion of law, states that no response is required.
24. Admits the allegations in paragraph 24 of the Complaint, and
further states that on March 6, 1998, SPX filed with the SEC its Definitive
Proxy Statement, and respectfully refers the Court to the Definitive Proxy
Statement for its contents.
25. Denies the allegations in paragraph 25 of the Complaint, admits
that on February 17, 1998, SPX delivered a letter to Echlin's General Counsel
and that on February 23, 1998, Echlin delivered a letter to SPX, and
respectfully refers the Court to those letters for their contents, and further
admits that SPX chose to mail its own solicitation materials.
26. Admits the allegations in paragraph 26 of the Complaint.
27. Denies the allegations in paragraph 27 of the Complaint.
28. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 28 of the Complaint.
29. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 29 of the Complaint, and denies the
allegations paragraph 29 of the Complaint as they relate to SPX.
30. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 30 of the Complaint, and denies the
allegations in paragraph 30 of the Complaint as they relate to SPX.
31. Denies the allegations in paragraph 31 of the Complaint, except
admits that on March 24, 1998, SPX issued a press release partially quoted in
paragraph 31, and respectfully refers the Court to the press release for its
entire contents.
32. Denies the allegations in paragraph 32 of the Complaint, except
denies knowledge or information sufficient to form a belief as to the truth of
the allegations in paragraph 32 of the Complaint as it relates to Coopers &
Lybrand L.L.P.
33. Denies the allegations in paragraph 33 of the Complaint, except
denies knowledge or information sufficient to form a belief as to the truth of
the allegations in paragraph 33 of the Complaint as it relates to Coopers &
Lybrand L.L.P.
34. Denies the allegations in paragraph 34 of the Complaint, except
admits that on February 17, 1998, Cede & Co. delivered a demand letter to Echlin
in the form of the copy of such letter attached as Exhibit A to the Complaint,
and respectfully refers the Court to that letter for its contents.
35. Denies the allegations in paragraph 35 of the Complaint.
36. Denies knowledge or information sufficient to form a belief as to
the truth of the allegations in paragraph 36 of the Complaint, except denies the
allegations in paragraph 36 of the Complaint as it relates to SPX.
37. Repeats and incorporates by reference SPX's answers to the
allegations in paragraphs 1 through 36 of the Complaint.
38. The allegations in paragraph 38 of the Complaint assert a
conclusion of law for which no response is required.
39. The allegations in paragraph 39 of the Complaint assert a
conclusion of law for which no response is required.
40. Denies the allegations in paragraph 40 of the Complaint,
except admits that on March 6, 1998, SPX filed with the SEC its
Definitive Proxy Statement, and respectfully refers the Court to those
SEC documents for their contents.
41. Denies the allegations in paragraph 41 of the Complaint,
except admits the allegations in the first sentence of paragraph 41 of
the Complaint, and respectfully refers the Court to the press release and
the SEC documents for their contents.
42. Denies the allegations in paragraph 42 of the Complaint.
43. Denies the allegations in paragraph 43 of the Complaint.
44. Denies the allegations in paragraph 44 of the Complaint.
45. Denies the allegations in paragraph 45 of the Complaint.
46. Denies the allegations in paragraph 46 of the Complaint.
47. Denies the allegations in paragraph 47 of the Complaint.
48. Denies the allegations in paragraph 48 of the Complaint.
49. The allegations in paragraph 49 of the Complaint assert a
conclusion of law for which no response is required. To the extent a
response may be deemed to be required, the allegations of paragraph 49
are denied.
50. The allegations in paragraph 50 of the Complaint assert a
conclusion of law for which no response is required.
AFFIRMATIVE DEFENSES
FIRST AFFIRMATIVE DEFENSE
51. Echlin's Claim is barred by waiver and estoppel.
SECOND AFFIRMATIVE DEFENSE
52. Echlin lacks clean hands and is attempting to enforce breaches of
fiduciary duty by Echlin's own management and board. In equity, Echlin may not
benefit from the misconduct of its own officers and directors.
THIRD AFFIRMATIVE DEFENSE
53. Echlin was required to obtain an omnibus proxy from Cede promptly
after February 17, 1998, and indeed was the only one who could have done so.
Equity deems done that which is required to be done.
COUNTERCLAIMS
For its counterclaims, SPX alleges, upon knowledge as to itself and its
own acts, and upon information and belief as to all other matters as follows:
NATURE OF THE CASE
54. On February 17, 1998, SPX proposed a strategic business combination
with Echlin that would create one of the world's leading manufacturers and
suppliers of motor vehicle service solutions -- one better positioned to compete
globally and generate significant shareholder value. The proposal offers to
Echlin's shareholders a substantial premium over Echlin's preannouncement market
price as well as a 70% equity interest in the combined company.
55. Since Echlin`s board of directors (the "Board") previously had
rejected SPX's efforts to enter into merger negotiations with Echlin, SPX
determined to present its offer directly to Echlin stockholders by making an
exchange offer and putting the proposal before Echlin shareholders and by
calling a special meeting of shareholders, among other things, to remove the
Echlin Board if it stood in the way of an offer that the stockholders wished to
accept.
56. SPX solicited and obtained demands from over 50% of the holders of
Echlin's outstanding votes to call a special meeting, well over tile 35% needed
under the applicable Connecticut Business Corporation Act (the "Corporation
Act") provision. However, in keeping with its entrenchment campaign ever since
SPX first made its proposed offer, Echlin has refused to properly count the
demands and call a special meeting and, instead, has initiated this litigation.
Echlin clearly has only one purpose mind: to prevent Echlin's shareholders from
having an opportunity to vote on SPX's shareholder proposals at a special
meeting with the effect of entrenching the Echlin Board without regard for the
best interests of Echlin's shareholders.
57. Consequently, SPX brings this action for injunctive and declaratory
relief for:
(i) declaratory and preliminary injunctive relief, pursuant to sections
33-696, 33-697 and 33-699 of the Corporation Act and Echlin's By-Laws, ordering
Echlin, on or before April 24, 1998 (30 days after it received demands from
holders of over 35% of Echlin`s shares entitled to vote at the special meeting),
to call the special meeting to be held within 60 days of April 24, 1998; or in
the alternative, an order of this Court pursuant to section 33-697 of the
Corporation Act, ordering Echlin to hold the special meeting on June 1, 1998;
(ii) preliminary injunctive relief under Section 14(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule l4a-9 promulgated
thereunder enjoining Echlin from making misleading or false statements
concerning SPX's solicitation of demands and the validity thereof, and Echlin's
failure reasonably to consider and respond to SPX's business combination
proposal; and
(iii) declaratory and injunctive relief enjoining Echlin from taking
any further measures to impede or frustrate the ability of Echlin's shareholders
to vote on the merits of SPX's shareholder proposals, including any action to
impede, thwart, or frustrate Echlin shareholders' existing right to call the
Special Meeting and have it timely held.
PARTIES
58. SPX is a Delaware corporation with its principal place of business
in Muskegon, Michigan. SPX is a global provider of vehicle service solutions to
franchised dealers of motor vehicle manufacturers and independent service
locations, service support to vehicle manufacturers, and vehicle components to
the worldwide motor vehicle industry. Shares of SPX are traded on the New York
Stock Exchange and the Pacific Stock Exchange.
59. Echlin is a Connecticut corporation with its principal place of
business in Branford, Connecticut. Echlin is engaged primarily in the design,
manufacture and marketing of replacement automotive parts for use in the
aftermarket parts business. Shares of Echlin are traded on the New York, Pacific
and London Stock Exchanges. As of February 17, 1998, Echlin had 63,248,939
shares of common stock outstanding.
JURISDICTION AND VENUE
60. This Court has jurisdiction over the subject matter of these claims
pursuant to Section 27 of the Exchange Act, 15 U.S.C. section 78aa; 28 U.S.C
section 1331; 28 U.S.C. section 1332(a), and this Court's supplemental
jurisdiction, 28 U.S.C. section 1367.
61. Venue is properly laid in this District pursuant to Section 27 of
the Exchange Act, 15 U.S.C. section 78aa and 28 U.S.C. section 1391(b).
BACKGROUND
Echlin's Refusal to Discuss
a Transaction with SPX
62. In February 1997, John B. Blystone, Chairman, President and Chief
Executive Officer of SPX, met with Trevor Jones, then Chairman and interim
President and Chief Executive Office of Echlin, to propose that the two
companies explore a business combination. Mr. Jones did not follow up on this
meeting. In November 1997, Mr. Blystone met with Larry McCurdy, who had
succeeded Mr. Jones as President and Chief Executive Officer of Echlin, to
discuss a strategic merger between the two companies, and on November 24, 1997,
Patrick O'Leary, SPX's Vice President - Finance and Chief Financial Officer, met
with Robert F. Tobey, Echlin's Vice President - Corporate Development, to
continue such discussions. These discussions were not fruitful, and SPX was
advised that Echlin had no interest in discussing a business combination with
SPX further.
SPX Proposes a Business Combination
63. After Echlin's management rebuffed SPX, SPX sent a letter to
Echlin's Board on February 17, 1998, in which it proposed a strategic business
combination (the "Proposed Business Combination"). As it had previously, SPX
indicated its desire to enter into a negotiated transaction.
64. In the Proposed Business Combination, Echlin's shareholders would
receive for each share of Echlin common stock, consideration (the
"Consideration") in the amount of $12 in cash and 0.4796 share of SPX's common
stock, par value $10, which at the time of the offer, had a value of $48 based
on the $75-1/16 closing price of a share of SPX's common stock on February 13,
1998, the last trading date preceding the date of the public announcement of the
Proposed Business Combination. As of today, SPX's proposed offer has a value of
$48.51 based upon the $76-1/8 closing price of SPX's common stock on April 9,
1998, the last trading day prior to the filing of this pleading.
65. As of February 17, 1998, the Consideration represented a more than
23% premium over the $38-7/8 price at which Echlin common stock closed the
preceding trading day and a 32% premium over the average closing price of a
share of Echlin common stock for the preceding 30 trading days.
66. The Proposed Business Combination would be accomplished by means of
an exchange offer in which SPX would pay the Consideration in exchange for each
share of Echlin's common stock, and a subsequent merger of Echlin into a
subsidiary of SPX, in which each then outstanding share not purchased in the
exchange offer would be converted into the right to receive the Consideration.
Following consummation of the Proposed Business Combination, Echlin's
Shareholders (excluding SPX) would own 70% of the equity of the Combined
Company.
67. The Proposed Business Combination is a part-cash, part-stock offer,
available to all Echlin's shareholders, for all outstanding shares. It is not
"front-end loaded" or otherwise coercive in nature. The Proposed Business
Combination is structured so that the merger would permit shareholders who did
not tender their shares in the exchange offer to receive the same consideration
per share as shareholders who tendered in the exchange offer. The Proposed
Business Combination price represents a full and fair value to Echlin's
shareholders and gives them a substantial equity interest in the combined
company.
68. Nevertheless, the Proposed Business Combination cannot be completed
successfully unless Echlin's anti-takeover devices, specifically, including a
poison pill, are removed. Given the premium price and fair structure of the
Proposed Business Combination, the Echlin Board should remove these barriers to
enable Echlin stockholders to determine whether to accept the Proposed Business
Combination.
SPX Solicits Demands to Hold A
Special Meeting Under Connecticut Law
69. Section 33-696(a) of the Corporation Act obligates a Connecticut
public corporation to call and hold a special meeting of shareholders upon the
demand of the holders of 35% of votes entitled to be cast at such meeting.
70. On February 17, 1998, the same day that it announced its Proposed
Business Combination, SPX filed with the Securities and Exchange Commission (the
"SEC") exchange offer materials to commence its offer and preliminary
solicitation materials to solicit written demands that a special meeting of
shareholders be called and held (the "Special Meeting").
71. As the February 17 letter explained, the Special Meeting was
required because, among other things, the Echlin poison pill attempts to prevent
the acquisition of more than 20% of Echlin shares without approval by Echlin's
Board, and the Special Meeting election would give stockholders the choice to
remove the Board if the Board by that date continued to stand in the way of
stockholders having an opportunity to accept the offer.
72. On February 17, 1998, SPX, as a shareholder of Echlin, also sent
its demand to Echlin demanding that the Special Meeting be called and held. By
delivering the demand, pursuant to Section 33-696(b) of the Corporation Act, SPX
set a record date of February 17, 1998 for determining which Echlin stockholders
were entitled to execute demands and for calculating whether, based on Echlin's
total outstanding shares on that date, holders of the required 35% of Echlin's
outstanding stock had executed demands for the Special Meeting.
73. On March 6, 1998, SPX filed its definitive proxy materials with the
SEC and initiated its solicitation of Echlin shareholders to execute demands for
the Special Meeting.
74. On March 25, 1998, SPX delivered to Echlin, on behalf of
shareholders of Echlin holding substantially more than the required 35% of the
voting power of Echlin's outstanding shares, demands for the call of the Special
Meeting. When added to the demand previously delivered by SPX, these represented
aggregate demands to hold the Special Meeting by holders of 45.8% of Echlin's
outstanding shares on February 17, 1998 (the "Demands"). It has since then
delivered additional demands from holders of approximately 6% of the outstanding
shares, so that holders of more than 50% of Echlin's outstanding shares have now
demanded that the Special Meeting be called and held.
Echlin Fails to Provide A Participant Listing
75. On February 17, 1998, SPX hand-delivered written notice of a demand
to the Echlin Board requesting access to the record of shareholders of Echlin
pursuant to Section 33-946 of the Corporation Act.
76. On February 27, 1998, SPX, through its designated agent, made
inspection and obtained from Echlin a copy of the list of registered
shareholders of Echlin as of the record date of February 17, 1998. The list of
registered holders revealed that, as of the record date, Echlin had 63,248,939
shares of common stock outstanding. The list also revealed that, as of the
record date, 59,973,687 shares (or almost 95% of the outstanding shares) were
registered in the name of Cede & Co. ("Cede").
77. Cede is the nominee name of The Depository Trust Company ("DTC"), a
fiduciary organization created by brokerage houses, banks and other financial
institutions to facilitate stock transactions in publicly traded companies by
eliminating the need to physically transfer stock certificates in connection
with the transfer of title to stock. DTC serves as the record holder for shares
owned by most brokerage houses, banks and other financial institution
("Participants"), most of whom are themselves not beneficial owners of the
shares.
78. Upon request by an issuer, Cede will provide a participant listing
(the "Participant Listing") which indicates how many shares of the issuer Cede
holds on behalf of each of its Participants as of a particular date.
79. SPX has requested and Echlin has refused to produce the Participant
Listing.
80. Echlin is required both by Section 33-946 of the Corporation Act
and by Connecticut common law to provide SPX access to the Participant Listing.
81. In connection with solicitations with record dates (such as SPX's
solicitation of demands for the Special Meeting), Cede will also provide, at the
issuer's request, an omnibus proxy with the Participant Listing indicating the
number of shares held by each Participant as of the record date, enabling the
issuer to verify the votes cast or consents or demands executed by beneficial
owners through the Participants, since the issuer's stock ownership records
maintained by its transfer agent only reflect record owners.
82. Echlin should have requested an omnibus proxy and Participant
Listing promptly after February 17, 1998, so that it could verify both the
demands and revocations received.
83. Echlin has failed and refused to request an omnibus proxy and
Participant Listing from Cede, and now claims, on the basis of its own failures,
that it could not tabulate the demands submitted by its shareholders.
Echlin's Entrenchment Tactics
84. Echlin has misleadingly stated to its stockholders that its Board
of Directors is considering whether the Proposed Business Combination is in the
best interests of Echlin shareholders. However, after almost two months of
supposedly considering SPX's proposal, Echlin's Board has failed to disclose its
analysis or provide any response to SPX's proposal.
85. Instead, Echlin's Board has permitted Echlin's management to pursue
a variety of entrenchment tactics.
86. Echlin management's first entrenchment tactic was to seek to have
the Connecticut Corporation Act changed so as to deprive Echlin shareholders of
having any opportunity to consider the SPX proposal through the enactment of
statutory laws designed to protect Echlin's management.
87. However, on March 25, 1998, the Connecticut legislature
resoundingly defeated the proposed legislation.
88. On that same day, SPX delivered the Demands for the Special
Meeting. Because Echlin management failed to deter SPX's proposal by legislation
and because efforts by Echlin to solicit revocations of the Demands were
unsuccessful, Echlin has now resorted to refusing to properly count the Demands
delivered to it by over 50% of its shareholders.
89. Instead of calling the Special Meeting as required by law, on April
6, 1998, Echlin filed this lawsuit and delivered to SPX a letter asserting that
it was not required to call the Special Meeting because the Demands were invalid
in that they allegedly did not have the proper record date and/or proper voting
authority.
90. This attempt by Echlin's management and board to prevent a Special
Meeting from taking place represents an unreasonable response to the Proposed
Business Combination, interferes with shareholder democracy and is in violation
of the fiduciary duties owed to SPX and the other Echlin shareholders.
IRREPARABLE INJURY
91. Echlin's refusal to properly count the Demands and to call a
Special Meeting: (i) deprives SPX and Echlin's other shareholders of the
fundamental right under state law to vote at a Special Meeting to decide for
themselves whether or not to accept the Proposed Business Combination and to
sell their shares for a substantial premium; (ii) precludes SPX from proceeding
with the Proposed Business Combination in violation of state law and Echlin's
fiduciary duties; and (iii) causes SPX irreparable injury as a result of the
loss of the unique opportunity to acquire control of Echlin.
92. SPX has no adequate remedy at law.
93. Only through the exercise of the Court's equitable powers will SPX
be protected from immediate and further irreparable injury. The resulting injury
to SPX and all of Echlin's shareholders would not be adequately compensable in
money damages and would constitute irreparable harm.
DECLARATORY RELIEF
94. The Court may grant the declaratory relief sought herein pursuant
to 28 U.S.C. section 2201 and Fed. R. Civ. paragrah 57. A substantial
controversy exists between the parties, as demonstrated by Echlin's refusal to
properly count the Demands and to call a Special Meeting as demanded by holders
of over 35% of Echlin's shares. The adverse legal interests of the parties are
real and immediate. Echlin can be expected to vigorously oppose each judicial
declaration sought by SPX, in order to maintain its management's incumbency and
defeat SPX's proposal -- despite the benefits it would provide to Echlin's
shareholders and other constituencies. The existence of this controversy is
causing confusion and uncertainty in the market for public securities because
investors do not know whether they will be able to avail themselves of an
advantageous financial offer.
95. The granting of the declaratory relief requested herein will serve
the public interest by affording relief from uncertainty and by avoiding delay.
COUNT I
(Declaratory Judgment and Injunctive Relief Under
Connecticut Law that Echlin Must Call a Special Meeting)
96. SPX repeats and realleges the allegations contained in each of the
preceding paragraphs of its Counterclaims as if fully set forth herein.
97. On March 25, 1998, SPX delivered Demands from holders of 45.8% of
Echlin's outstanding shares on February 17, 1998.
98. Section 33-696(a) of the Corporation Act obligates a Connecticut
public corporation to call and hold a special meeting of shareholders upon the
demand of at least 35% of shares entitled to vote at such meeting.
99. Under Section 33-697 of the Corporation Act, a court may summarily
order the Special Meeting if notice of the Special Meeting is not given by
Echlin within thirty (30) days after the date on which the demands of the
holders of at least 35% of the shares entitled to vote at the Special Meeting
have been delivered to Echlin's secretary.
100. On April 6, 1998, instead of calling the Special Meeting, Echlin
delivered a letter to SPX repudiating its obligation to call the Special Meeting
because more than 95% of the Demands were allegedly invalid. In that letter,
Echlin states, "Echlin does not intend to call [the] Special Meeting."
101. SPX has no adequate remedy at law.
COUNT II
(Declaratory and Injunctive Relief that Echlin's Refusal to Call a
Special Meeting is a Violation of Echlin's Board's and
Management's Fiduciary Duties)
102. SPX repeats and realleges the allegations contained in each of the
preceding paragraphs of its Counterclaims as if fully set forth herein.
103. The Proposed Business Combination is non-coercive and non-
discriminatory, is fair to all of Echlin's shareholders, and represents a
substantial premium over the pre-announcement market price of Echlin shares as
well as giving Echlin's shareholders a substantial equity interest in the
combined company. The Proposed Business Combination complies with all applicable
laws, obligations and agreements and poses no threat to the interests of
Echlin's shareholders or to Echlin's corporate policy or effectiveness.
104. Echlin's management and board have fiduciary duties and duties of
loyalty to Echlin's shareholders. Their fiduciary duties prohibit them from
refusing to call the Special Meeting or taking any other action that would have
the purpose or effect of impeding the effective exercise of the stockholder
franchise.
105. Echlin's refusal to properly count the Demands and to call the
Special Meeting is not proportionate to any threat posed, nor within the range
of reasonable responses to the Proposed Business Combination and is in breach of
the fiduciary duties of Echlin's management and board.
106. Echlin's management and board have breached their fiduciary duties
to Echlin's shareholders by attempting to manipulate existing corporate
machinery and to interfere with the exercise of shareholder voting rights by
preventing Echlin's shareholders from freely considering whether to accept the
Proposed Business Combination.
107. SPX has no adequate remedy at law.
COUNT III
(Issuance of False and Misleading Statements in Violation of Section 14(a)
of the Exchange Act and the SEC Rules Promulgated Thereunder)
108. SPX repeats and realleges the allegations contained in each of the
preceding paragraphs of its Counterclaims as if fully set forth herein.
109. Section 14(a) of the Exchange Act and Rule l4a-9 promulgated
thereunder, prohibit solicitation of shareholders by means of proxy materials or
other communications which are false or misleading.
110. In its proxy materials and press releases, Echlin has made false
and misleading statements concerning SPX's solicitation of demands and the
validity of demands delivered to Echlin, in violation of Section 14(a) of the
Exchange Act and Rule 14a-9 promulgated thereunder. Among these false and
misleading statements were the following:
a. Echlin has represented that fewer than 2% of its shareholders have
delivered valid Demands to call the Special Meeting despite having received
demands from in excess of 35% of its shareholders; and
b. Echlin has continued, for almost two months, to represent that it is
considering SPX's proposal, when it has failed, in all that time to evaluate the
proposal fairly or to disclose any analysis at all.
111. The purpose of these false and misleading statements was to
prejudice SPX in connection with the upcoming Special Meeting, by suggesting
manipulation and wrongdoing by SPX when, in fact, Echlin has been the party at
fault.
112. Echlin knew that these statements in its proxy materials and press
releases were false and misleading at the time they were issued, recklessly
disregarded the falsity of such statements or was negligent in failing to
discover that the statements were false and misleading.
113. Unless Echlin's false and misleading statements are
corrected, SPX will suffer further harm to its reputation and ability to
have its proposal fairly considered and voted on by Echlin's
shareholders.
114. SPX has no adequate remedy at law.
COUNT IV
(Declaratory and Injunctive Relief that Echlin's
Refusal to Call a Special Meeting is a Violation of
Echlin's By-Laws)
115. SPX repeats and realleges the allegations contained in each of the
preceding paragraphs of its Counterclaims as if fully set forth herein.
116. On March 25, 1998, SPX delivered Demands from holders of 45.8% of
Echlin's outstanding shares on February 17, 1998. SPX has continued to deliver
Demands and currently has delivered Demands representing over 50% of Echlin's
outstanding stock.
117. Section 3 of Echlin's By-Laws provides that "upon written request
of the holders of at least thirty-five (35) per cent of the voting power of all
shares entitled to vote at the Meeting the President shall . . . call a Special
Meeting of Shareholders."
118. Despite Echlin's receipt of duly executed Demands representing
over 50% of Echlin's outstanding stock, Echlin's President has failed to call a
Special Meeting of Echlin's shareholders, and Echlin has failed to cause its
President to call the Special Meeting, in violation of Section 3 of Echlin's
ByLaws. Instead of complying with Section 3 of its By-Laws, on April 6, 1998,
Echlin delivered a letter to SPX repudiating its obligation to call the Special
Meeting claiming that more than 95% of the Demands were allegedly invalid.
119. SPX has no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, Defendant and Counterclaimant SPX respectfully requests that
this Court enter:
(a) declaratory and preliminary injunctive relief, pursuant to sections
33- 696, 33-697 and 33-699 of the Corporation Act and Echlin's By-Laws, ordering
Echlin, on or before April 24, 1998 (30 days after it received demands from
holders of over 35% of Echlin's shareholders entitled to vote at the Special
Meeting), to call the Special Meeting to be held within 60 days of April 24,
1998; or in the alternative, an order of this Court pursuant to section 33-697
of the Corporation Act, ordering Echlin to hold the Special Meeting on June 1,
1998, or the earliest practical date thereafter; and
(b) preliminary injunctive relief under Section 14(a) of the Exchange
Act and Rule 14a-9 promulgated thereunder enjoining Echlin from making
misleading or false statements concerning SPX's solicitation of demands and the
validity thereof, and Echlin's failure reasonably to consider and respond to
SPX's business combination proposal; and
(c) declaratory and injunctive relief enjoining Echlin from taking any
further measures to impede or frustrate the ability of Echlin's shareholders to
vote on the merits of SPX's Shareholder proposals, including any action to
impede, thwart, or frustrate Echlin shareholders' existing rights to call the
Special Meeting and have it timely held; and
(d) awarding Defendant its costs and disbursements in this action,
including reasonable attorneys' fees; and
(e) granting such other and further relief as the Court deems just and
proper.
Dated: April 13, 1998
SPX CORPORATION
/s/ Stefan R. Underhill
------------------------------------
Stefan R. Underhill (#ct 00372)
Jonathan B. Tropp (#ct 11295)
DAY, BERRY & HOWARD
One Canterbury Green
Stamford, Connecticut 06901-2047
(203) 977-7300
- and -
Alexander R. Sussman*
Audrey Samers*
FRIED, FRANK, HARRIS, SHRIVER
& JACOBSON
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
SPX's Attorneys
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- - - - - - - - - - - - - - - - - - - - -x
:
ECHLIN INC., Civil Action No.:
:
Plaintiff, 98-CV-0635 (GLG)
:
- against -
:
SPX CORPORATION, :
Defendant. :
- - - - - - - - - - - - - - - - - - - - -x
MOTION FOR PRELIMINARY INJUNCTION
---------------------------------
HEARING REQUIRED
Plaintiff Echlin Inc. ("Echlin"), by its undersigned attorneys, and, as
prayed for in its Complaint filed in the above-captioned case, which Complaint
is incorporated herein by reference, hereby moves this Court for a preliminary
injunction pursuant to Federal Rule of Civil Procedure 65(a), Section 14(a) of
the Securities Exchange Act of 1934, 15 U.S.C. Section 78(n)(a), and Rule
14a-9 promulgated thereunder by the Securities Exchange Commission, 17 C.F.R.
Section 240.14a-9, until further ordered by the Court or dissolved by the
terms described herein, as follows:
(a) preliminarily enjoining defendant SPX Corporation ("SPX") and
all entities or persons in active concert or participation with SPX,
including its officers, employees, attorneys and agents, from continuing
SPX's illegal proxy solicitation for demands for a special meeting of
Echlin shareholders and from taking any further action based on such
illegal solicitation, unless and until SPX has issued and circulated to
Echlin shareholders statements correcting its false and misleading
statements.
(b) directing that no security be posted.
The reasons for this motion for a preliminary Injunction, as more fully
set forth in the Memorandum of Law in Support of Echlin's Motion for a
Preliminary Injunction filed contemporaneously herewith, are that (1) Echlin
has demonstrated a reasonable probability of prevailing on the merits of this
case; (2) Echlin is suffering, and will continue to suffer, irreparable harm
before the trial of this action can be held; and (3) no undue hardship to SPX
will result if the relief is granted.
In addition to its Complaint and its Memorandum of Law, Echlin
relies on the Declaration of Jon P. Leckerling, dated April 13, 1998, with
exhibits, the Declaration of Joseph J. Morrow, dated April 13, 1998, with
exhibits, the evidence to be adduced at a hearing on this motion and all
prior proceedings had herein.
Dated: New Haven, Connecticut
April 14, 1998
TYLER COOPER & ALCORN, LLP
/s/ Ronald J. Cohen
-----------------------------------
Ronald J. Cohen
Federal Bar No. CT 04158
David W. Schneider
Federal Bar No. CT 04159
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
DAVIS POLK & WARDWELL
Dennis E. Glazer
Federal Bar No. CT 02919
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Attorneys for Plaintiff Echlin Inc.
TABLE OF CONTENTS
-----------------
Page
----
STATEMENT OF THE CASE................................................ 1
BACKGROUND........................................................... 4
A. The Relevant Provisions of the Connecticut
Business Corporation Act.................................... 4
B. The Depository Trust Company System and
the Distinction Between Record Holders and
Beneficial Owners of a Corporation's Stock.................. 6
C. SPX's Failure to Deliver Sufficient Demands
to Call a Special Meeting of Echlin
Shareholders................................................ 10
D. SPX's Unsuccessful Attempts to Cure Its
Mistakes and Its Additional Misleading
Statements.................................................. 16
ARGUMENT -- ECHLIN'S MOTION FOR A PRELIMINARY
INJUNCTION SHOULD BE GRANTED............................. 18
A. Likelihood of Success on the Merits......................... 19
1. The SPX Statements Are False
and Misleading........................................... 20
2. The SPX Statements Are Material.......................... 25
B. Echlin Will Suffer Irreparable Harm
Absent an Injunction........................................ 27
CONCLUSION........................................................... 29
Table of Authorities
--------------------
Page
----
Cases
-----
American Hardware Corp. v. Savage Arms Corp.,
136 A.2d 690 (1994)............................................... 9
Blasius Indus., Inc. v. Atlas Corp.,
564 A.2d 651 (Del. Ch. 1988).................................... 22
Camelot Indus. Corp. v. Vista Resources, Inc.,
535 F. Supp. 1174 (S.D.N.Y. 1982)............................... 18, 28
Capital Real Estate Investors Tax Exempt Fund Ltd.
Partnership v. Schwartzberg, 917 F. Supp. 1050 (S.D.N.Y. 1996).. 4, 28
Concord Fin. Group Inc. v. Tri-State Motor Transit Co.,
567 A.2d 1 (Del. Ch. 1989)...................................... 22-23
Gould v. American Hawaiian S.S. Co.,
331 F. Supp. 981 (D. Del. 1971)................................ 3, 25-26
ICN Pharmaceuticals, Inc. v. Khan,
2 F.3d 484 (2d Cir. 1993)......................................... 18
J.I. Case Co. v. Borak,
377 U.S. 426 (1980)............................................... 28
Kennecott Copper Corp. v. Curtiss-Wright Corp.,
449 F. Supp. 951 (S.D.N.Y.), aff'd in part and rev'd in part
on other grounds, 584 F.2d 1184 (2d Cir. 1978)................. 25-26
Krauth v. Executive Telecard, Ltd.,
890 F. Supp. 269 (S.D.N.Y. 1995)........................... 4, 18, 27-28
Kresel v. Goldberg,
111 Conn. 475, 150 A. 693 (1930)................................. 5, 22
MAI Basic Four, Inc. v. Prime Computer, Inc.,
871 F.2d 212 (1st Cir. 1989).................................... 18-19
Mainiero v. Microbyx Corp.,
699 A.2d 320 (Del. Ch. 1997)................................... 5, 22-23
Mills v. Electric Auto-Lite Co.,
396 U.S. 375 (1970)............................................... 18
Preston v. Allison,
650 A.2d 646 (Del. 1994)...................................... 9, 22-23
Studebaker Corp. v. Gittlin,
360 F.2d 692 (2d Cir. 1966)..................................... 18, 27
TSC Indus., Inc. v. Northway, Inc.,
426 U.S. 438 (1976)............................................. 25
Virginia Bankshares, Inc. v. Sandberg,
501 U.S. 1083 (1991)......................................... 19-20, 25
Von Seldeneck v. Great Country Bank,
No. CV89029886S, 1990 WL 283729 (Conn. Super. Oct. 5, 1990). 5, 9, 21-22
Williams v. Sterling Oil of Oklahoma, Inc.,
273 A.2d 264 (Del. 1971)........................................ 22-23
Statutes, Rules and Regulations
-------------------------------
15 U.S.C. Section 78n(a)........................................... passim
17 C.F.R. Section 240.14a-9......................................... passim
C.G.S.A. Section 33-602(25)........................................ 5, 11
C.G.S.A. Section 33-696....................................... 4, 11, 12 20
C.G.S.A. Section 33-697(a)........................................... 2, 6
C.G.S.A. Section 33-699(a)......................................... 2, 6
C.G.S.A. Section 33-706(d)........................................... 26
C.G.S.A. Section 33-707.............................................. 7
C.G.S.A. Section 33-708......................................... 5, 7, 20
Fed. R. Civ. P. 65(a)................................................ 18
PLAINTIFF'S MEMORANDUM OF LAW IN SUPPORT
OF ITS MOTION FOR PRELIMINARY INJUNCTION
----------------------------------------
Plaintiff Echlin Inc. ("Echlin"), by its undersigned attorneys,
respectfully submits this memorandum of law in support of its motion for a
preliminary injunction, pursuant to Federal Rule of Civil Procedure 65,
Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. Section
78n(a), and Rule 14a-9 promulgated thereunder by the Securities and Exchange
Commission (the "SEC"), 17 C.F.R. Section 240.14a-9, enjoining defendant SPX
Corporation ("SPX"), and its officers, agents, servants, employees and
attorneys, from continuing to solicit demands from Echlin shareholders and
from taking any further action relating to SPX's attempt to call a special
meeting of Echlin shareholders, unless and until the false and misleading
statements by SPX described in the complaint have been cured.
STATEMENT OF THE CASE
---------------------
This action arises in the context of an attempted unsolicited
acquisition of Echlin by SPX. In furtherance of its scheme to obtain control
of Echlin, SPX seeks to call a special meeting of Echlin shareholders for the
stated purpose of replacing Echlin's incumbent board of directors with five
SPX designees, three of whom are officers of SPX. SPX has stated that if its
designees are elected, they will be charged with approving the acquisition of
Echlin by SPX.
SPX has actively solicited demands from Echlin shareholders in its
effort to require Echlin's board of directors to call a special meeting so
that SPX can advance its takeover plans. In connection with its demand
solicitation efforts, SPX has made materially false and misleading statements
regarding the results of its efforts to have other Echlin shareholders join
SPX in demanding that a special meeting be called. Under Connecticut law, a
corporation that receives demands from record holders of at least 35% of its
voting stock must call a special meeting of shareholders which is to be held
within 90 days. See C.G.S.A. Section Section 33-697(a), 33-699(a). On March
24, 1998, in violation of Rule 14a-9, SPX falsely stated in a press release
and in a subsequent SEC filing that it had obtained demands for a special
meeting of Echlin shareholders from holders of more than 27 million, or over
43%, of Echlin shares. In fact, contrary to SPX's false statements, only
1,142,878 valid and unrevoked demands -- representing only 1.81% of the
outstanding Echlin shares -- were delivered. At the time that it made this
statement, SPX knew that it was false because SPX had consciously and
deliberately decided to submit demands from Echlin shareholders as of a date
other than the undisputed record date. Moreover, Cede & Co., the record
holder of nearly 95% of Echlin's shares on the record date, had not -- and to
this date still has not -- submitted an omnibus proxy delegating the voting
rights associated with its shares of record to the parties on whose behalf SPX
has submitted purported demands. The submission of such a proxy is an
indispensable and material prerequisite to the exercise of any voting rights
by anyone who is not a record owner of Echlin shares.
SPX compounded this flagrant violation of Rule 14a-9 by issuing and
filing with the SEC a second false and misleading press release on April 6,
1998, the date that this lawsuit was filed. Before SPX or its counsel had
even reviewed a copy of the complaint, SPX announced that this action was
"frivolous," and falsely stated that it believed a special meeting of Echlin
shareholders would be held no later than June 23, 1998. In fact, these
statements were both false and violated Rule 14a-9 for the same reasons that
SPX's March 24, 1998 press release was false -- under Connecticut law Echlin
had not received sufficient valid and unrevoked demands to require the calling
of a special meeting.
SPX's false and misleading statements are material to Echlin
shareholders considering the respective positions of the parties in the demand
and revocation solicitation process. Like West Coast voters in a presidential
election who stay home based on reports of results in Eastern states, Echlin
shareholders have been misled by SPX's premature and false statement that the
election results are in and they may wrongly believe that so many valid
demands have been submitted that revocation of earlier demands will have no
effect on the outcome of the contest. Indeed, in the notes to Rule 14a-9 the
SEC expressly recognizes that claims regarding the results of a proxy
solicitation contest are prime examples of statements that may be misleading to
shareholders within the meaning of Rule 14a-9. See also Gould v. American
Hawaiian S.S. Co., 331 F. Supp. 981, 992 (D. Del. 1971) ("Since Section 14(a)
seeks to insure the informed exercise of the franchise, any misstatement which
makes the exercise seem futile and which diverts shareholder attention from
careful analysis of a proxy statement for purposes of exercising the right to
vote would certainly be a material defect.").
Further, unless a preliminary injunction is issued restraining SPX from
taking further steps in its misleading solicitation process until it has
disseminated corrective disclosure to Echlin shareholders, Echlin and its
shareholders will face irreparable harm by virtue of the taint on the ongoing
proxy contest that has resulted from SPX's false statements, and due to the
real threat that, given its established pattern, SPX will violate Rule 14a-9
again. See, e.g., Capital Real Estate Investors Tax Exempt Fund Ltd.
Partnership v. Schwartzberg, 917 F. Supp. 1050, 1064 (S.D.N.Y. 1996); Krauth v.
Executive Telecard, Ltd., 890 F. Supp. 269, 287 (S.D.N.Y. 1995).
BACKGROUND(1)
-------------
A. The Relevant Provisions of the
Connecticut Business Corporation Act
------------------------------------
Echlin is incorporated under the laws of Connecticut. As applied to
Echlin, Section 33-696 of the Connecticut Business Corporation Act (the
"C.B.C.A.") provides, in pertinent part, that:
A corporation shall hold a special meeting of shareholders . . .
upon demand of the holders of not less than thirty-five per
cent of [all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting ].
- ------------
(1) The discussion of the facts at issue on this motion for a preliminary
injunction is based upon the allegations of the complaint in this action,
including the exhibits thereto, the Declaration of Jon P. Leckerling dated
April 13, 1998, with exhibits, and the Declaration of Joseph J. Morrow dated
April 13, 1998, with exhibits. Echlin intends to supplement the facts
described herein based upon facts developed through discovery and as may be
provided in connection with a hearing on this motion.
C.G.S.A. Section 33-696(a). Except in certain circumstances not applicable
here, the "record date" for determining the shareholders entitled to submit
written demands to call such a special meeting is the date the first
shareholder signs such a demand. C.G.S.A. Section 33-696(b). As discussed
below, in this case that date was set as February 17, 1998 by SPX's own
actions.
Section 33-708(c) provides that:
(c) The corporation is entitled to reject a vote,
consent, waiver or proxy appointment if the secretary or
other officer or agent authorized to tabulate votes, acting
in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's
authority to sign for the shareholder.
C.G.S.A. Section 33-708(c). For purposes of this provision, the definition
of "shareholder" is "the person in whose name shares are registered in the
records of a corporation . . . ." C.G.S.A. Section 33-602(25).(2) Further,
as Connecticut case law makes clear, the validity of proxies, consents or
revocations of consents must be determined from their face and from the
regular books and records of the corporation, and the corporation "cannot seek
extrinsic evidence to determine the intent of the beneficial owner or correct
mistakes." Von Seldeneck v. Great Country Bank, No. CV89029886S, 1990 WL
283729 (Conn. Super. Oct. 5, 1990); see also Kresel v. Goldberg, 111 Conn.
475, 478, 150 A. 693, 695 (1930). "[I]n the context of a highly acrimonious
and contentious contest for control, it is all the more important to ensure
the game is played by the rules." Mainiero v. Microbyx Corp., 699 A.2d 320,
323 (Del. Ch. 1997).
- ------------
(2) The C.B.C.A. permits a corporation to establish a procedure by which
the beneficial owner of shares that are registered in the name of a nominee
is recognized by the corporation as the shareholder to the extent provided
in that procedure. See C.G.S.A. Section 33-707(a). In such instances,
the definition of "shareholder" under the C.B.C.A. may also include, for
certain purposes, a "beneficial owner of shares to the extent of the rights
granted by a nominee certificate on file with a corporation." C.G.S.A.
Section 602(25). Echlin has not adopted this optional procedure. See
Leckerling Decl., Paragraph 12.
If a Connecticut corporation receives valid and unrevoked demands to
call a special meeting from shareholders of record who represent 35% or more
of the voting stock as of the record date, the corporation has thirty days
within which to issue a notice of a special meeting to its stockholders.
C.G.S.A. Section 33-697(a)(2)(A). Among other things, the corporation's
notice of such a special meeting must set forth the date of the meeting, which
may be up to sixty days after the date the notice is issued. C.G.S.A. Section
33-699(a).
B. The Depository Trust Company System and
the Distinction Between Record Holders and
Beneficial Owners of a Corporation's Stock
------------------------------------------
Every shareholder of a corporation's stock has the right to acquire and
hold that stock in his own name. In that event, a stock certificate is issued
to the owner, the owner's name appears on the corporation's shareholder list,
and he (or in the case of an institution, an authorized representative) is the
only one entitled to vote his shares or to sign a proxy appointing another
person to vote his shares. The shareholder with stock registered in his own
name has full control over how the shares are voted (by himself or by proxy).
See Morrow Decl. at Paragraph 3. Some Echlin shareholders hold their shares
in this manner, and their names and addresses appear on the corporation's
books and records.
In many cases, however, owners of stock choose to acquire and hold their
shares through a brokerage house or other financial institution where they
have an account. In those cases, the customer of the brokerage house is
referred to as the "beneficial owner" of the shares. As with most other
publicly traded corporations, a large number of Echlin's shares are owned by
beneficial owners through such brokerage accounts. Morrow Decl. Paragraph 4.
Unlike the shares of record holders, whose names and addresses appear on the
books and records of the corporation, the shares of such beneficial owners are
held in "street name." "Street name" ownership creates layers of ownership
relationships subsidiary to the record owner, and these relationships
complicate the proxy and voting process.
For shares held in "street name," the brokers and financial
institutions that hold shares for their clients can themselves be the record
owner of the shares, but frequently they choose not to be. Instead, many
financial institutions choose to participate in a "book entry" securities
ownership system administered and maintained by The Depository Trust Company
("DTC"). The DTC system is designed to reduce paperwork and facilitate the
transfer of stock in the securities markets by minimizing the number of
changes that would otherwise be required in the books and records of thousands
of publicly traded corporations as a result of daily buying and selling of
shares in the securities markets. See MBCA Official Comment, C.G.S.A. Section
33-707.
Under the DTC system, the brokerage houses and financial institutions
are called "participants," and shares in a given corporation that are
beneficially owned by the customers of the participants are deposited by the
participants with DTC. Those shares are then listed on the books and records
of the issuing corporation (in this case, Echlin) under the name of a nominee
of DTC -- "Cede & Co." DTC, in turn, assumes various duties to the brokerage
firms and other institutions that are its participants. As the commentary to
the C.B.C.A. makes clear, this relationship is governed by ordinary principles
of agency between DTC and its participants and by contractual relationships
between those participants and their customers. See C.G.S.A. Section 33-708,
Official Comment No. 4; C.G.S.A. Section 33-707, Official Comment. Issuing
corporations, i.e. the corporations whose shares are held by DTC, are not
parties to these agency or contractual relationships.
As a result of the widespread use of the DTC system, the shareholder
lists of publicly held corporations typically show "Cede & Co." as record
holder of a substantial number of shares. Morrow Decl. at Paragraph 6. In
this case, as of the record date of February 17, 1998, Cede & Co. was the
record holder of 59,975,337 shares of Echlin common stock, representing
almost 95% of the total of 63,248,939 issued and outstanding Echlin common
shares as of that date. See Leckerling Decl., Exh. F at 39.
As a nominee, Cede & Co. does not itself have an interest in
shareholder decisoions for the many corporations in which it is a record
holder. Accordingly, Cede & Co. can from time to time delegate its voting
rights to participants as of a stated record date by issuing a proxy
(called an "omnibus proxy") by which Cede & Co. appoints each DTC
participant as the party with the right to vote the number of shares in the
issuing corporation that each participating broker or financial institution
has on deposit with The Depository Trust Company as of the record date.
Morrow Decl. Paragraph 7; see, e.g., Morrow Decl., Exh. A..
In this case, however, no such proxy (from Cede & Co. to the
participants) has ever been delivered to Echlin and Cede & Co. has not voted
- -- or given its proxy to anyone else to vote -- more than 59 million of the
shares held of record in its name. Leckerling Decl. Paragraph 11. As
discussed further below, the absence of the Cede & Co. omnibus proxy is one of
two critical errors in SPX's flawed submission of demands for a special
meeting of Echlin shareholders.
While Cede & Co., as the record holder of more than 59 million
shares, is the only entity in the chain of ownership that is entitled to
vote or submit demands, the delivery of a valid Cede & Co. omnibus proxy
would have the effect of delegating the right to vote shares (in varying
amounts based on each participant's holdings) to the DTC participants
listed on the Cede & Co. security position listing that would typically
accompany the omnibus proxy. Responsibility for determining and
implementing the voting desires of each participant or beneficial owner
(e.g., the customer of the brokerage houses) rests with the participants --
the brokers or financial institutions identified in the security position
listing. Where a beneficial owner has retained the right to instruct the
broker or financial institution how his shares are to be voted, each broker
or financial institution must then communicate with each beneficial owner
(customer) for whom it acts, and customarily the broker will endeavor to
execute a proxy to cast the appropriate number of votes in the manner the
beneficial owners direct. A beneficial owner can also give his broker or
financial institution the power to exercise its discretion to vote the
shares on behalf of the beneficial owner. Morrow Decl. Paragraph 8.
As the Delaware Supreme Court has recognized, "the beneficial
stockholder who 'chooses to register his shares in the name of a nominee, . .
. takes the risk attendant upon such an arrangement.'" Preston v. Allison,
650 A.2d 646, 649 (Del. 1994) (quoting American Hardware Corp. v. Savage Arms
Corp., 136 A.2d 690, 692 (Del. 1957)). Courts place the burden of such risks
upon beneficial owners, among other reasons, because "[b]eneficial owners
could have avoided th[e] mistake by obtaining legal proxies to vote their own
shares." Great Country, 1990 WL 283729 at *8.
In summary, in a typical case, (1) a record date is established, (2)
Cede & Co. issues an omnibus proxy and securities position listing to the
issuer evidencing the fact that Cede & Co. is granting each participant the
right to vote the number of shares held in its behalf on the record date; (3)
participants notify any of their customers who have retained the right to vote
their shares and determine how those customers want their votes to be cast on
the question; and (4) participants (on behalf of the participants' shares and
the participants' customers' shares) submit their proxies, consents or
revocations to the issuing corporation. Because of the multi-layered
ownership structure created by the DTC system, all of these steps must be
followed before the issuing corporation can determine from its books and
records, and from the face of the proxies, consents or revocations of consents
that have been submitted, which "street name" submissions are valid. In this
case, this essential chain was never established for the vast majority of
Echlin shares held in "street name."
C. SPX's Failure to Deliver Sufficient Valid Demands
to Call a Special Meeting of Echlin Shareholders
-------------------------------------------------
As a step in its attempt to acquire control of Echlin, SPX determined to
seek a special meeting of Echlin shareholders. SPX's stated purpose in
seeking a special meeting is to oust Echlin's incumbent board of directors and
replace those directors with five hand-picked SPX designees (including three
officers of SPX), in order for those new directors to rubber-stamp the
acquisition of Echlin by SPX. See Complaint, Exh. B at 10-11. SPX previously
had acquired a block of Echlin common stock in anticipation of this strategy.
Like most of the other beneficial owners of Echlin shares, SPX purchased and
held its shares in "street name" through a DTC participant -- Merrill Lynch,
Pierce Fenner & Smith, Inc. -- and SPX's shares were listed in Echlin's books
and records under the name of DTC's nominee, Cede & Co. See Complaint, Exh.
A.
On February 17, 1998, SPX publicly announced -- before the stock
markets opened -- its future intention to make an unsolicited tender offer for
shares of Echlin common stock. As a result of this announcement, Echlin
shares were heavily traded on February 17, 1998. See Leckerling Decl.
Paragraph 2.
On the same date, at SPX's behest, Cede & Co. -- as an Echlin
shareholder of record -- signed the first letter demand, on behalf of 714,100
of SPX's shares, calling for a special meeting of Echlin shareholders for the
purpose of ousting all of the incumbent directors and replacing them with
SPX's five designees. See Complaint, Exh. A. The Cede & Co. demand letter
submitted on behalf of SPX is significant because it demonstrates SPX's
understanding of the crucial distinction between record holders and beneficial
owners of Echlin's stock. Under Connecticut law, only record holders can
demand a special meeting of shareholders. See C.G.S.A. Section Section
33-602(25), 33-696. Accordingly, although SPX -- not Cede & Co. and not
Merrill Lynch -- was the party that wanted to call such a special meeting, the
demand letter was signed by Cede & Co. and recited that it was being submitted
"At the request of Participant [Merrill Lynch], on behalf of SPX." SPX
further demonstrated its understanding of this crucial distinction in its
demand solicitation materials, which stated the following:
IMPORTANT NOTE: If you hold your shares in the name of one
or more brokerage firms, banks or nominees, only they can
exercise the right with respect to your Shares to make a
written demand that the Special Meeting be called and held,
and only upon your specific instructions. . . .
Complaint, Exh. B at 3
Under Connecticut law, the signing of the first demand letter on
February 17, 1998 established that date as the "record date" for determining
which Echlin shareholders were entitled to submit demands for a special
meeting. C.G.S.A. Section 33-696(b). SPX does not dispute that February 17,
1998 is the proper record date. Indeed, it has stated in its definitive proxy
statement that "SPX believes that the Demand Record Date is February 17,
1998." See Complaint, Exh. B at 12-13.
Apparently, however, SPX fired its initial salvo without considering the
consequences of that act. Soon after arranging for the delivery of the first
written demand to Echlin on February 17, 1998, SPX approached an independent
firm, ADP Proxy Services ("ADP"), for the purpose of sending SPX's demand
solicitation materials to Echlin shareholders. ADP is a data processing agent
under contract to a large number of brokerage houses and other financial
institutions, and in that capacity ADP has access to day-to-day lists of the
beneficial owners of stock in many corporations. Because such beneficial
owners are constantly changing due to trading in the securities markets and
other transactions, ADP needs some advance warning of a record date before it
can lock in or "freeze" a list of beneficial owners of a given corporation as
of the record date. If ADP is not given enough advance warning of the need
for such a list "freeze," ADP will be required to reconstruct such a list as
of the desired record date. See Morrow Decl. Paragraph 9.
In this case, SPX failed to anticipate this problem and SPX did not
give ADP the necessary advance warning that SPX wanted to obtain demands from
Echlin shareholders as of the February 17, 1998 record date. Anxious to
announce its intention to make its unsolicited offer and to be the first
shareholder to demand that a special meeting be called, SPX itself set the
record date when it caused a written demand to be signed and delivered on its
behalf on the same day as its announcement -- February 17, 1998. But because
it had not given ADP advance warning of its actions, by the time that SPX
contacted ADP to implement the SPX demand solicitation, the records listing the
beneficial owners of Echlin stock as of February 17, 1998 were no longer
readily available. As a result of SPX's own decisions, SPX was told by ADP
that it would be easier to compile a list of Echlin shareholders as of
February 18, 1998 -- the day after the record date that SPX itself had
established.
Incredibly, even though SPX knew that February 18, 1998 was not the
record date, SPX did not instruct ADP to reconstruct and use the correct Echlin
shareholder list for February 17, 1998. To the contrary, SPX made a conscious
decision to use a date other than the record date and instructed ADP to
proceed with the demand solicitation process using the wrong list of
beneficial owners. Significantly, SPX did not disclose -- and still has not
disclosed -- that it conducted its demand solicitation process using the wrong
set of Echlin shareholders. Indeed, some time after SPX made this series of
ill-considered decisions, SPX stated in its definitive proxy materials that it
recognized February 17, 1998 to be the record date.
SPX's misleading communication strategy continued on March 24, 1998,
when SPX publicly announced that it had received valid demands from holders of
more than 35% of the outstanding Echlin shares. In the announcement, which it
later filed with the SEC as part of its demand solicitation materials, SPX
stated:
SPX Corporation (NYSE: SPW) today announced that shareholders
of Echlin Inc. (NYSE: ECH) have demanded that Echlin hold a
special shareholder meeting to vote on replacing the Echlin
Board of Directors with SPX's nominees. SPX has received
demands from holders of more than 27 million Echlin shares,
representing over 43% of Echlin's outstanding shares, and will
deliver these demands tomorrow to Echlin.
See Complaint, Exh. C. This announcement was false. In fact, the demands
referred to by SPX had not been solicited and received from Echlin
shareholders as of the record date -- a highly significant fact that SPX knew
and failed to disclose.
The grievous shortcomings in SPX's submissions came to light after the
purported demands were delivered to Jon P. Leckerling, Echlin's corporate
secretary. The package included an ADP list of participants that showed on
its face that the record date for the demands submitted by SPX was the wrong
date -- February 18, 1998. See Leckerling Decl., Exh. B. Equally
significant, however, Echlin has never received an omnibus proxy from Cede &
Co. Leckerling Decl. Paragraph 11. As a result, it is apparent that Cede &
Co., the shareholder of record entitled to vote nearly 95% of the Echlin
shares as of the record date, has never delegated its voting rights to DTC
participants. Thus, the demands submitted on behalf of many purported
beneficial owners of Echlin stock were simply not valid -- even putting aside
the fact that they were submitted on behalf of beneficial owners as of an
incorrect date.
As corporate secretary, Mr. Leckerling was charged with tabulating the
purported demands to determine whether valid and unrevoked demands of at least
35% of Echlin's record holders had been submitted. Mr. Leckerling retained
the independent accounting firm of Coopers & Lybrand, L.L.P. to review the
purported demands and the revocations submitted and to tabulate the results of
the solicitation process.
The demands submitted by shareholders who held shares in their own name
on the record date and the demands submitted by other persons authorized by
proxy by a record owner to vote the shares held on the record date (including
the demand submitted on SPX's behalf by record owner Cede & Co.) were all
accepted as valid. See Leckerling Decl., Exh. C at 2-3. Some of the
purported demands submitted by SPX met these basic qualifications and were
likewise accepted as valid. Most of the demands submitted by SPX were
rejected as invalid because they suffered from one or both of the infirmities
described above, i.e. they were invalid either because (1) they were from a
person who was shown as a beneficial owner as of "February 18, 1998" (the
wrong date), or (2) they were from people who were not listed on the
corporation's list of record holders and Echlin had received no proxy from a
record holder delegating the right to those people to submit a demand. A vast
majority of the purported demands delivered to Echlin suffered from both
defects. See id. at 3.
On Friday, April 3, 1998, Coopers & Lybrand reported that -- contrary to
SPX's false and misleading announcement -- only 1,142,878 valid and unrevoked
demands (or 1.81% of Echlin's issued and outstanding shares) had been
delivered to Echlin as of March 25, 1998. See Leckerling Decl., Exh. C. On
Monday, April 6, 1998, Echlin issued an announcement to that effect and Mr.
Leckerling sent a letter to John Blystone, Chairman and Chief Executive
Officer of SPX, reporting the infirmities that had been identified for many of
the purported demands. Leckerling Decl., Exh. D. On the same date, Echlin
commenced this action.
D. SPX's Unsuccessful Efforts to Cure Its Mistakes
and its Additional Misleading Statements
-----------------------------------------------
SPX immediately lashed out at Echlin's announcement. Before SPX or its
attorneys had even seen Echlin's complaint in this action or read the
allegations herein, which explained in detail the crucial flaws in SPX's
demand solicitation effort and submissions, SPX issued a press release calling
the action "frivolous." Leckerling Decl., Exh. E (press release).
SPX always knew that many of the purported demands it was gathering to
deliver to Echlin were from shareholders as of the wrong date. Further,
although SPX now knows from Echlin and Cede & Co. that no omnibus proxy was
issued or delivered to Echlin with the ADP participants' list on March 25,
1998, SPX persists in its campaign of false and misleading statements and
continues to insist that it submitted valid demands on March 25, 1998 from
more than 35% of Echlin's shareholders. Indeed, its more recent public
statement asserted that demands had been submitted by "over 50%" of Echlin
shareholders. See Leckerling Decl., Exh. E.
When SPX realized that the "demands" it purported to submit had been
rejected because they were fatally flawed, SPX called Cede & Co. and belatedly
demanded that an omnibus proxy be issued. On April 9, 1998, at a Rule 26(f)
conference conducted by counsel in this action, SPX stated that at SPX's
request, Cede & Co. would be sending Echlin an omnibus proxy.
On April 9, 1998, Echlin received by Federal Express a package from
Cede & Co. which contained a security position listing for Echlin shares as of
February 17, 1998, the record date. See Leckerling Decl., Exh. F. Noticeably
absent from this package, however, was any omnibus proxy from Cede & Co.
authorizing anyone to vote the shares held of record by that entity. See
Leckerling Decl., Paragraph 11 & Exh. F. Moreover, the materials delivered
on April 9, 1998 do not contain a demand from any Echlin shareholder as of
February 17, 1998. See Leckerling Decl., Exh. 11. Mr. Leckerling has
arranged to make these additional materials available to Coopers & Lybrand for
evaluation, see Lecklerling Decl., Paragraph 11, but it is clear that the
additional submissions of April 9, 1998 do nothing to change the number of
valid demands received to date by the corporation.
Even now, after SPX has been informed by Echlin, ADP and Cede & Co. of
the multiple infirmities in the purported demands that SPX submitted to
Echlin, SPX continues to announce to the world -- and to advance before this
Court -- that Echlin has received valid demands from more than 35% of its
shareholders and that a special meeting of shareholders must be held by no
later than June 23, 1998. See Leckerling Decl., Exh. E. In fact, less than
2% of Echlin's shareholders have submitted valid and unrevoked demands to call
a special meeting, and the actions and false announcements of SPX have totally
infected the integrity of the solicitation process.
ARGUMENT
ECHLIN'S MOTION FOR A PRELIMINARY
INJUNCTION SHOULD BE GRANTED
---------------------------------
On this motion, Echlin seeks a preliminary injunction, pursuant to
Section 14(a) of the Exchange Act and Rule 14a-9 thereunder, restraining SPX
and its agents from taking any further steps toward soliciting demands to call
a special meeting of Echlin shareholders until SPX's false and misleading
statements, which have been expressly incorporated into SPX's proxy
solicitation materials, have been corrected.
The standard for granting a preliminary injunction pursuant to Federal
Rule of Civil Procedure 65(a) is well established in the Second Circuit. A
party is entitled to a preliminary injunction if it establishes "(1)
irreparable harm and (2) either (a) a likelihood of success on the merits, or
(b) sufficiently serious questions going to the merits of its claims to make
them fair ground for litigation, plus a balance of the hardships tipping
decidedly in favor of the moving party." ICN Pharmaceuticals, Inc. v. Khan, 2
F.3d 484, 490 (2d Cir. 1993); see, e.g., Krauth v. Executive Telecard, Ltd.,
890 F. Supp. 269 (S.D.N.Y. 1995).
Courts frequently use their equitable powers to require corrective
disclosure, which serves to "effectuate the congressional policy of ensuring
that the shareholders are able to make an informed choice when they are
consulted on corporate transactions." Mills v. Electric Auto-Lite Co., 396
U.S. 375, 385 (1970). See, e.g., ICN Pharmaceuticals, 2 F.3d at 491;
Studebaker Corp. v. Gittlin, 360 F.2d 692, 698 (2d Cir. 1966) (Friendly, J.);
Krauth, 890 F. Supp. at 287-292; Camelot Indus. Corp. v. Vista Resources,
Inc., 535 F. Supp. 1174, 1184 (S.D.N.Y. 1982); see also MAI Basic Four, Inc.
v. Prime Computer, Inc., 871 F.2d 212, 218 (1st Cir. 1989). Here, a
preliminary injunction until such corrective disclosure has been issued by SPX
is well justified.
A. Likelihood of Success on the Merits
-----------------------------------
Echlin is likely to prevail on the merits of its claim that the
statement by SPX on March 24, 1998 that it had obtained sufficient demands to
call a special meeting of Echlin shareholders, and its follow-up statements to
the same effect and asserting that SPX continues to expect a special meeting
of Echlin shareholders to occur no later than June 23, 1998, are false and
misleading within the meaning of Rule 14a-9. It is apparent that SPX's
statements were false, and their deleterious effect on the demand solicitation
process is material.
Section 14(a) of the Exchange Act provides that it shall be unlawful
for any person to solicit proxies in contravention of the rules and
regulations of the SEC. See 15 U.S.C. Section 78n(a). Rule 14a-9,
promulgated thereunder by the SEC, provides, in pertinent part:
No solicitation . . . shall be made by means of any proxy
statement, form of proxy, notice of meeting or other
communication, written or oral, containing any statement
which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect
to any material fact, or which omits to state any material
fact necessary in order to make the statements therein not
false or misleading . . .
17 C.F.R. Section 240.14a-9. The test of materiality is whether "'there is a
substantial likelihood that a reasonable shareholder would consider [the
misstatement or omission] important in deciding how to vote.'" Virginia
Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1090 (1991) (quoting TSC Indus.,
Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).
1. The SPX Statements are False and Misleading
-------------------------------------------
The inquiry into the falsity of SPX's statements begins and ends with
Connecticut law governing voting by shareholders.
Section 33-696(a) of the C.B.C.A. provides that a special meeting can
only be called by delivery to the corporation of written demands "of the
holders of not less than thirty-five per cent" of the shares entitled to vote.
C.G.S.A. Section 33-696(a). In tabulating purported demands submitted for
that purpose, the Connecticut statute expressly provides that a corporation
may reject a demand if a duly authorized officer or agent "has reasonable
basis for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder." C.G.S.A. Section
33-708(c).
The lion's share of purported demands delivered to Echlin at SPX's
behest -- those delivered on behalf of purported beneficial owners (other than
SPX) of shares held by Cede & Co. -- triggered the application of this
provision. First, those demands were invalid on their face because they were
submitted on behalf of beneficial holders as of February 18, 1998, a date
other than the record date, a fact that SPX was well aware of when it made its
false announcement on March 24, 1998. At SPX's express direction, demands had
been wrongfully solicited from beneficial holders of Echlin stock as of that
date instead of the record date of February 17, 1998. Although SPX knew this
no later than February 18, 1998, when it instructed ADP to use a list as of
the wrong date, this became patently apparent after the ADP list was delivered
to Echlin together with the purported demands. Because the demands were
submitted on behalf of beneficial owners as of the wrong record date, the
demands were facially invalid, giving rise to far more than a "reasonable
basis for doubt" concerning the authority of the beneficial holders to submit
them. See C.G.S.A. Section 33-708(c).
This facial invalidity would have existed even if Echlin had received
the required omnibus proxy from Cede & Co., the record holder of those shares,
delegating its voting rights. However, a second, independent ground for
rejection of those demands existed because no Cede & Co. omnibus proxy was
delivered to Echlin with respect to its shares of record. In the absence of
an omnibus proxy, it was -- and it remains -- impossible for Echlin to
determine, using the purported demands that were submitted and from its own
shareholder records, whether any of the alleged beneficial owners submitting
such demands were authorized to vote. Moreover, even if an omnibus proxy from
Cede & Co. had been delivered for the record date of February 17, 1998, it
would remain impossible for Echlin to connect the purported demands reflected
in the ADP list -- which were submitted on behalf of beneficial owners based
on a date other than that record date -- to the records of the corporation as
of the record date.
Connecticut case law makes clear that the validity of purported demands
or proxies is to be determined from the face of the instrument itself and from
the regularly maintained books and records of the corporation. See Von
Seldeneck v. Great Country Bank, No. CV89029886S, 1990 WL 283729 (Conn. Super.
Oct. 5, 1990). Connecticut, like Delaware, has adopted this bright-line rule
in recognition of the "administrative need for expedition and certainty" and
to avoid converting "every close proxy fight into protracted and costly
litigation." Id., 1990 WL 283729 at *6. Faced with a similar dispute about
whether Cede & Co. proxies properly reflected the intentions of certain
beneficial owners of stock, the court in Great Country held that when
confronted by a proxy that appears to be invalid on its face, "the inspectors
cannot seek extrinsic evidence to determine the intent of the beneficial
owners or correct mistakes." Id., 1990 WL 283729 at *5. To the contrary, the
court concluded, "[t]he policy favoring correction of mistake must be limited
to corrections that can be made from the face of the proxy itself or from the
regular books and records of the corporation. The acceptance and
consideration of extrinsic evidence for this purpose, especially when
questioned and controverted . . . , improperly take the inspectors over the
line from the realm of the ministerial to that of the quasi-judicial." Id.,
1990 WL 283729 at *6 (quoting and adopting similar holding in Blasius Indus.,
Inc. v. Atlas Corp., 564 A.2d 651 (Del. Ch. 1988)). The rule applied by the
Great Country court is supported by long-established Connecticut law. See
Kresel v. Goldberg, 111 Conn. 475, 478, 150 A. 693, 695 (1930) (trustee in
bankruptcy not entitled to notice of shareholder meeting where he had never
notified corporation that he claimed any rights as stockholder).
The courts of Delaware have long recognized the same rule. See,
e.g., Preston v. Allison, 650 A.2d 646, 648-49 (Del. 1994); Williams v.
Sterling Oil of Oklahoma, Inc., 273 A.2d 264, 265-66 (Del. 1971); Mainiero
v. Microbyx Corp., 699 A.2d 320, 323 (Del. Ch. 1997); Concord Fin.
Group Inc. v. Tri-State Motor Transit Co., 567 A.2d 1, 12-13 (Del. Ch.
1989). Significantly, Delaware courts recognize that "in the context of a
highly acrimonious and contentious contest for control, it is all the more
important to ensure the game is played by the rules." Microbyx, 699 A.2d at
325.
In Williams, the Delaware Supreme Court held that the inspectors of a
corporate election had wrongly considered an affidavit of an officer of a
brokerage house, submitted by the attorney for one of the contestants, in
determining which of two conflicting proxies the brokerage firm had intended
to be counted. The court concluded that the inspectors had exceeded their
"ministerial functions and powers" by accepting evidence not apparent from
"the face of the proxies themselves or from the regular books and records of
the corporation." Williams, 273 A.2d at 265. "This rule," the court held,
"was dictated by the necessity for practical and certain procedures in the
fair handling of proxies and the expeditious conclusion of corporate
elections." Id. The Delaware Supreme Court has since held that the same
rule bars a reviewing court from looking beyond the face of a defective proxy.
Preston v. Allison, 650 A.2d at 649 n.3.
Similarly, in Concord Financial, the Delaware Chancery Court followed
Williams in holding that an inspector of elections properly rejected proxies
where only the front side of a proxy card had been telecopied. See 567 A.2d
at 12-13. In reaching this conclusion, the court recognized that "[t]he side
of the proxy card that had been telecopied contained all of the information
essential to ascertaining the manner in which these shareholders had decided
to vote their shares . . . . However, the telecopied side of the proxy cards
did not appoint anyone to vote the shares." Id. While this was, in the
court's view, merely a "clerical error," it nevertheless held that the proxy
was properly rejected because, in determining votes, the inspector had no
authority to look beyond the face of the proxy and the regular books and
records of the corporation. Id. at 13 (citing Williams, 273 A.2d at 265).
In this case, the vast majority of the demands delivered to Echlin were
facially invalid both because they were submitted on behalf of purported
beneficial owners as of a date other than the established record date and
because the inspector could not determine from the face of the demands
submitted and the regular books and records of the corporation that the
persons submitting demands were authorized to vote those shares. Accordingly,
SPX's statements on March 24, 1998 that it had received demands "from holders
of more than 27 million shares, representing over 43% of Echlin's outstanding
shares" and that, as a result, "shareholders of Echlin Inc. (NYSE: ECH) have
demanded that Echlin hold a special shareholder meeting" were false and
misleading within the meaning of Rule 14a-9.
SPX knew when it made these statements that most of those demands had
been provided by purported beneficial owners as of a date other than the
record date. SPX also knew, or should have known, that no omnibus proxy from
Cede & Co. had been delivered. SPX has since compounded the false and
misleading information it was propounding to Echlin shareholders by continuing
to assert in press releases and other statements that it has submitted
sufficient demands to cause a special meeting of Echlin shareholders to be
held no later than June 23, 1998. See Leckerling Decl., Exh. E. Indeed, SPX
has publicly asserted -- falsely -- that over 50% of Echlin shareholders have
submitted demands for a special meeting. Id.
2. The SPX Statements Are Material
-------------------------------
A statement is "material" under Rule 14a-9 if "'there is a substantial
likelihood that a reasonable shareholder would consider [the misstatement or
omission] important in deciding how to vote.'" Virginia Bankshares, Inc. v.
Sandberg, 501 U.S. 1083, 1090 (1991) (quoting TSC Indus., Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976)); see Gould v. American Hawaiian S.S. Co., 331
F. Supp. 981, 992 (D. Del. 1971) (assertion in proxy statement that 64% of
shareholders were committed to voting for merger was materially misleading).
The statements in this case are material within the Virginia Bankshares
standard.
"Since Section 14(a) seeks to insure the informed exercise of the
franchise, any misstatement which makes the exercise seem futile and which
diverts shareholder attention from careful analysis of a proxy statement for
purposes of exercising the right to vote would certainly be a material
defect." Gould, 331 F. Supp. at 992. For this reason, in the notes to Rule
14a-9 the SEC expressly recognizes that claims about the results of a
solicitation effort are among the types of statements that may be misleading
within the meaning of the rule. See Note (d) to Rule 14a-9, 17 C.F.R. Section
240.14a-9. In Gould, the district court determined that a proxy statement
that asserted that 64% of a corporation's shareholders had agreed to vote for
a merger was a material misstatement under Rule 14a-9. As the court observed,
in response to such a statement, "the average shareholder would not give the
proxy statement careful consideration because the merger would appear to be a
foregone conclusion." Gould, 331 F. Supp. at 992; cf. Kennecott Copper Corp.
v. Curtiss-Wright Corp., 449 F. Supp. 951, 960 (S.D.N.Y.) (recognizing that
Rule 14a-9 "might be violated by a claim of sure victory calculated to induce
wavering shareholders to jump upon an apparently victory-bound bandwagon"),
aff'd in part and rev'd in part on other grounds, 584 F.2d 1184 (2d Cir.
1978).
The SPX statements in this case are similarly material. They arose
within the context of a hotly challenged and dynamic solicitation contest.
Under Connecticut law, a proxy or consent, once given, may be revoked, see
C.G.S.A. Section 33-706(d), and Echlin has solicited revocations of any
demands that might have been submitted in response to SPX's solicitation. By
falsely announcing that it had obtained demands from 43% of Echlin
shareholders -- significantly more than the 35% of Echlin shareholders
required to call a special meeting -- SPX has unlawfully tainted the
solicitation contest and chilled the solicitation of revocations. Like West
Coast voters in a presidential election who decline to vote based upon results
announced in Eastern states, Echlin shareholders have been wrongly misled to
believe that the contest has already been decided. As a result, some wavering
Echlin shareholders may have submitted demands to "jump upon an apparently
victory-bound bandwagon," and other Echlin shareholders who had previously
submitted a demand in response to SPX solicitation materials may have
abandoned their plans to submit a revocation of their demand in response to
Echlin's solicitation materials or may not have given Echlin's materials the
same consideration. See Gould, 331 F. Supp. at 992.(3)
- ------------
(3) That shareholders may have contemplated such reconsideration is
demonstrated by a review of the demands that were determined to be valid. Of
those demands, 148,883, or 11% of the total, were determined to have been
validly revoked. After subtracting the 714,100 demands submitted by SPX from
this group, the percentage of valid demands that were determined to have been
revoked rises to almost 24%. See Leckerling Decl., Exh. C at 2-3.
B. Echlin Will Suffer Irreparable Harm
Absent a Preliminary Injunction
-----------------------------------
For similar reasons, Echlin will suffer irreparable harm if SPX is not
enjoined from continuing its solicitation effort unless and until SPX issues
and circulates to Echlin shareholders disclosures correcting its false and
misleading statements.
Writing for the Second Circuit, Judge Friendly ably encapsulated the
standard for irreparable harm in an action for violations of the proxy rules.
"A plaintiff asking an injunction because of the defendant's violation of a
statute is not required to show that otherwise rigor mortis will set in
forthwith; all that 'irreparable injury' means in this context is that unless
an injunction is granted, the plaintiff will suffer harm which cannot be
repaired. At least that is enough where, as here, the only consequence of an
injunction is that the defendant must effect a compliance with the statute
which he ought to have done before." Studebaker Corp. v. Gittlin, 360 F.2d
692, 698 (2d Cir. 1966).
In this case, Echlin will suffer such irreparable harm in at least two
respects in the absence of an injunction requiring corrective disclosure by
SPX. First, because the SPX statements are materially misleading, the
solicitation process will continue to be tainted by the effects of the
statements -- and shareholders will continue in their mistaken belief that
the contest has been decided -- until they are corrected, thwarting the fully
informed exercise of the shareholder franchise. See Krauth v. Executive
Telecard, Ltd., 890 F. Supp. 269, 287 (S.D.N.Y. 1995) (if deficiencies with the
proxy statement meet the standard of materiality, the threat of irreparable
harm follows). In Krauth, Judge Sweet recognized that "[i]rreparable injury
results from the use of false and misleading proxies when the free exercise of
shareholders' voting rights will be frustrated." Id. (citing J.I. Case Co. v.
Borak, 377 U.S. 426, 431 (1980)). After evaluating the statements at issue
there, the court concluded that they were materially misleading and enjoined a
corporation's proxy solicitation until corrective disclosure had been
disseminated. Id. at 287-92. The court reached a similar result in Camelot
Indus. Corp. v. Vista Resources, Inc., 535 F. Supp. 1174 (S.D.N.Y. 1982). In
that case, both parties in a proxy contest that was intertwined with an
unsolicited tender offer were found to have made materially misleading
statements to the target's shareholders. To prevent shareholder action based
upon such misleading information, the court ordered a postponement of a
shareholder meeting and the recirculation of proxy and tender offer materials.
Id. at 1183. Here, the relief sought is confined to an injunction against
further solicitations by SPX until the record has been set straight.
Second, as demonstrated by SPX's recent false statements (for example,
that "more than 50% [of Echlin shareholders] have exercised their right to
demand a special meeting," see Leckerling Decl., Exh. E), there is a real
threat of SPX's repeated violations of Rule 14a-9 unless SPX's continuing
efforts are enjoined pending corrective disclosure. The reasonable likelihood
of future violations of the proxy rules constitutes the type of irreparable
injury justifying a preliminary injunction. See Capital Real Estate Investors
Tax Exempt Fund Ltd. Partnership v. Schwartzberg, 917 F. Supp. 1050, 1064
(S.D.N.Y. 1996).
CONCLUSION
----------
For all of the foregoing reasons, plaintiff Echlin Inc. respectfully
requests that this Court enter an order granting a preliminary injunction
enjoining SPX and its officers, agents, servants, employees and attorneys from
taking any further action regarding the SPX solicitation of demands from
Echlin shareholders until SPX has issued and circulated to those shareholders
statements correcting its false and misleading statements, and granting Echlin
such other relief as the Court deems just and proper.
Dated: New Haven, Connecticut
April 14, 1998
TYLER COOPER & ALCORN, LLP
/s/ Ronald J. Cohen
-----------------------------------
Ronald J. Cohen
Federal Bar No. CT 04158
David W. Schneider
Federal Bar No. CT 04159
205 Church Street
New Haven, Connecticut 06510
(203) 784-8200
DAVIS POLK & WARDWELL
Dennis E. Glazer
Federal Bar No. CT 02919
Kenneth M. Bernstein
John J. Clarke, Jr.
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Attorneys for Plaintiff Echlin Inc.
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- -------------------------------------------------x
ECHLIN INC., :
: Civil Action No.
Plaintiff and Counterclaim-Defendant, : 98-CV-635 (GLG)
:
-against- :
:
SPX CORPORATION, : April 13, 1998
:
Defendant and Counterclaimant. :
- -------------------------------------------------x
SPX CORPORATION'S MOTION FOR PRELIMINARY INJUNCTION
Pursuant to Rule 65 of the Federal Rules of Civil Procedure, Defendant
and Counterclaimant SPX Corporation ("SPX") hereby moves for immediate entry of
a preliminary injunction enjoining Plaintiff and Counterclaim-Defendant Echlin
Inc. ("Echlin") (1) to call a special meeting (the "Special Meeting") of its
shareholders as required by law, and (2) from further violations of the federal
proxy rules in connection with SPX's solicitation of demands for the Special
Meeting and the validity of these demands.
ORAL ARGUMENT REQUESTED
In support of this motion, SPX represents that it has been and will
continue to be seriously irreparably harmed by Echlin's clear violations of law
if the requested injunctive relief is not granted as more fully explained in
this Memorandum in Support of SPX's Motion for a Preliminary Injunction filed
herewith, that there is urgent need to set this matter down for hearing at the
earliest practicable date as more fully explained in its Memorandum in Support
of Expedited Hearing, and that SPX has already served on Echlin's counsel by
hand-delivery copies of this motion, the foregoing memoranda, the Affidavit of
John W. Cornwell, a proposed Order to Show Cause, and SPX's Answer, Affirmative
Defenses and Counterclaims for Declaratory and Injunctive Relief.
WHEREFORE, for the foregoing reasons and those explained in its
accompanying papers, SPX respectfully requests that Echlin be enjoined:
(a) pursuant to sections 33-696, 33-697 and 33-699 of the Connecticut
Business Corporation Act and Section 3 of Echlin's own By-Laws, to call the
Special Meeting by April 24, 1998 (30 days after it received demands from
holders of over 35% of Echlin's shareholders), to be held within 60 days of
April 24, 1998; or in the alternative, an order of this Court pursuant to ss.
33- 697 of the Connecticut Business Corporation Act, ordering that a Special
Meeting be held on June 1, 1998; and
(b) pursuant to Section 14(a) of the Securities Exchange Act and Rule
14a-9 promulgated thereunder from making further misleading or false statements
concerning SPX's solicitation of demands for the Special Meeting and the
validity thereof.
Dated: April 13, 1998 DEFENDANT, SPX CORPORATION
By
----------------------------------------
Stefan R. Underhill (#ct00372)
Jonathan B. Tropp (#ct11295)
Day, Berry & Howard
One Canterbury Green
Stamford, Connecticut 06901-2047
(203) 977-7300
Alexander R. Sussman*
Audrey Samers*
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Its Attorneys
* Application for admission pro hac vice pending
CERTIFICATION
THIS IS TO CERTIFY that a copy of the foregoing was hand-delivered this
April 13, 1998, to Plaintiff's counsel, as follows: Ronald J. Cohen, Esq. and
David W. Schneider, Esq., Tyler, Cooper and Alcorn, LLP, 205 Church Street, New
Haven, CT 06510; and Dennis E. Glazer, Esq., Kenneth M. Bernstein, Esq., and
John J. Clarke, Jr., Esq., Davis Polk & Wardwell, 450 Lexington Avenue, New
York, NY 10017.
---------------------------------------------
Peter R. Jerdee
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT........................................................2
STATEMENT OF FACTS ..........................................................5
The Parties and the Proposed Business Combination...................5
SPX Seeks to Have Echlin Call a Special Meeting.....................6
SPX Solicits and Delivers Demands From Over 35% of Echlin
Stockholders...............................................8
Echlin's Entrenchment Tactics.......................................9
ARGUMENT....................................................................10
I. SPX IS ENTITLED TO A PRELIMINARY INJUNCTION..........................10
A. SPX and Echlin Shareholders Will Suffer
Irreparable Harm If Echlin Is Not Enjoined
To Call The Special Meeting........................................11
B. SPX Will Succeed On The Merits Because Echlin
Must Call A Special Meeting Under Connecticut Law..................12
1. Under the Corporation Act, Echlin Is Required By
April 24, 1998, To Call The Special Meeting....................12
2. Echlin's Refusal to Properly Count the Demands and Call a
Special Meeting is a Violation of the Fiduciary Duties
Owed to Shareholders by Echlin's Board and
Management ....................................................15
a. There Is No Compelling Justification for
Nullifying the Stockholders' Demands for a
Special Meeting...........................................16
b. Echlin's Refusal to Properly Count the Demands
and to Call A Special Meeting Constitutes
Impermissible Manipulation of the Corporate
Machinery.................................................17
c. Echlin's Actions Are Preclusive and
Unreasonable..............................................19
3. Echlin, Not SPX, Has Made False And Misleading
Statements In Its Proxy Materials And Press Releases...........19
C. The Balance of The Equities Tips Decidedly In Favor of SPX.........21
CONCLUSION..................................................................22
TABLE OF AUTHORITIES
CASES PAGE(S)
- ----- -------
Aprahamian v. HBO & Co.,
531 A.2d 1204 (Del. Ch. 1987)...........................11, 18
Blasius Industries, Inc. v. Atlas Corp.,
564 A.2d 651 (Del. Ch. 1988)..............................4,17
ER Holdings, Inc. v. Norton Co.,
735 F. Supp. 1094 (D. Mass. 1990)...........................21
Hilton Hotels Corp. v. ITT Corp.,
978 F. Supp. 1342 (D. Nev. 1997)............................18
Hyde Park Partners, L.P. v. Connolly,
839 F.2d 837 (1st Cir. 1988)............................11, 22
International Banknote Co., Inc. v. Muller,
713 F. Supp. 612 (S.D.N.Y. 1989)............................21
Martin-Marietta Corp. v. Bendix Corp.,
690 F.2d 558 (6th Cir. 1982)................................21
MMI Investments L.L.C. v. The Eastern Co.,
No. CV960134473, 1996 WL 715421
*(Conn. Super. Dec. 3, 1996)................................16
Norlin Corp. v. Rooney, Pace, Inc.,
744 F.2d 255 (2d Cir. 1984)..............................17-18
Peabody Holding Co. v. Costain Group PLC,
813 F. Supp. 1402 (2d Cir. 1993)............................11
Phillip v. The National Collegiate Athletic Ass'n.,
960 F. Supp. 1402 (D. Conn.),
remanded on other grounds,
118 F.3d 131 (2d Cir. 1997).................................10
Phillip v. The National Collegiate Athletic Ass'n.
118 F.3d 131 (2d Cir. 1997).................................10
Schnell v. Chris-Craft Industries, Inc.,
285 A.2d 437 (Del. 1971)....................................18
Shoen v. AMERCO,
885 F. Supp. 1332 (D. Nev. 1994)........................11, 18
Stroud v. Grace,
606 A.2d 75 (Del. 1992).....................................17
TSC Industries Inc., v. Northway, Inc.,
426 U.S. 438 (1976).........................................21
Unitrin, Inc. v. American General Corp.,
651 A.2d 1361 (Del. 1995)...................................19
Virginia Bankshares, Inc. v. Sandberg,
501 U.S. 1083 (1991)........................................21
STATUTES
Section 14(a) of the Securities Exchange Act of 1934.................21
Connecticut Business Corporation Act,
section 33-697.............................................6, 12, 22
section 33-696.............................................6, 12, 22
section 33-699.............................................6, 12, 22
section 33-946.....................................................6
section 33-708(c).................................................13
RULES
Securities Exchange Act Rule 14a-9, C.F.R. section 240.14a-9........20-21, 22
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
- -------------------------------------------x
ECHLIN INC., :
:
Plaintiff and Counterclaim-Defendant, :
:
- against - : Civil Action No. 98-CV-635 (GLG)
:
SPX CORPORATION, : April 13, 1998
:
Defendant and Counterclaimant. :
:
- -------------------------------------------x
MEMORANDUM IN SUPPORT OF SPX'S
MOTION FOR A PRELIMINARY INJUNCTION
Defendant and Counterclaimant SPX Corporation ("SPX") submits this
memorandum in support of its motion for immediate injunctive relief which is
necessary to prevent Echlin Inc. ("Echlin") management from denying Echlin
stockholders their right to have a special meeting (the "Special Meeting")
called as they have duly demanded. At the Special Meeting, Echlin stockholders
would have an opportunity to remove Echlin's entrenched Board in order to
facilitate SPX's proposal for a business combination with Echlin and SPX's
proposed premium exchange offer for Echlin common stock.
Specifically, SPX moves for:
(i) preliminary injunctive relief ordering Echlin, on or before April
24, 1998 (30 days after it received demands from holders of over 35% of its
outstanding stock) to call the Special Meeting, as mandated by sections 33-696,
33-697 and 33-699 of the Connecticut Business Corporation Act ("Corporation
Act") and Echlin's By-Laws; or in the alternative, an order of this Court
pursuant to section 33-697 of the Corporation Act, ordering that a Special
Meeting be held on June 1, 1998;
(ii) preliminary injunctive relief under Section 14(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule l4a-9 promulgated
thereunder enjoining Echlin from making false or misleading statements
concerning SPX's solicitation of demands and their validity.
PRELIMINARY STATEMENT
By this motion, SPX seeks to ensure that Echlin properly calls and
holds the Special Meeting, demanded by holders of over 50% of its outstanding
stock. Sufficient demands ("Demands") were delivered to Echlin on March 25, 1998
to meet the statutory requirement of 35%. But on April 6, 1998, Echlin falsely
advised SPX and the world that only 2% of the Demands were valid. It then
brought this frivolous lawsuit for publicity purposes.
No surprise. This was yet another, albeit even more extreme,
entrenchment tactic by Echlin management to prevent or delay consideration by
Echlin stockholders of a strategic business combination that SPX has proposed,
in which stockholders would receive a substantial premium for their shares. What
Echlin management did here was purposely fail to verify the validity of the
demands as of the February 17 record date delivered by SPX. That is the date for
counting the Demands and calculating whether, based on Echlin's total
outstanding shares, the Demands have been received from holders of more than the
statutory 35% of outstanding shares that mandates the calling of the Special
Meeting.
Echlin management performed the trick of making 95% of the Demands
disappear into thin air by a crass sleight of hand. In this case, the ruse was
simply to decline to ask Cede and Co. ("Cede") for the information to show who
owned the 95% of Echlin's outstanding stock held in "street name" (i.e. shares
held in Cede nominee name at brokerage firms and other financial institutions),
something Echlin could have done promptly after February 17, 1998, and something
only Echlin had the power to do. This trick magically reduced the count of
Demands from over 45% to less than 2% -- the result of refusing to count,
incredibly, 95% of the stock -- thereby disenfranchising all of its street name
holders who had made valid Demands. This callous trick was not only unfair and
unjustifiable, but amounted to either an intentional fraud on Echlin's
stockholders, a total abdication of management's fiduciary duties, or both.
Immediately after this lawsuit was brought to Cede's attention by SPX,
Cede delivered to Echlin an omnibus proxy showing the street name Demands to be
valid. SPX then urged Echlin to give them their proper effect, but Echlin
persisted in refusing to do so. That refusal can no longer charitably be viewed
as merely an inequitable, hypertechnical theory for delay, but must be seen for
what it is -- a self-interested attempt by management to defy the will and
frustrate the rights of Echlin's own stockholders.
The Complaint also recites management's other purported excuse for not
having counted the Demands, an excuse equally ridiculous as only having counted
Demands from 2% of Echlin's stock, when over 45% were actually delivered.
Management pretends that it could not make a valid count of shares of record on
February 17, 1998, because the mailings from SPX and Echlin, which went to the
same street name stockholders, went to those of record on February 18. That,
Echlin insists, was one day later than the February 17, 1998 record date. No
doubt. But Echlin never even bothered to find out that, not surprisingly, over
99% of the stock was of record for the same street name holders on February 18
as the day before.
Thus, the February 18 mailing was a perfectly appropriate vehicle for
solicitation by both sides for a February 17 record date. To be precise, the
one-day difference, using a February 18 mailing list means, at worst, that when
SPX first delivered Demands from stockholders owning 45.8%, which has since
grown to over 50%, valid Demands were made from perhaps as few as 45.5% of the
shares of record on February 17. Thus, while only as many as 0.3% might be
discounted if shares first of record on February 18 were the subject of Demands,
this 0.3% clearly can make no difference -- as it leaves 45.5% making valid
Demands, when the required percentage is only 35%.
Echlin management's charade of refusing to acknowledge Demands from a
majority of its own stockholders is only the latest, but most extreme and
outrageous example of Echlin's entrenchment campaign. From the outset, while SPX
has expressed its preference for a negotiated transaction, Echlin management has
rebuffed SPX's overtures and tried to put roadblocks in the way of its
stockholders considering SPX's proposal, despite the offer's premium price and
other attractions to Echlin's shareholders. First, Echlin tried to lobby the
Connecticut General Assembly to enact unprecedented antitakeover legislation to
prevent Echlin's shareholders from considering SPX's proposal, and failed
miserably. Then Echlin tried to solicit revocations of demands, and was
singularly unsuccessful. Thus, it has now resorted to the even more desperate
measure of refusing to perform its absolute legal obligation of properly and
timely calling the Special Meeting duly demanded by its stockholders.
Echlin management's lawless conduct grossly violates their fiduciary
duties. In addition, it defies basic principles of stockholder democracy and
illegally interferes with the applicable rules prescribed in Connecticut law,
Echlin's By-Laws or Echlin's law of corporate governance. Over 35% of Echlin
shareholders have demanded the Special Meeting, yet Echlin has invented
arguments out of whole cloth in order to justify a refusal to carry out its
lawful duty to call the Special Meeting.
There can be no doubt that, as one court put it, directors are "agents
of the shareholders," and not "Platonic masters." Blasius Indus. Inc. v. Atlas
Corp., 564 A.2d 651, 663 (Del. Ch. 1988). Echlin has, in the heat of a takeover
contest, lost sight of this basic precept, as its management has proven to be
fearful of the judgment of the constituents whom they purport to serve.
Fundamental principles of corporate democracy require that, on or before April
24, 1998, Echlin should call the Special Meeting, as required by Connecticut
law, or as that law authorizes, and given Echlin's statement that "Echlin does
not intend to call [the] Special Meeting," this Court should order the Special
Meeting be held on June 1, 1998.
STATEMENT OF FACTS
The Parties and the Proposed Business Combination
SPX is a Delaware corporation with its principal place of business in
Muskegon, Michigan. SPX is a global provider of vehicle services and components.
Echlin is a Connecticut corporation with its principal place of business in
Branford, Connecticut. Echlin is engaged in the replacement automotive parts
business. Shares of SPX and Echlin are traded on the New York Stock Exchange and
other exchanges. As of February 17, 1998, Echlin had 63,248,939 shares of common
stock outstanding. Affidavit of John W. Cornwell, sworn to on April 13, 1998
("Cornwell Aff."), paragraph 11; Complaint paragraph 12.
On February 17, 1998, SPX sent a letter (Id., Ex. 1) to Echlin's Board
of Directors proposing a strategic business combination in which Echlin
shareholders would receive SPX stock plus cash together having a value of $48
per Echlin share (based on SPX stock's $75 1/16 closing price the preceding
trading day) (the "Consideration"). The $48 per share consolidation represented
more than a 23% premium over Echlin's latest closing price and 32% over its last
30-day average closing price. Id., Ex. 1 at 1.
Following confirmation of the Proposed Business Combination, Echlin's
Shareholders (excluding SPX) would own 70% of the equity of the combined
company.(1)
SPX Seeks to Have Echlin Call a Special Meeting
As the February 17 letter explained, SPX believed that, because, among
other things, Echlin had a poison pill, the Special Meeting would be required to
vote on removal of the Echlin Board, if the Board continued to stand in the way
of stockholders having an opportunity to accept SPX's exchange offer or to vote
on the proposed merger. Id., Ex. I at 1. Section 33-696(a) of the Corporation
Act obligates Echlin to call and hold a special meeting of shareholders upon the
demand of the holders of at least 35% of the corporation's outstanding shares
entitled to vote at such meeting.
On February 17, 1998, SPX also sent Echlin a demand with respect to
Echlin stock which SPX owned, demanding that the Special Meeting be called and
held. Id., paragraph 18. By delivering the demand, pursuant to Section 33-696(b)
of the Corporation Act, SPX set the record date of February 17, 1998 for
determining which shareholders were entitled to demand the Special Meeting and
for calculating whether, based on Echlin's total outstanding shares on that
date, the Demands represented at least the required 35% of Echlin's outstanding
stock. Id., paragraph 10.
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(1) The proposed business combination would be accomplished by
means of (i) an exchange offer in which SPX is offering to pay the
Consideration in exchange for each share of Echlin Common Stock validly
tendered, and not withdrawn and (ii) a subsequent merger of Echlin into a
subsidiary of SPX, in which each then outstanding share not purchased in
the exchange offer would be converted into the right to receive the
Consideration. In its February 17 letter, SPX also enclosed a draft
negotiated merger agreement which it was prepared to sign in the event the
Company agreed to enter into a merger. That merger agreement provided for
a single step merger with the same consideration but allowing Echlin's
shareholders to elect cash or stock, subject to proration in a partially
tax-free transaction.
On February 17, 1998, SPX, as an Echlin shareholder, requested access
to Echlin's record of shareholders, pursuant to Section 33-946 of the
Corporation Act. On February 27, 1998, SPX, through its designated agent, made
inspection and obtained from Echlin a copy of the list of registered
shareholders of Echlin as of the record date of February 17, 1998. The list of
registered holders revealed that, as of the record date, Echlin had 63,248,939
shares of common stock outstanding. The list also revealed that, as of the
record date, 59,973,687 shares (or almost 95% of the outstanding shares) were
registered in the name of Cede. Id., paragraph 11.
As noted above, Cede serves as the record holder for shares owned by
most brokerage houses, banks and other financial institutions ("Participants"),
most of whom are themselves not beneficial owners of the shares. Id., paragraph
12. The shares the Participants hold are owned by their customers, colloquially
referred to as "street name holders." Id., 116. Thus, for example, if "John
Smith" owns his shares through an account at Merrill Lynch, "John Smith" would
be the street name holder.
Upon request by any issuer, Cede will provide a participant listing
(the "Participant Listing") which indicates how many shares of the issuer Cede
holds on behalf of each of its Participants as of a particular date. Id.,
paragraph 13. SPX has requested from Echlin and Echlin has refused to produce to
SPX the Participant Listing as part of Echlin's shareholder records.
In connection with solicitations with record dates (such as SPX's
solicitation of demands for the Special Meeting), Cede will also provide, at the
issuer's request, an omnibus proxy with the Participant Listing indicating the
number of shares held by each Participant as of the record date, enabling the
issuer to verify the votes cast or consents or demands executed by beneficial
owners through the Participants, since the issuer's stock ownership records
maintained by its transfer agent only reflect record owners. Id., paragraph 14.
Echlin's records do not reflect who actually owns the 94.8% of its outstanding
stock held in Cede nominee name. Id.
SPX Solicits and Delivers Demands From Over 35% of Echlin Stockholders
As noted, 95% of Echlin's outstanding stock is held in the record name
of Cede. It is, however, the street name holders who make the decision (instruct
the brokerage firms or other institutions who hold the shares on their behalf)
whether and how to vote, or consent, or make a demand, or take any other action
with respect to matters submitted to stockholders of a company for
consideration. That stock is beneficially owned by stockholders who hold the
stock through brokerage firms and other institutions and are commonly referred
to as "street name holders." In connection with the forwarding of solicitation
materials to and receipt of instructions from street name holders, most banks,
brokerage firms and other institutions retain ADP Proxy Services ("ADP") and,
therefore, to communicate with Echlin stockholders, both SPX and Echlin were
dependent on ADP. See id., paragraphs 17-20.
For obvious confidentiality reasons, it was only after SPX publicly
announced its proposal and its premium exchange offer on February 17, 1998, that
D. F. King, its proxy solicitors, was first able to contact ADP to begin the
demand solicitation process to street name holders. ADP was therefore first able
to compile a list of Echlin' street name holders as of the next day, February
18, 1998. See id., paragraphs 21-25.
On March 6, 1998, SPX filed its definitive proxy materials with the SEC
and initiated its solicitation through ADP, by having ADP mail to Echlin's
street name holders those proxy materials, SPX's gold demand card, and a return
envelope. Echlin soon thereafter undertook a solicitation of its stockholders
also through ADP which mailed Echlin's revocation proxy materials to the same
Echlin street name holders as received SPX's solicitation. See id., paragraphs
31-33.
On March 25, 1998, SPX delivered Demands for the call of the Special
Meeting to Echlin on behalf of shareholders holding 45.8% of Echlin's
outstanding shares calculated as of the record date. Id., paragraph 37. Demands
representing over 25,000,000 shares and well over 35% of Echlin's outstanding
shares came from street name holders who returned SPX's gold demand card to ADP
and who did not return to ADP, Echlin's revocation card. See id., paragraph 36
and Ex. 5.
Echlin's Entrenchment Tactics
Echlin has misleadingly represented to its stockholders that its Board
of Directors is considering whether the proposed business combination is in the
best interests of Echlin shareholders. However, after almost two months of
supposedly considering SPX's proposal, Echlin's Board has failed to inform
stockholders of any of its deliberations or conclusions and has not provided any
response to SPX's proposal. Instead, Echlin's Board has permitted Echlin's
management to pursue a variety of entrenchment tactics. As noted above,
management undertook a revocation solicitation to persuade stockholders not to
call the Special Meeting.
It is a matter of public record, and shall be shown at the preliminary
injunction hearing, that Echlin management pursued another entrenchment tactic
by seeking to have the Connecticut General Assembly deprive Echlin shareholders
of their entitlement to call the Special Meeting through the proposed enactment
of unprecedented statutory laws specifically designed to protect Echlin's
management at shareholder expense. In addition to being draconian, the
legislative proposals, had they been constitutional, would have operated in an
unfairly retroactive manner to the severe prejudice of SPX and Echlin
stockholders generally. However, on March 25, 1998, the Connecticut legislature
overwhelmingly rejected the proposed legislation.
On that same day, SPX delivered the requisite Demands for the Special
Meeting. When it found both its revocation and legislative efforts were
unsuccessful, Echlin resorted to a new attempt to disenfranchise its
shareholders by refusing to properly count the Demands delivered to it by over
35% of its shareholders. On April 6, 1998, instead of calling the Special
Meeting, Echlin delivered to SPX a letter and issued a press release asserting
that it was not required to call the Special Meeting because the Demands were
invalid in that they lacked either the proper record date or the proper voting
authority. Id., paragraph 42, Exs. 7-8. On that same day, Echlin filed this
lawsuit.
On April 8, 1998, after being advised by SPX of the litigation, Cede
sent an omnibus proxy with the Participants Listing for the parties' respective
demand and revocation solicitations to Echlin, Echlin still having failed to
itself request such a proxy from Cede. Id., paragraph 46, Ex. 10. As discussed
in SPX's Memorandum in Support of Expedited Hearing, submitted herewith, since
April 7, and specifically at a meeting on Thursday, April 9, 1998, after the
Cede omnibus proxy had issued, counsel for SPX attempted to agree with Echlin
counsel upon a proposed prompt hearing date and briefing schedule for the
parties' respective preliminary injunction motions, but no agreement could be
reached.
ARGUMENT
I. SPX IS ENTITLED TO A PRELIMINARY INJUNCTION
A preliminary injunction should be granted upon a showing of
irreparable harm and either a likelihood of success on the merits or
sufficiently serious questions going to the merits to make them a fair ground
for litigation. See Phillip v. The National Collegiate Athletic Ass'n, 960 F.
Supp. 552, 553-554 (D. Conn.), remanded on other grounds, 118 F.3d 131 (2d Cir.
1997). In addition, the balance of hardships must tip decidedly in favor of the
party requesting the preliminary relief. Id. As set forth below, each of the
foregoing requirements is amply satisfied here. Moreover, even if SPX were
required to show that it is clearly entitled to relief to prevent extreme or
serious damage, that standard is also satisfied here. See Phillip v. The
National Collegiate Athletic Ass'n 118 F.3d 131, 133 (2d Cir. 1997).
A. SPX and Echlin Shareholders Will Suffer
Irreparable Harm If Echlin Is Not Enjoined
To Call The Special Meeting
If Echlin is not enjoined, SPX and the other shareholders of Echlin
will suffer irreparable harm from illegal interference with, and delay of, the
Special Meeting at which Echlin stockholders would be able to exercise their
right to vote to remove Echlin's directors in order to facilitate SPX's proposal
and to allow Echlin stockholders to consider SPX's proposal.
Echlin's illegal refusal to abide by the Demands that require the
calling of the Special Meeting will impede SPX's proposal, causing irreparable
harm, and, therefore, preliminary injunctive relief is both appropriate and
necessary. See Hyde Park Partners, L.P. v. Connelly, 839 F.2d 837 (1st Cir.
1988) (holding that an offeror in any takeover attempt suffers irreparable harm
where measure effectively kills takeover bid or makes it less likely to
succeed); Peabody Holding Co. v. Costain Group PLC, 813 F. Supp. 1402, 1421
(E.D. Mo. 1993) ("Many authorities acknowledge the inherent uniqueness of a
company sought to be acquired, and the irreparable harm suffered by the party
acquiring the company by the loss of the opportunity to own or control that
business").
Furthermore, "[t]he denial or frustration of the right of shareholders
to vote their shares or obtain representation on the board of directors amounts
to an irreparable injury." Shoen v. AMERCO, 885 F. Supp. 1332, 1352 (D. Nev.
1994) (citations omitted). Thus, interference with a vote of Echlin shareholders
by failing to call the Special Meeting itself causes irreparable injury. See,
e.g., Aprahamian v. HBO & Co., 531 A.2d 1204, 1208 (Del. Ch. 1987).
B. SPX Will Succeed On The Merits Because Echlin Must
Call A Special Meeting Under Connecticut Law
1. Under the Corporation Act, Echlin Is Required
By April 24, 1998, To Call The Special Meeting
Section 33-696(a) of the Corporation Act obligates Echlin to call
and hold the Special Meeting having received demands from holders of well
over 35% of the shares entitled to vote at such meeting.(2) In addition,
Section 33-697 of the Corporation Act provides that a court may summarily
order the Special Meeting if notice of the Special Meeting is not given by
Echlin within 30 days after the date on which the demands of the holders of
35% of the shares entitled to vote at the Special Meeting have been
delivered to Echlin.(3)
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(2) Section 33-696 of the Corporation Act provides in pertinent part
that:
(a) A corporation shall hold a special meeting of shareholders: (1) On
call of its board of directors . . . ; or (2) if the holders of at
least ten per cent of all the votes entitled to be cast on any issue
proposed to be considered at the proposed special meeting sign, date
and deliver to the corporation's secretary one or more written demands
for the meeting describing the purpose or purposes for which it is to
be held, except that if the corporation has a class of voting stock
registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended from time to time, . . . the corporation need not hold
such meeting except upon demand of the holders of not less than
thirty-five percent of such votes. (Emphasis added).
(3) Section 33 -697 of the Corporation provides:
(a) The superior court for the judicial district where a corporation's
principal office or, if none in this state, its registered office is
located may summarily order a meeting to be held: (1) On application of
any shareholder of the corporation entitled to participate in an annual
meeting if an annual meeting was not held within the earlier of six
months after the end of the corporation's fiscal year or fifteen months
after its last annual meeting; or (2) on application of a shareholder
who signed a demand for a special meeting valid under section 33-696,
if: (A) Notice of the special meeting was not given within thirty days
after the date the demand was delivered to the corporation's secretary;
or (B) the special meeting was not held in accordance with the notice.
(b) The court may fix the time and place of the meeting, determine the
shares entitled to participate in the meeting, specify a record date
for determining shareholders entitled to notice of and to vote at the
meeting, prescribe the form and content of the meeting notice, fix the
quorum required for specific matters to be considered at the meeting,
or direct that the votes represented at the meeting constitute a quorum
for action on those matters, and enter other orders necessary to
accomplish the purpose or purposes of the meeting.
On March 25, 1998, SPX delivered to Echlin demands of holders of
more than 45% of Echlin's outstanding common stock entitled to vote at a
special meeting, calculated based on shares outstanding on the February 17,
1998 record date. Cornwell Aff., paragraph 41. Simply put, over 35% of
Echlin shareholders demanded the Special Meeting on March 25, 1998. Thus,
the statutory threshold was met and Echlin has no reasonable basis for
refusing to recognize these valid Demands and its statutory duty -- also
set forth in its own By-Laws -- to call the Special Meeting.
Echlin's allegations that the Demands are not valid because there
was no proper voting authority are meritless.(4) Section 33-708(c) of the
Corporation Act provides that:
The corporation is entitled to reject a vote, consent, waiver
or proxy appointment if the secretary or other officer or
agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature
on it or about the signatory's authority to sign for the
shareholder.
(Emphasis added.) Here, Echlin did not act in good faith as it knew full well
(1) that 95% of Echlin's shares are held by Cede, (2) that both Echlin and SPX
do not know the identity of these shareholders, and (3) that the identities of
those holders can be confirmed simply by requesting a Participants Listing from
Cede. Cornwall Aff., paragraphs 11,13-15, 20, 48. Echlin knew that, in order to
verify the Demands, all it had to do was request Cede to provide a Participant
Listing or omnibus proxy to Echlin, a request that is routinely and invariably
made by issuers and satisfied by Cede in the ordinary course of business. Id.,
paragraphs 13-14, 48. Echlin cannot, as a fiduciary of its shareholders, be
permitted to fail to properly count Demands of its real stockholders.
Deliberately choosing not to obtain the readily available Cede omnibus proxy and
Participant Listing from Cede is neither reasonable nor good faith. Rather,
Echlin's conduct seeks to destroy both its stockholders' rights and the
processes of corporate democracy.
Furthermore, SPX did all it possibly could to have Cede issue the
omnibus proxy and Participant Listing to Echlin. See Cornwell Aff.,
paragraphs 43-45. If documentation or information from Cede was required
to count the Demands, it was totally within Echlin's power to obtain it,
while it was unavailable to SPX. Indeed, Echlin routinely obtains a Cede
omnibus proxy in connection with its annual meetings. Id., paragraph 45.
Moreover, after Cede learned from SPX that Echlin was using the absence of
the omnibus proxy and Participants List to challenge the validity of the
Demands for the Special Meeting, Cede delivered an omnibus proxy to Echlin.
Cornwell Aff., paragraphs 46-47. However, Cede would still not deliver
even a copy of the omnibus proxy to SPX. Id., paragraph 47.
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(4) Echlin's reliance on such technicalities is even more preposterous
because it is interfering with the results of a demand solicitation, not the
results of a solicitation of proxies or consents that would have a substantive
effect and result in the election of directors or the effectuation of some
material transaction. Here, the result of the successful demand solicitation for
over 35%, indeed, a majority of Echlin's outstanding stock, is that Echlin
management must call and hold the Special Meeting to permit Echlin stockholders
to exercise their voting rights.
The fact is that Demands were delivered on March 25, 1998 from holders
on February 17, 1998 of over 35% of Echlin's stock, and ultimately over 50%.
There was no good faith nor reasonable basis for questioning the validity of any
of those Demands. The mere absence of Cede's Participant Listing, available to
Echlin for the asking, due to Echlin management's own intentional dereliction of
duty, clearly cannot invalidate the effectiveness of those Demands on the day
they were delivered.
Echlin management's second reason for rejecting their stockholders'
call for the Special Meeting is just as silly and totally immaterial. They
question the use of a mailing list of shareholders of record on February 18,
1998, the day after the February 17 record date. However, the mail was neutrally
prepared and implemented for both parties by ADP, as was ADP's receipt of the
Demands and revocations. Cornwell Aff. paragraphs 20-25, 30-36.
Moreover, the one day difference in the mailing list made virtually no
difference to the validity of the Demands delivered on March 25, 1998. At most,
Demands from fewer than 200,000 street name shares, constituting little more
than 0.3% of Echlin's stock, might have been of record on February 18, but not
the day before. The other 99.7% were of the same record ownership on both days.
Thus, unquestionably valid Demands were delivered from over 25,000,000 street
name shares and a total of 45.5% of Echlin's common stock on March 25, 1998.
Therefore, since 45.5% or more demands were valid and as few as 35% required
Echlin to call the Special Meeting, there clearly is no real issue. See Cornwell
Aff., paragraphs 24-30, 36-41.
Moreover, the solicitation process of street name holders was fair.
SPX's demand cards and Echlin's revocation cards went almost exclusively to
holders who owned Echlin stock prior to the February 17 announcement of the
proposed business combination and exchange offer. See id., paragraphs 26-28. On
behalf of each side, ADP sent their respective solicitation materials to the
same street name holders, the list of whom was gathered confidentially by ADP
from its member firms, and those holders sent back SPX's gold demand cards, by
March 25 representing well over 35% of Echlin's outstanding shares, and by now
over 50%. Id., paragraphs 31-37.
2. Echlin's Refusal to Properly Count the Demands
and Call a Special Meeting is a Violation of the
Fiduciary Duties Owed to Shareholders by Echlin's
Board and Management
The refusal of Echlin's management and board to ask for the Cede
omnibus proxy and their use of that refusal to justify their failure to properly
count the Demands and call the Special Meeting breaches their fiduciary duties
because it unjustifiably frustrates stockholder voting rights. The sole purpose
of such refusal is to entrench incumbent management through manipulation of the
corporate machinery; and it is a draconian and preclusive response to SPX's
proposed premium offer for Echlin shares. Further, it impedes and attempts to
delay the Special Meeting, which, far from posing a threat to Echlin
stockholders, affirmatively will afford stockholders an opportunity to exercise
their voting rights.
a. There Is No Compelling Justification for
Nullifying the Stockholders' Demands for a
Special Meeting
Corporate directors may not frustrate stockholder voting rights absent
some compelling justification. Indeed, courts recognize "the central importance
of the franchise to the scheme of corporate governance" and guard against
takeover defenses that infringe upon that franchise. Blasius Indus. v. Atlas
Corp., 564 A.2d 651, 659 (Del. Ch. 1988).(5) In Blasius, the Delaware Chancery
Court expressly held that board action that impeded the shareholder's franchise
right was subject to a presumption of invalidity and required the board to prove
a "compelling justification" to sustain it. The court further noted:
[I]t is clear that [the shareholder vote for directors] is
critical to the theory that legitimates the exercise of power
by some (directors and officers) over vast aggregations of
property that they do not own. Thus, when viewed from a broad,
institutional perspective, it can be seen that matters
involving the integrity of the shareholder voting process
involve consideration not present in any other context in
which directors exercise delegated power.
Id. at 659. The court concluded that the "theory of our corporation law
confers power upon directors as the agents of the shareholders; it does not
create Platonic masters." Id. at 663.
In Stroud v. Grace, 606 A.2d 75 (Del. Supr. 1992), the Delaware Supreme
Court explained that the Blasius "compelling justification" rule applied:
where boards of directors deliberately employed various legal
strategies either to frustrate or completely disenfranchise a
shareholder vote. As Blasius recognized, in those
circumstances, board action was intended to thwart free
exercise of the franchise. There can be no dispute that such
conduct violates Delaware law.
Id. at 91.
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(5) See MMI Investments L.L.C. v. The Eastern Co., No.
CV960134473, 1996 WL 715421, *5 (Conn. Super. Dec. 3, 1996) ("Delaware
cases . . . are appropriate guides to interpretation of the Connecticut
statute").
Shareholder rights are as important in Connecticut as in Delaware -- a
fact recently confirmed when the legislature resoundingly rejected Echlin's
attempt to interfere with the election process and disenfranchise its thousands
of stockholders through proposed self-interested legislation. Thus, Echlin's
refusal to properly count the Demands and to call the Special Meeting clearly
fails the Blasius test because it obstructs a timely shareholder referendum on
the proposed business combination, and as demonstrated above, Echlin's board
does not, and cannot, offer a compelling (or even plausible) justification for
such obstruction.
b. Echlin's Refusal to Properly Count the
Demands and to Call A Special Meeting
Constitutes Impermissible Manipulation of
the Corporate Machinery
Courts have consistently enjoined board activity which was taken for
the primary purpose of impairing or impeding the effective exercise of the
corporate franchise through manipulation of the corporate machinery. See, e.g.,
Norlin Corp. v. Rooney, Pace Inc., 744 F.2d 255, 265 (2d Cir. 1984) (enjoining
board from voting shares held by corporation's wholly-owed subsidiary and
newly-created employee stock option plan so as to solidify management's control
of company); Hilton Hotels Corp. v. ITT Corp., 978 F. Supp. 1342, 1346 (D. Nev.
1997) (court enjoined company where board's action "violate[d] the power
relationship between [the company's] board and [its] shareholders by
impermissibly infringing on the shareholders' right to vote on members of the
board of directors"); Shoen, 885 F. Supp. at 1344 (enjoining board from
advancing annual meeting date so that meeting could be conducted before
arbitration decision was issued which might render incumbent management unable
to control dissident shareholder shares for voting purposes); Aprahamian, 531
A.2d at 1208-09 (enjoining board's decision to postpone annual meeting so as to
invalidate proxies submitted on behalf of opposing nominees).
In the seminal case of Schnell v. Chris-Craft Indus. Inc., 285 A.2d 437
(Del. Supr. 1971), the incumbent board amended the Company's by-laws in order to
advance forward the date of the annual meeting and as a result reduce the amount
of time an insurgent group had to wage a proxy battle. The court held that
actions by management to manipulate corporate machinery "for the purpose of
obstructing the legitimate efforts of dissident stockholders in the exercise of
their rights to undertake a proxy contest against management were 'contrary to
established principles of corporate democracy' and therefore invalid." Id. at
439.
Echlin's refusal to call the Special Meeting even after over 50% of its
own shareholders have demanded it is an even more egregious misuse of corporate
power to obstruct stockholder voting rights. Connecticut's statutory framework,
under which Echlin management "shall" call the Special Meeting once the
requisite Demands were delivered, both acknowledges and empowers those voting
rights. They must be protected from unjustified interference from entrenched
management taking advantage of a blatant manipulation of the corporate
machinery.
c. Echlin's Actions Are Preclusive and
Unreasonable
In Unitrin, Inc. v. American General Corp., 651 A.2d 1361, 1379 (Del.
Supr. 1995), the Supreme Court of Delaware stated that it was "mindful of the
special import of protecting the shareholder's franchise within Unocal's
requirement that a defensive response be reasonable and proportionate." Although
the court found that the repurchase program at issue in Unitrin did not impair
the shareholders' franchise because "a proxy contest remained a viable (if more
problematic) alternative" for the potential acquirer, the court remanded the
case to the Chancery Court to "determine whether Unitrin's Repurchase Program
would only inhibit [the potential acquirer's] ability to wage a proxy fight and
'institute a merger or whether it was, in fact, preclusive because [the
potential acquirer's] success would either be mathematically impossible or
realistically unattainable." Id. at 1388-89.
Echlin's interference with its stockholders' right to call a Special
Meeting would violate the Unitrin proportionality test because Echlin's actions
deprive stockholders of the opportunity to vote at the Special Meeting that they
have duly demanded. Moreover, SPX's proposal and the proposed exchange offer are
non-coercive, because they both provide a premium for all of Echlin's
outstanding shares and will be the subject of the contest at the Special
Meeting. Elimination of Echlin shareholders' right to call the Special Meeting
and consider SPX's shareholder proposals intended to facilitate the proposed
business combination is preclusive and not a reasonable response to the threat,
if any, posed by SPXs proposal.
3. Echlin, Not SPX, Has Made False And Misleading
Statements In Its Proxy Materials And Press Releases
Nothing could be more misleading or prejudicial than the baseless and
scurrilous charges against SPX that Echlin disseminated in a press release on
April 6, 1998 (Cornwell Aff. Ex. 8), contending that SPX had delivered Demands
from holders of only 2% of Echlin's stock when, in fact, at that point it had
delivered Demands from a majority of the stockholders. One need only compare the
facts adduced in the Statement of Facts above with the outlandish accusations
and false denial of the demand solicitation results to conclude that SPX has
been unfairly prejudiced in connection with the ongoing control contest that is
leading up to the Special Meeting. At the preliminary injunction hearing, SPX
will demonstrate that the press release was a blatant violation of the SEC proxy
rules and that corrective disclosure is necessary and appropriate to redress the
harm it has caused.
The securities laws of the United States were enacted to promote
confidence in the securities markets by requiring complete and accurate
disclosure of material information to the investing public, and to cleanse the
securities markets of fraudulent, deceptive and manipulative acts and practices.
Rule 14a-9 states:
No solicitation subject to this regulation shall be made by
means of any proxy statement, form of proxy, notice of meeting
or other communication, written or oral, containing any
statement which, at the time and in the light of the
circumstances under which it is made, is false or misleading
with respect to any material fact or which omits to state
material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the
solicitation of a proxy for the same meeting or subject matter
which has become false or misleading.
Rule 14a-9(a), 17 C.F.R. section 240.14a-9(a) (emphasis added). A fact
is "material" if there is "a substantial likelihood that the disclosure of the
omitted fact would have been viewed by the reasonable investor as having
significantly altered the total mix of information available." TSC Indus., Inc.
v. Northway, Inc., 426 U.S. 438, 449 (1976); see also Virginia Bankshares, Inc.
v. Sandberg, 501 U.S. 1083, 1090 (1991).
Echlin's press release was so materially misleading and prejudicial as
to more than satisfy this standard. There is certainly a "substantial
likelihood" that an Echlin shareholder would consider this misstatement material
in deciding how to vote. TSC Indus., Inc., at 449. And, without redress of
Echlin's proxy rule violations, SPX will suffer irreparable harm. See, e.g.,
Martin-Marietta Corp. v. Bendix Corp., 690 F.2d 558, 568 (6th Cir. 1982)
(holding that denial of rights under federal securities law and resulting loss
of opportunity to acquire another company constituted irreparable harm);
International Banknote Co., Inc. v. Muller, 713 F. Supp. 612, 623 (S.D.N.Y.,
1989) ("management subjects shareholders to irreparable harm by unnecessarily
frustrating them in their attempt to obtain representation on the board [of
trustees]."); ER Holdings, Inc. v. Norton Co., 735 F. Supp. 1094, 1102 (D. Mass.
1990) (observing that "delay resulting in [shareholder] disenfranchisement may
constitute irreparable harm").
C. The Balance of The Equities Tips Decidedly
In Favor of SPX
In light of the foregoing, the balance of the equities favors immediate
resolution of the instant dispute. There is simply no prejudice or harm to
Echlin if the Special Meeting is held. On the other hand, SPX and all Echlin
stockholders will be irreparably harmed if this Court defers resolution because
without the requested relief, the stockholders' rights to vote on SPX's
Shareholder's proposals will be destroyed. Preliminary relief is appropriate
where, as here, one party risks irreparable harm unless the court intervenes at
this juncture and the other party has absolutely nothing to lose. Hyde Park
Partners, L.P. v. Connolly, 839 F.2d 837 (1st Cir. 1988).
CONCLUSION
For all of the foregoing reasons, SPX respectfully requests that this
Court enter:
(1) preliminary injunctive relief ordering Echlin, on or before April
24, 1998 (30 days after it received demands from holders of over 35% of its
outstanding stock) to call the Special Meeting, as mandated by sections 33-696,
33-697 and 33-699 of the Connecticut Business Corporation Act ("Corporation
Act") and Echlin's By-Laws; or in the alternative, an order of this Court
pursuant to section 33-697 of the Corporation Act, ordering Echlin to hold the
Special Meeting on June 1, 1998; and
(ii) preliminary injunctive relief under Section 14(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-9 promulgated
thereunder enjoining Echlin from making false or misleading statements
concerning SPX's solicitation of demands and their validity.
Dated: April 13, 1998
SPX CORPORATION
/s/ Stefan R. Underhill
-----------------------------------
Stefan R. Underhill (#ct 00372)
Jonathan B. Tropp (#ct 1295)
DAY, BERRY & HOWARD
One Canterbury Green
Stamford, Connecticut 06901-2047
(203) 977-7300
- and -
Alexander R. Sussman*
Audrey Samers*
FRIED, FRANK, HARRIS,
SHRIVER & JACOBSON
One New York Plaza
New York, New York 10004-1980
(212) 859-8000
Attorneys for SPX Corporation
======================================================================
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DANA CORPORATION
ECHO ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF DANA CORPORATION
AND
ECHLIN INC.
MAY 3, 1998
======================================================================
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS.................................. 1
Section 1.1. Certain Definitions.................................. 1
ARTICLE II THE MERGER; EFFECTS OF THE MERGER.................... 6
Section 2.1. The Merger........................................... 6
Section 2.2. Effective Date and Effective Time.................... 7
Section 2.3. Directors............................................ 7
Section 2.4. Officers............................................. 8
Section 2.5. Tax Consequences..................................... 8
Section 2.6. Accounting Treatment................................. 8
ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES............ 8
Section 3.1. Merger Consideration................................. 8
Section 3.2. Rights as Stockholders; Stock Transfers.............. 9
Section 3.3. Fractional Shares.................................... 9
Section 3.4. Exchange Procedures.................................. 9
Section 3.5. Anti-Dilution Provisions............................. 11
Section 3.6. Treasury Shares...................................... 11
Section 3.7. Options.............................................. 11
Section 3.8. Performance Units.................................... 12
ARTICLE IV ACTIONS PENDING MERGER............................... 12
Section 4.1. Ordinary Course...................................... 12
Section 4.2. Capital Stock........................................ 12
Section 4.3. Dividends, Etc....................................... 13
Section 4.4. Compensation; Employment Agreements; Etc............. 13
Section 4.5. Benefit Plans........................................ 13
Section 4.6. Acquisitions and Dispositions........................ 14
Section 4.7. Amendments........................................... 14
Section 4.8. Accounting Methods................................... 14
Section 4.9. Adverse Actions...................................... 14
Section 4.10. Agreements........................................... 14
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Page
ARTICLE V REPRESENTATIONS AND WARRANTIES....................... 15
Section 5.1. Disclosure Schedules................................. 15
Section 5.2. Standard............................................. 15
Section 5.3. Representations and Warranties....................... 15
ARTICLE VI COVENANTS............................................ 24
Section 6.1. Best Efforts......................................... 24
Section 6.2. Stockholder Approvals................................ 24
Section 6.3. Registration Statement............................... 26
Section 6.4. Press Releases....................................... 27
Section 6.5. Access; Information.................................. 27
Section 6.6. Acquisition Proposals................................ 28
Section 6.7. Affiliate Agreements................................. 28
Section 6.8. Takeover Laws........................................ 29
Section 6.9. No Rights Triggered.................................. 29
Section 6.10. Shares Listed........................................ 29
Section 6.11. Regulatory Applications.............................. 29
Section 6.12. Indemnification; Directors' and Officers' Insurance.. 30
Section 6.13. Benefits Plans....................................... 31
Section 6.14. Notification of Certain Matters...................... 31
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER............. 32
Section 7.1. Shareholder Vote..................................... 32
Section 7.2. Regulatory Approvals................................. 32
Section 7.3. No Injunction, Etc................................... 32
Section 7.4. Representations, Warranties and Covenants of Dana.... 32
Section 7.5. Representations, Warranties and Covenants of
the Company....................................... 33
Section 7.6. Effective Registration Statement..................... 33
Section 7.7. Tax Opinion.......................................... 33
Section 7.8. Exchange Listing..................................... 34
Section 7.9. Company Rights Agreement............................. 34
Section 7.10. Accounting Treatment................................. 34
ARTICLE VIII TERMINATION.......................................... 34
Section 8.1. Termination.......................................... 34
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Page
Section 8.2. Effect of Termination and Abandonment................ 36
Section 8.3. Break-up Expenses.................................... 36
ARTICLE IX MISCELLANEOUS........................................ 37
Section 9.1. Survival............................................. 37
Section 9.2. Waiver; Amendment.................................... 37
Section 9.3. Counterparts......................................... 38
Section 9.4. Governing Law........................................ 38
Section 9.5. Expenses............................................. 38
Section 9.6. Confidentiality...................................... 38
Section 9.7. Notices.............................................. 39
Section 9.8. Understanding; No Third Party Beneficiaries.......... 39
Section 9.9. Interpretation; Absence of Presumption............... 40
Section 9.10. Headings............................................. 40
Section 9.11. Severability......................................... 40
Section 9.12. Specific Performance................................. 40
Section 9.13. Successors and Assigns............................... 41
EXHIBIT A Form of Stock Option Agreement With Respect to Option
Issued by Echlin Inc.
EXHIBIT B Form of Affiliate Letter Addressed to Echlin Inc.
EXHIBIT C Form of Affiliate Letter Addressed to Dana Corporation
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<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of May 3, 1998 (this
"Agreement"), by and among Dana Corporation, a Virginia corporation ("Dana"),
Echo Acquisition Corp., a Connecticut corporation and a wholly owned subsidiary
of Dana ("Merger Sub"), and Echlin Inc., a Connecticut corporation (the
"Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Dana, Merger Sub and the Company
deem it advisable and in the best interests of their respective companies and
their stockholders that Merger Sub merge with and into the Company (the
"Merger"), subject to the terms and conditions set forth herein, so that the
Company is the surviving corporation in the Merger and becomes a wholly owned
subsidiary of Dana;
WHEREAS, the Board of Directors of the Company has further
determined that the Merger is consistent with the long-term business strategy of
the Company and in the best interests of the employees, customers, creditors,
suppliers and communities of the Company;
WHEREAS, in connection with the execution of this Agreement, Dana
and the Company will enter into a stock option agreement, with the Company as
issuer and Dana as grantee (the "Stock Option Agreement") in the form attached
hereto as Exhibit A; and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1. Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
"Affiliate" shall have the meaning set forth in Section 6.7(a).
"Agreement" shall have the meaning set forth in the recitals to
this Agreement.
"CBCA" shall mean the Connecticut Business Corporation Act.
<PAGE>
"Certificate of Merger" shall have the meaning set forth in
Section 2.1(c).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall have the meaning set forth in the recitals to this
Agreement.
"Company Common Stock" shall have the meaning set forth in Section
3.1(a).
"Company Meeting" shall have the meaning set forth in Section 6.2.
"Company Preferred Stock" shall have the meaning set forth in
Section 5.3(b).
"Company Right" shall have the meaning set forth in Section 3.1(a).
"Company Rights Agreement" shall have the meaning set forth in
Section 3.1(a).
"Company Stock" shall mean Company Common Stock and Company
Preferred Stock.
"Company Stock Option" shall have the meaning set forth in Section
3.7.
"Company Stock Option Plans" shall have the meaning set forth in
Section 3.7.
"Compensation and Benefit Plans" shall have the meaning set forth
in Section 5.3(l).
"Competing Transaction" shall mean (i) a merger or consolidation, or
any similar transaction, involving the Company or any Significant Subsidiary of
the Company, (ii) a purchase, lease or other acquisition or assumption of all or
a substantial portion of the assets of the Company or any Significant Subsidiary
of the Company, (iii) a purchase or other acquisition (including by way of
merger, consolidation, tender offer, exchange offer, share exchange or
otherwise) of securities representing 20% or more of the voting power of the
Company or any Significant Subsidiary of the Company, or (iv) any substantially
similar transaction; provided, however, that in no event shall any merger,
consolidation, purchase or similar transaction involving only the Company and
one or more of its wholly owned Subsidiaries or involving only any two or more
of such wholly owned Subsidiaries, be deemed to be a Competing Transaction.
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<PAGE>
"Confidentiality Agreement" shall mean the Confidentiality and
Standstill Agreement, dated April 23, 1998, between the Company and Dana.
"Dana" shall have the meaning set forth in the recitals to this
Agreement.
"Dana Common Stock" shall have the meaning set forth in Section
3.1(a).
"Dana Meeting" shall have the meaning set forth in Section 6.2.
"Dana Preferred Stock" shall have the meaning set forth in Section
5.3(b).
"Dana Rights Agreement" shall have the meaning set forth in
Section 3.1(a).
"Disclosure Schedule" shall have the meaning set forth in Section
5.1.
"Effective Date" shall have the meaning set forth in Section 2.2.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Environmental Laws" shall have the meaning set forth in Section
5.3(p).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section
5.3(m)(v).
"Excess Shares" shall have the meaning set forth in Section 3.3.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
"Exchange Agent" shall have the meaning set forth in Section
3.4(a).
"Exchange Fund" shall have the meaning set forth in Section 3.4(a).
"Exchange Ratio" shall have the meaning set forth in Section
3.1(a).
"Expense Fee" shall have the meaning set forth in Section 8.3(b).
"Fractional Shares Fund" shall have the meaning set forth in
Section 3.3.
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<PAGE>
"Governmental Entity" shall mean any court, administrative agency,
commission or other governmental authority or instrumentality, whether local,
state, federal or foreign.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"International Stock Exchanges" shall mean stock exchanges located
outside of the U.S. on which Dana Common Stock is listed as of the Effective
Time.
"Joint Proxy Statement" shall have the meaning set forth in
Section 6.3.
"Liens" shall mean any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" shall mean with respect to the Company or
Dana, respectively, any effect that (i) is material and adverse to the financial
position, results of operations or business of the Company and its Subsidiaries
taken as a whole, or Dana and its Subsidiaries taken as a whole, respectively,
or (ii) would materially impair the ability of the Company or Dana,
respectively, to perform its obligations under this Agreement or otherwise
materially threaten or materially impede the consummation of the Merger and the
other transactions contemplated by this Agreement; provided, however, that
Material Adverse Effect shall be deemed not to include the impact of (a) changes
in laws of general applicability or interpretations thereof by Governmental
Entities, (b) changes in generally accepted accounting principles, (c) actions
or omissions of the Company or Dana taken with the prior written consent of the
Company or Dana, as applicable, in connection with the transactions contemplated
hereby, (d) circumstances affecting the automotive or automotive parts
industries generally, and (e) the effects of the Merger and compliance by either
party with the provisions of this Agreement on the business, financial condition
or results of operations of such party and its Subsidiaries, or the other party
and its Subsidiaries, as the case may be.
"Meeting" shall have the meaning set forth in Section 6.2.
"Merger" shall have the meaning set forth in the recitals to this
Agreement.
"Merger Consideration" shall have the meaning set forth in Section
2.1.
"Merger Sub" shall have the meaning set forth in the Recitals to
this Agreement.
"Multiemployer Plans" shall have the meaning set forth in Section
5.3(m)(iv).
"New Certificates" shall have the meaning set forth in Section
3.4(a).
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<PAGE>
"NYSE" shall mean The New York Stock Exchange, Inc.
"Old Certificates" shall have the meaning set forth in Section
3.4(a).
"Pension Plan" shall have the meaning set forth in Section
5.3(m)(iv).
"Person" or "person" shall mean any individual, corporation,
partnership, association, joint-stock company, business trust, limited liability
entity, or unincorporated organization.
"Plans" shall have the meaning set forth in Section 5.3(m)(iv).
"Previously Disclosed" by a party shall mean information set forth
in its Disclosure Schedule or in its SEC Documents filed prior to the date
hereof.
"PSE" shall mean the Pacific Exchange.
"Registration Statement" shall have the meaning set forth in
Section 6.3.
"Rights" shall mean, with respect to any person, securities or
obligations convertible into or exchangeable for, or giving any person any right
to subscribe for or acquire, or any options, calls or commitments relating to,
shares of capital stock of such person.
"SEC" shall mean the Securities and Exchange Commission.
"SEC Documents" shall have the meaning set forth in Section 5.3(h).
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Stock Option Agreement" shall have the meaning set forth in the
recitals.
"Subsidiary" and "Significant Subsidiary" shall have the meanings
ascribed to them in Rule 1-02 of Regulation S-X of the SEC.
"Superior Proposal" shall mean a bona fide written proposal from a
third party for a Competing Transaction, which the Company's financial advisor
determines is reasonably capable of being financed, on terms which the Board of
Directors of the Company reasonably determines to be more favorable than the
Merger, in accordance with and having regard to the interests of the Company's
stockholders and the other interests required to be considered by the Board of
Directors under Section 33-756(d) of the CBCA. A proposal shall not constitute a
Superior Proposal unless, in the written opinion (with only customary
qualifications) of the Company's independent financial advisors, the value of
the consideration provided for in such proposal
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<PAGE>
is more favorable to the stockholders of the Company from a financial point of
view to that offered in the Merger. References in this definition to the
"Merger" shall refer, as applicable, to any proposed alteration of the terms of
this Agreement by Dana pursuant to Sections 6.2(c).
"Surviving Corporation" shall have the meaning set forth in
Section 2.1(a).
"Takeover Laws" shall have the meaning set forth in Section 5.3(o).
"Tax Returns" shall have the meaning set forth in Section 5.3(q).
"Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including all net income, gross income, gross receipts, sales, use,
ad valorem, goods and services, capital, transfer, franchise, profits, license,
withholding, payroll, employment, employer health, excise, estimated, severance,
stamp, occupation, property or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority.
"Termination Fee" shall have the meaning set forth in Section
8.3(a).
"Treasury Shares" shall have the meaning set forth in Section
3.1(a).
"Triggering Event" shall have the meaning set forth in Section
8.3(a).
ARTICLE II
THE MERGER; EFFECTS OF THE MERGER
2.1. The Merger. (a) The Surviving Corporation. Upon the terms and
subject to the conditions set forth herein, and in accordance with the CBCA, at
the Effective Time, Merger Sub shall merge with and into the Company, the
separate corporate existence of Merger Sub shall cease and the Company shall
survive and continue to exist as a Connecticut corporation (the Company, as the
surviving corporation in the Merger, sometimes being referred to herein as the
"Surviving Corporation"). Dana may at any time in its sole discretion change the
method of effecting the combination with the Company (including the provisions
of this Article II) if and to the extent it deems such change to be desirable,
including to provide for a merger of the Company into Dana or any other
Subsidiary of Dana; provided, however, that no such change shall (i) alter or
change the amount or kind of consideration to be issued to holders of Company
Stock as provided for in this Agreement (the "Merger Consideration"), (ii)
adversely affect the tax treatment of the Company or the Company's stockholders
as a result of receiving the Merger Consideration, (iii) materially impede or
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<PAGE>
delay consummation of the transactions contemplated by this Agreement, or (iv)
otherwise adversely affect the Company or its stockholders.
(b) Closing. The closing of the Merger will take place at 10:00
a.m. on the Effective Date, at the offices of Wachtell, Lipton, Rosen & Katz, 51
West 52nd Street, New York, New York 10019, unless another time, date or place
is agreed to in writing by the parties hereto.
(c) Effectiveness and Effects of the Merger. Subject to the
satisfaction or waiver of the conditions set forth in Article VII in accordance
with this Agreement, the Merger shall become effective upon the occurrence of
the filing in the office of the Secretary of State of Connecticut of a
certificate of merger (the "Certificate of Merger"), or such later date and time
as may be set forth in the Certificate of Merger, in accordance with Section
33-819 of the CBCA. The Merger shall have the effects prescribed in Section
33-820 of the CBCA.
(d) Certificate of Incorporation and By-Laws. The certificate of
incorporation and by-laws of the Surviving Corporation shall be those of Merger
Sub, as in effect immediately prior to the Effective Time, except that the name
of the Surviving Corporation shall be Echlin Inc.
2.2. Effective Date and Effective Time. Subject to the
satisfaction or waiver of each of the conditions set forth in Article VII in
accordance with this Agreement, the parties shall cause the effective date of
the Merger (the "Effective Date") to occur on (1) the third business day to
occur after the last of the conditions set forth in Sections 7.1, 7.2 and 7.9
shall have been satisfied or waived in accordance with the terms of this
Agreement, or (2) such other date to which the parties may agree in writing. The
time on the Effective Date when the Merger shall become effective is referred to
as the "Effective Time."
2.3. Directors. The directors of Merger Sub immediately prior to
the Effective Time and the four directors of the Company set forth on Section
2.3 of the Company Disclosure Schedule shall be the directors of the Surviving
Corporation and shall hold office from the Effective Time until their respective
successors are duly elected or appointed and qualified in the manner provided in
the Certificate of Incorporation and by-laws of the Surviving Corporation, or as
otherwise provided by the CBCA.
2.4. Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation and
shall hold office from the Effective Time until their respective successors are
duly elected or appointed and qualified in the manner provided in the
Certificate of Incorporation and by-laws of the Surviving Corporation, or as
otherwise provided by the CBCA.
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<PAGE>
2.5. Tax Consequences. It is intended that the Merger shall
qualify as a reorganization under Section 368(a) of the Code, and that the
Agreement shall constitute a "plan of reorganization" for purposes of Section
354 of the Code.
2.6. Accounting Treatment. It is intended that the Merger
be accounted for as a "pooling of interests" under generally accepted
accounting principles.
ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
3.1. Merger Consideration. Subject to the provisions of this
Agreement (including Section 8.1(f)), at the Effective Time, automatically by
virtue of the Merger and without any action on the part of any party or
stockholder:
(a) Outstanding Company Common Stock. Each share (excluding (i)
shares held by the Company or any of its Subsidiaries or by Dana, Merger Sub or
any of their Subsidiaries ("Treasury Shares")) of the common stock, par value
$1.00 per share, of the Company, including each attached right (a "Company
Right") issued pursuant to the Rights Agreement, dated June 21, 1989, as amended
prior to the date hereof or pursuant to Section 4.7 (the "Company Rights
Agreement"), between the Company and the Rights Agent named therein (the
"Company Common Stock"), issued and outstanding immediately prior to the
Effective Time shall by virtue of the Merger and without any action on the part
of the holder thereof become and be converted into the right to receive 0.9293
of a share (subject to adjustment as set forth herein, the "Exchange Ratio") of
common stock, par value $1.00 per share of Dana (the "Dana Common Stock"),
including attached rights, issued pursuant to the Rights Agreement, dated as of
April 25, 1996, between Dana and the Rights Agent named therein (the "Dana
Rights Agreement").
3.2. Rights as Stockholders; Stock Transfers. At the Effective
Time, holders of Company Stock shall cease to be, and shall have no rights as,
stockholders of the Company, other than to receive any dividend or other
distribution with respect to such Company Stock with a record date occurring
prior to the Effective Time and the consideration provided under this Article
III. After the Effective Time, there shall be no transfers on the stock transfer
books of the Company of shares of Company Stock.
3.3. Fractional Shares. Notwithstanding any other provision
hereof, no fractional shares of Dana Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger
In lieu of any such fractional share, each holder of an Old Certificate who
would otherwise have been entitled to a fraction of a share of Dana Common Stock
upon surrender of an Old Certificates for exchange pursuant to Section 3.4 shall
be paid, upon such surrender, cash (without interest) in an amount equal to such
holder's proportionate in-
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<PAGE>
terest in the net proceeds from the sale or sales in the open market by the
Exchange Agent, on behalf of all such holders, of the aggregate fractional
Dana Common Stock that would otherwise have been issued pursuant hereto.
>From time to time following the Effective Time, the Exchange Agent shall
determine the excess of (i) the number of full shares of Dana Common Stock
to be delivered by the Exchange Agent to holders of Old Certificates that
have been delivered to the Exchange Agent over (ii) the sum of the number
of full shares of Dana Common Stock to be distributed to such holders of
Old Certificates (such excess being herein called the "Excess Shares"), and
the Exchange Agent, as agent for the former holders of Old Certificates,
shall sell the Excess Shares at the prevailing prices on the NYSE. Such
sales of Excess Shares by the Exchange Agent shall be executed on the NYSE
through one or more member firms of the NYSE and shall be executed in round
lots to the extent practicable. Dana shall pay all commissions, transfer
taxes and other out-of-pocket transaction costs, including the expenses and
compensation of the Exchange Agent, incurred in connection with such sale
of Excess Shares. Until the net proceeds of such sale have been
distributed to the holders of Old Certificates, the Exchange Agent will
hold such proceeds in trust for such former holders of Old Certificates
(the "Fractional Shares Fund"). As soon as practicable after any
determination of the amount of cash to be paid to holders of Old
Certificates in lieu of any fractional interests, the Exchange Agent shall
make available in accordance with this Agreement such amounts to such
holders of Old Certificates. The parties acknowledge that payment of cash
in lieu of issuing fractional shares was not separately bargained for
consideration but merely represents a mechanical rounding off for purposes
of simplifying the corporate and accounting problems that would otherwise
be caused by the issuance of fractional shares.
3.4. Exchange Procedures. (a) At or prior to the Effective Time,
Dana shall deposit, or shall cause to be deposited, with an exchange agent (the
"Exchange Agent"), for the benefit of the holders of certificates representing
the shares of Company Common Stock ("Old Certificates"), for exchange in
accordance with this Article III, certificates representing the shares of Dana
Stock ("New Certificates") and an estimated amount of cash to be paid in lieu of
fractional shares (such cash and New Certificates, together with any dividends
or distributions with respect thereto (without any interest thereon), being
hereinafter referred to as the "Exchange Fund") to be paid pursuant to this
Article III in exchange for outstanding shares of Company Stock.
(b) The Exchange Agent shall invest any cash included in the
Exchange Fund, as directed by Dana, on a daily basis. Any interest and other
income resulting from such investments shall be paid to Dana.
(c) As promptly as practicable after the Effective Date, Dana shall
send or cause to be sent to each former holder of record of shares (other than
Treasury Shares) of Company Stock immediately prior to the Effective Time
transmittal materials for use in exchanging such stockholder's Old Certificates
for the consideration set forth in this Article III. Dana shall cause the New
Certificates into which shares of a stockholder's Company Stock are converted on
the Effective Date and/or any check in
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respect of any fractional share interests or dividends or distributions which
such person shall be entitled to receive to be delivered to such stockholder
upon delivery to the Exchange Agent of Old Certificates representing such shares
of Company Stock (or indemnity reasonably satisfactory to Dana and the Exchange
Agent, if any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid on any such cash to be paid pursuant to
this Article III upon such delivery.
(d) Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to any former holder of Company Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(e) No dividends or other distributions with respect to Dana Stock
with a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of Company Stock
converted in the Merger into shares of Dana Common Stock until the holder
thereof shall surrender such Old Certificate in accordance with this Article
III. After the surrender of an Old Certificate in accordance with this Article
III, the record holder thereof shall be entitled to receive any such dividends
or other distributions, without any interest thereon, which theretofore had
become payable with respect to shares of Dana Common Stock represented by such
Old Certificate.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for twelve months after the Effective Time shall be
paid to Dana. Any stockholders of the Company who have not theretofore complied
with this Article III shall thereafter look only to Dana for payment of the
shares of Dana Common Stock, cash in lieu of any fractional shares and unpaid
dividends and distributions on the Dana Common Stock deliverable in respect of
each share of Company Stock such stockholder holds as determined pursuant to
this Agreement, in each case, without any interest thereon.
3.5. Anti-Dilution Provisions. In the event Dana changes (or
establishes a record date for changing) the number of, or provides for the
exchange of, shares of Dana Common Stock issued and outstanding prior to the
Effective Date as a result of a stock split, stock dividend, recapitalization,
reclassification, reorganization or similar transaction with respect to the
outstanding Dana Common Stock and the record date therefor shall be prior to the
Effective Date, the Exchange Ratio shall be proportionately adjusted.
3.6. Treasury Shares. Each of the shares of Company Stock
constituting Treasury Shares immediately prior to the Effective Time shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
3.7. Options. (a) At the Effective Time, all employee and director
stock options to purchase shares of Company Common Stock (each, a "Company Stock
Option"), which are then outstanding and unexercised, shall cease to represent a
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right to acquire shares of Company Common Stock and shall be converted
automatically into options to purchase shares of Dana Common Stock, and Dana
shall assume each such Company Stock Option subject to the terms of any of the
stock option plans listed under "Stock Option Plans" in Section 5.3(m)(i) of the
Company's Disclosure Schedule (collectively, the "Company Stock Option Plans"),
and the agreements evidencing grants thereunder; provided, however, that from
and after the Effective Time, (i) the number of shares of Dana Common Stock
purchasable upon exercise of such Company Stock Option shall be equal to the
number of shares of Company Common Stock that were purchasable under such
Company Stock Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, and rounding to the nearest whole share, and (ii) the per share
exercise price under each such Company Stock Option shall be adjusted by
dividing the per share exercise price of each such Company Stock Option by the
Exchange Ratio, and rounding down to the nearest cent. Notwithstanding the
foregoing, the number of shares and the per share exercise price of each Company
Stock Option which is intended to be an "incentive stock option" (as defined in
Section 422 of the Code) shall be adjusted in accordance with the requirements
of Section 424 of the Code. Accordingly, with respect to any incentive stock
options, fractional shares shall be rounded down to the nearest whole number of
shares and where necessary the per share exercise price shall be rounded up to
the nearest cent.
(b) Prior to the Effective Time, Dana shall reserve for issuance
the number of shares of Dana Common Stock necessary to satisfy Dana's
obligations under Section 3.7(a). Promptly after the Effective Time, Dana shall
file with the SEC a registration statement on an appropriate form or a
post-effective amendment to a previously filed registration statement under the
Securities Act with respect to the shares of Dana Common Stock subject to
options to acquire Dana Common Stock issued pursuant to Section 3.7(a), and
shall use its best efforts to maintain the current status of the prospectus
contained therein, as well as comply with any applicable state securities or
"blue sky" laws, for so long as such options remain outstanding.
3.8. Performance Units. As soon as practicable following the
Effective Time, each performance unit under the Company's Performance Unit Plan
shall be equitably adjusted by Dana.
ARTICLE IV
ACTIONS PENDING MERGER
From the date hereof until the Effective Time, except as expressly
contemplated by this Agreement, (i) without the prior written consent of Dana
(which consent shall not be unreasonably withheld or delayed) the Company will
not, and will cause each of its Subsidiaries not to, and (ii) without the prior
written consent of the Company (which consent shall not be unreasonably withheld
or delayed) Dana will not, and will cause each of its Subsidiaries not to:
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4.1. Ordinary Course. Conduct the business of it and its
Subsidiaries other than in the ordinary course or fail to use reasonable efforts
to preserve intact their business organizations and assets and maintain their
rights, franchises and existing relations with customers, suppliers, employees
and business associates, or take any action that would (i) adversely affect the
ability of any party to obtain any necessary approvals of any Governmental
Entities required for the transactions contemplated hereby, or (ii) adversely
affect its ability to perform any of its material obligations under this
Agreement.
4.2. Capital Stock. Other than (i) pursuant to Rights or other
stock options or stock-based awards Previously Disclosed in its Disclosure
Schedule, (ii) pursuant to the Stock Option Agreement, (iii) pursuant to the
Company Rights Agreement or the Dana Rights Agreement (as the case may be), or
(iv) in the case of the Company, as otherwise set forth on Section 6.13 of the
Company Disclosure Schedule, (x) issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional shares of capital
stock, any stock appreciation rights, any Rights, or any other equity-linked
securities, (y) enter into any agreement with respect to the foregoing, or (z)
permit any additional shares of capital stock to become subject to new grants of
employee stock options, stock appreciation rights, or similar stock-based
employee rights.
4.3. Dividends, Etc. (1) Make, declare or pay any dividend (other
than (i) in the case of the Company, (A) regular quarterly cash dividends on
Company Common Stock in an amount not to exceed the rate most recently paid
regular quarterly cash dividend on such Company Common Stock as of the date
hereof, and (B) dividends from Subsidiaries to the Company or a wholly owned
Subsidiary of the Company, as applicable, and (ii) in the case of Dana, (A)
regular quarterly cash dividends on Dana Common Stock at a quarterly rate of
$0.29 as may be adjusted in the ordinary course consistent with past practice,
and (B) dividends from Subsidiaries to Dana or a wholly owned Subsidiary of
Dana, as applicable) on or in respect of, or declare or make any distribution on
any shares of its capital stock, or (2) other than (A) as Previously Disclosed
in its Disclosure Schedule, or (B) in the ordinary course pursuant to employee
benefit plans, directly or indirectly combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock. After the date of this
Agreement, each of Dana and the Company shall coordinate with the other the
declaration of any dividends in respect of Dana Common Stock and Company Common
Stock and the record dates and payment dates relating thereto, it being the
intention of the parties hereto that holders of Dana Common Stock or Company
Common Stock shall not receive two dividends, or fail to receive one dividend,
for any single calendar quarter with respect to their shares of Dana Common
Stock and/or Company Common Stock and any shares of Dana Common Stock any such
holder receives in exchange therefor in the Merger.
4.4. Compensation; Employment Agreements; Etc. In the case of the
Company and its Subsidiaries, except as set forth on Section 6.13 of the Company
Disclosure Schedule, enter into or amend any written employment, severance or
simi-
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lar agreements or arrangements with any of its directors, officers or
employees, or grant any salary or wage increase or increase any employee benefit
(including incentive or bonus payments), except for (i) normal increases in
compensation to employees in the ordinary course of business consistent with
past practice, or (ii) other changes as are provided for herein or as may be
required by law or to satisfy contractual obligations existing as of the date
hereof or additional grants of awards to newly hired employees consistent with
past practice.
4.5. Benefit Plans. In the case of the Company and its
Subsidiaries, except as set forth on Section 6.13 of the Company Disclosure
Schedule, enter into or amend (except as may be required by applicable law, to
satisfy contractual obligations existing as of the date hereof) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including taking any action that accelerates the vesting or exercise
of any benefits payable thereunder or the funding of the Company's Rabbi Trust.
4.6. Acquisitions and Dispositions. In the case of the Company,
except as Previously Disclosed in its Disclosure Schedule, dispose of or
discontinue any portion of its assets, business or properties, which is material
to it and its Subsidiaries taken as a whole, or acquire (other than by way of
foreclosures or acquisitions of control in a bona fide fiduciary capacity or in
satisfaction of debts previously contracted in good faith, in each case in the
ordinary and usual course of business consistent with past practice) all or any
portion of, the business or property of any other entity which is material to it
and its Subsidiaries taken as a whole. In the case of Dana, not, and not cause
its Subsidiaries to, make any acquisition or take any other action which would
materially adversely affect its ability to consummate the transactions
contemplated by this Agreement.
4.7. Amendments. Amend its Certificate of Incorporation or By-laws
or amend or waive any rights under the Company Rights Agreement, in a manner
that would materially and adversely affect either party's ability to consummate
the Merger or the economic benefits of the Merger to either party; provided
however that Dana shall not be prevented from amending its Restated Articles of
Incorporation to increase the number of authorized shares of capital stock.
4.8. Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles or Regulation S-X promulgated under the
Exchange Act.
4.9. Adverse Actions. (1) Take any action that would, or would be
reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code or for "pooling
of interests" accounting treatment under generally accepted accounting
principles, or (2) knowingly
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take any action that is intended or is reasonably likely to result in (x) any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, (y) any
of the conditions to the Merger set forth in Article VII not being satisfied, or
(z) a material violation of any provision of this Agreement except, in each
case, as may be required by applicable law.
4.10. Agreements. Agree or commit to do anything
prohibited by Sections 4.1 through 4.9.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1. Disclosure Schedules. On or prior to the date hereof, Dana
has delivered to the Company and the Company has delivered to Dana a schedule
(respectively, its "Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate in relation to any or
all of its representations and warranties; provided, that (i) no such item is
required to be set forth in a Disclosure Schedule as an exception to a
representation or warranty if its absence is not reasonably likely to result in
the related representation or warranty being deemed untrue or incorrect under
the standard established by Section 5.2, and (ii) the mere inclusion of an item
in a Disclosure Schedule shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to result in a Material Adverse Effect.
5.2. Standard. No representation or warranty of Dana or the
Company contained in Section 5.3 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, circumstance or event unless such
fact, circumstance or event, individually or taken together with the existence
of all other facts, circumstances or events inconsistent with any paragraph of
Section 5.3, has had or is reasonably expected to have a Material Adverse
Effect.
5.3. Representations and Warranties. Subject to Sections 5.1 and
5.2 and except as Previously Disclosed, the Company hereby represents and
warrants to Dana, and Dana hereby represents and warrants to the Company, to the
extent applicable, in each case with respect to itself and its Subsidiaries, as
follows:
(a) Organization, Standing and Authority. Such party is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization. Such party is duly qualified to do
business and is in good standing in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified. It has in effect all federal, state,
local, and foreign governmental authorizations necessary
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for it to own or lease its properties and assets and to carry on its business as
it is now conducted.
(b) Shares. (i) As of the date hereof, the authorized capital stock
of the Company consists solely of 150,000,000 shares of Company Common Stock, of
which, as of March 31, 1998, 63,594,700 shares were outstanding, and 1,000,000
shares of company preferred stock ("Company Preferred Stock"), of which, as of
March 31, 1998, no shares were outstanding. As of the date hereof, the
authorized capital stock of Dana consists solely of 240,000,000 shares of Dana
Common Stock, of which, as of April 30, 1998, 105,758,992 shares were
outstanding, and 5,000,000 shares of preferred stock (the "Dana Preferred
Stock"), of which, as of the date hereof, no shares were outstanding. As of the
date hereof, 270,264 shares of Company Common Stock and no shares of Dana Common
Stock were held in treasury. The outstanding shares of such party's capital
stock are validly issued and outstanding, fully paid and nonassessable, and
subject to no preemptive rights (and were not issued in violation of any
preemptive rights). In the case of Dana, as of the date hereof, there are no
shares of Dana's capital stock authorized and reserved for issuance except
pursuant to plans or commitments Previously Disclosed, Dana does not have any
Rights issued or outstanding with respect to its capital stock, and Dana does
not have any commitment to authorize, issue or sell any such shares or Rights,
except in each case pursuant to this Agreement, the Stock Option Agreement, and
the Dana Rights Agreement, as the case may be. In the case of the Company, there
are no shares of such party's capital stock authorized and reserved for issuance
except pursuant to plans or commitments Previously Disclosed, the Company does
not have any Rights issued or outstanding with respect to its capital stock, and
the Company does not have any commitment to authorize, issue or sell any such
shares or Rights, except in each case pursuant to this Agreement, the Stock
Option Agreement, and the Company Rights Agreement, as the case may be. The
authorized capital stock of Merger Sub consists of 1,000 shares of common stock,
par value $.01 per share, all of which are validly issued, fully paid and
nonassessable, and are owned by Dana free and clear of any Lien.
(ii) The number of shares of Company Common Stock which are
issuable and reserved for issuance upon exercise of Company Stock Options as of
the date hereof are Previously Disclosed, and the number of shares of Dana
Common Stock which are issuable and reserved for issuance upon exercise of any
employee or director stock options to purchase shares of Dana Common Stock as of
the date hereof are Previously Disclosed.
(c) Subsidiaries. (i) (A) Such party has Previously Disclosed a
list of all of its Subsidiaries together with the jurisdiction of organization
of each such Subsidiary, (B) it owns, directly or indirectly all of the issued
and outstanding shares of each of its Significant Subsidiaries, (C) no equity
securities of any of its Significant Subsidiaries are or may become required to
be issued (other than to it or a Subsidiary of it) by reason of any Rights, (D)
there are no contracts, commitments, understandings or arrangements by which any
of such Significant Subsidiaries is or may be bound
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to sell or otherwise transfer any shares of the capital stock of any such
Significant Subsidiaries (other than to it or a Subsidiary of it), (E) there are
no contracts, commitments, understandings, or arrangements relating to its
rights to vote or to dispose of such shares (other than to it or a Subsidiary of
it), and (F) all of the shares of capital stock of each such Significant
Subsidiary held by it or its Subsidiaries are fully paid and nonassessable and
are owned by it or its Subsidiaries free and clear of any Liens.
(ii) In the case of the representations and warranties of the
Company, the Company does not own (other than the equity securities of its
Subsidiaries) beneficially, directly or indirectly, any shares of any equity
securities or similar interests of any person, or any interest in a partnership
or joint venture of any kind.
(iii) Each of such party's Significant Subsidiaries and Merger
Sub, in the case of Dana, has been duly organized and is validly existing in
good standing under the laws of the jurisdiction of its organization, and is
duly qualified to do business and in good standing in the jurisdictions where
its ownership or leasing of property or the conduct of its business requires it
to be so qualified. Each of such Significant Subsidiaries and Merger Sub has in
effect all federal, state, local, and foreign governmental authorizations
necessary for it to own or lease its properties and assets and to carry on its
business as it is now conducted.
(d) Corporate Power. Such party and each of its Significant
Subsidiaries and Merger Sub, in the case of Dana, has the corporate power and
authority to carry on its business as it is now being conducted and to own all
its properties and assets; and it has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the Stock
Option Agreement and to consummate the transactions contemplated hereby and
thereby.
(e) Corporate Authority. Subject in the case of this Agreement only
to approval (i) by the holders of two-thirds of the shares of Company Common
Stock entitled to vote thereon, and (ii) by the holders of a majority of the
shares of Dana Common Stock casting votes at the Dana Meeting, provided that a
majority of the shares of Dana Common Stock entitled to vote thereon vote, in
person or by proxy at the Dana Meeting, each of this Agreement and the Stock
Option Agreement and the transactions contemplated hereby and thereby (including
the election of the directors of Merger Sub as directors of the Surviving
Corporation pursuant to Section 2.3) have been authorized by all necessary
corporate action of each of the Company, Dana and Merger Sub, including by their
respective Boards of Directors, as the case may be, and each of this Agreement
and the Stock Option Agreement is a legal, valid and binding agreement of each
of the Company, Dana and Merger Sub, as the case may be, enforceable in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles).
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(f) Board Recommendation. In the case of the Dana, the Board of
Directors of Dana, at a meeting duly called and held, has by unanimous vote of
those directors present (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, taken together, are fair to and in
the best interests of Dana and the stockholders of Dana, and (ii) resolved to
recommend that the stockholders of Dana approve and authorize the issuance of
shares of Dana Common Stock in the Merger. In the case of the Company, the Board
of Directors of the Company, at a meeting duly called and held, has by unanimous
vote of those directors present (i) determined that this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby, including
the Merger, taken together, are fair to and in the best interests of the
stockholders of the Company, and (ii) resolved to recommend that the holders of
the shares of Company Common Stock approve this Agreement and the transactions
contemplated herein, including the Merger.
(g) No Defaults. Subject to receipt of the regulatory approvals,
and expiration of the waiting periods, referred to in Section 7.2, the required
filings under federal and state securities laws and the approvals contemplated
by Sections 7 and 9 of the Stock Option Agreement (in the case of the
representations and warranties of the Company), the execution, delivery and
performance of this Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby by it do not
and will not (i) constitute a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of it or of any of its
Significant Subsidiaries or Merger Sub, in the case of Dana, or to which it or
any of its Significant Subsidiaries or Merger Sub, in the case of Dana, or
properties is subject or bound, (ii) constitute a breach or violation of, or a
default under, its articles or certificate of incorporation or by-laws, or (iii)
require any consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, agreement, indenture or
instrument.
(h) Financial Reports and SEC Documents. Its Annual Report on Form
10-K for the fiscal year ended December 31, 1997, in the case of Dana, and
August 31, 1997, in the case of the Company, and all other reports, registration
statements, definitive proxy statements or information statements filed or to be
filed by it or any of its Subsidiaries subsequent to December 31, 1995, in the
case of Dana, and August 31, 1995, in the case of the Company, under the
Securities Act, or under Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act, in the form filed, or to be filed (collectively, its "SEC Documents"), with
the SEC (i) complied or will comply in all material respects as to form with the
applicable requirements under the Securities Act or the Exchange Act, as the
case may be, and (ii) as of its filing date did not or will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading; and each of the
balance sheets contained in or incorporated by reference into any such SEC
Document (including the related notes and schedules thereto) fairly presents or
will fairly present the financial position of the entity or entities to which it
relates as of its date, and each
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of the statements of income and changes in stockholders' equity and cash flows
or equivalent statements in such SEC Documents (including any related notes and
schedules thereto) fairly presents or will fairly present the results of
operations, changes in stockholders' equity and changes in cash flows, as the
case may be, of the entity or entities to which it relates for the periods to
which it relates, in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except in each case
as may be noted therein, subject to normal year-end audit adjustments in the
case of unaudited statements.
(i) Litigation; Regulatory Action. (i) There are no civil, criminal
or administrative actions, suits, claims, hearings or proceedings pending or, to
the best of its knowledge, threatened, or investigation pending, against it or
any of its Subsidiaries.
(ii) Neither it nor any of its Subsidiaries or properties is a
party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with any Governmental Entity.
(iii) Neither it nor any of its Subsidiaries has been advised by
any Governmental Entity that such Governmental Entity is contemplating issuing
or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding or similar
arrangement.
(j) Compliance with Laws. It and each of its Subsidiaries:
(i) in the conduct of its business, is in compliance with all
applicable federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable thereto or to the
employees conducting such businesses;
(ii) has all permits, licenses, authorizations, orders and
approvals of, and have made all filings, applications and registrations with,
all Governmental Entities that are required in order to permit them to conduct
their businesses substantially as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best of its knowledge, no suspension or cancellation of any
of them is threatened; and
(iii) has received, since December 31, 1995, in the case of Dana,
and August 31, 1995 in the case of the Company, no notification or communication
from any Governmental Entity (A) asserting that it or any of its Subsidiaries is
not in compliance with any of the statutes, regulations, or ordinances which
such Governmental Entity enforces, (B) threatening to revoke any license,
franchise, permit, or governmental authorization, or (C) failing to approve any
proposed acquisition, or stating its intention not to approve acquisitions
proposed to be effected by it within a certain time period or indefinitely.
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(k) Defaults. Neither it nor any of its Subsidiaries is in default
under any contract, agreement, commitment, arrangement, lease, insurance policy,
or other instrument to which it is a party, by which its respective assets,
business, or operations may be bound or affected, or under which it or its
respective assets, business, or operations receives benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default.
(l) No Brokers. No action has been taken by it that would give rise
to any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment with respect to the transactions contemplated by this
Agreement, excluding, in the case of the Company, fees to be paid to Salomon
Smith Barney Inc. and, in the case of Dana, fees to be paid to Lehman Brothers
Inc., in each case pursuant to letter agreements which have been heretofore
disclosed to the other party.
(m) Employee Benefit Plans. (i) Such Party's Disclosure Schedule
contains a complete list of all material written bonus, vacation, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock and stock option
plans, all employment or severance contracts, all medical, dental, disability,
health and life insurance plans, all other employee benefit and fringe benefit
plans, contracts or arrangements and any applicable "change of control" or
similar provisions in any plan, contract or arrangement maintained or
contributed to by it or any of its Subsidiaries for the benefit of officers,
former officers, employees, former employees, directors, former directors, or
the beneficiaries of any of the foregoing (collectively, "Compensation and
Benefit Plans").
(ii) True and complete copies of its Compensation and Benefit
Plans, including, but not limited to, any trust instruments and/or insurance
contracts, if any, forming a part thereof, and all amendments thereto have been
made available to the other party.
(iii) Except as provided in Section 6.13 of the Company Disclosure
Schedule, the Merger and the other transactions contemplated by this Agreement
(including any stockholder approval of the Merger and the employment and
election of the directors under Section 2.3) will not be treated as a "Change in
Control" under any Compensation and Benefit Plan of the Company or its
Subsidiaries.
(iv) Each of its Compensation and Benefit Plans has been
administered in all material respects in accordance with the terms thereof. All
"employee benefit plans" within the meaning of Section 3(3) of ERISA, other than
"multiemployer plans" within the meaning of Section 3(37) of ERISA
("Multiemployer Plans"), covering employees or former employees of it and its
Subsidiaries (its "Plans"), to the extent subject to ERISA, are in material
compliance with ERISA, the Code, the Age Discrimination in Employment Act and
other applicable laws. Each Compensation and Benefit Plan of it or its
Subsidiaries which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be qualified
under Section 401(a) of the Code has received a favorable
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determination letter from the Internal Revenue Service, and it is not aware of
any circumstances reasonably likely to result in the revocation or denial of any
such favorable determination letter. There is no pending or, to its knowledge,
threatened litigation or governmental audit, examination or investigation
relating to the Plans.
(v) No material liability under Title IV of ERISA has been or is
expected to be incurred by it or any of its Subsidiaries with respect to any
ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
it under Section 4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither it nor any of its Subsidiaries presently contributes to a
Multiemployer Plan, nor have they contributed to such a plan within the past
five calendar years. No notice of a "reportable event", within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan of it or any of its
Subsidiaries or by any ERISA Affiliate within the past 12 months.
(vi) All contributions, premiums and payments required to be made
under the terms of any Compensation and Benefit Plan of it or any of its
Subsidiaries have been made. Neither any Pension Plan of it or any of its
Subsidiaries nor any single-employer plan of an ERISA Affiliate of it or any of
its Subsidiaries has an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA. Neither
it nor any of its Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(vii) Under each Pension Plan of it or any of its Subsidiaries
which is a single-employer plan, as of the last day of the most recent plan year
ended prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Plan's
most recent actuarial valuation) did not exceed the then current value of the
assets of such Plan, and there has been no adverse change in the financial
condition of such Plan (with respect to either assets or benefits) since the
last day of the most recent Plan year.
(viii) Neither it nor any of its Subsidiaries has any obligations
under any Compensation and Benefit Plans to provide benefits, including death or
medical benefits, with respect to employees of it or its Subsidiaries beyond
their retirement or other termination of service other than (i) coverage
mandated by Part 6 of Title I of ERISA or Section 4980B of the Code, (ii)
retirement or death benefits under any employee pension benefit plan (as defined
under Section 3(2) of ERISA), (iii) disability benefits under any employee
welfare plan that have been fully provided for by insurance or otherwise, or
(iv) benefits in the nature of severance pay.
(ix) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment
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(including severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director or any employee of it or any of its Subsidiaries
under any Compensation and Benefit Plan or otherwise from it or any of its
Subsidiaries, (ii) increase any benefits otherwise payable under any
Compensation and Benefit Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit.
(n) Labor Matters. Neither it nor any of its Subsidiaries is a
party to, or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is it
or any of its Subsidiaries the subject of a proceeding asserting that it or any
such Subsidiaries has committed an unfair labor practice (within the meaning of
the National Labor Relations Act) or seeking to compel it or such Subsidiaries
to bargain with any labor organization as to wages and conditions of employment.
(o) Takeover Laws; Rights Plans. (i) It has taken all action
required to be taken by it in order to exempt this Agreement and the Stock
Option Agreement and the transactions contemplated hereby and thereby from, and
this Agreement and the Stock Option Agreement and the transactions contemplated
hereby and thereby are exempt from, the requirements of any "moratorium",
"control share", "fair price" or other anti-takeover laws and regulations
(collectively, "Takeover Laws") of (i) the State of Connecticut in the case of
the representations and warranties of the Company, including Sections 33-841 and
33-844 of the CBCA, and (ii) the State of Virginia in the case of the
representations and warranties of Dana, including Sections 13.1-725, 13.1-726
and 13.1-728 of the Virginia Stock Corporation Act.
(ii) In the case of the representations and warranties of the
Company, it has (A) duly entered into an appropriate amendment to the Company
Rights Agreement which amendment has been provided to Dana and (B) taken all
other action necessary or appropriate so that the entering into of this
Agreement and the Stock Option Agreement, and the consummation of the
transactions contemplated hereby and thereby (including the Merger) do not and
will not result in the ability of any person to exercise any Rights under the
Company Rights Agreement or enable or require the Company Rights to separate
from the shares of Company Common Stock to which they are attached or to be
triggered or become exercisable and the Company Rights Agreement will expire
immediately prior to the Effective Time, and the Company Rights Agreement, as so
amended, has not been further amended or modified except in accordance herewith.
Copies of such amendments to the Company Rights Agreement have been previously
provided to Dana.
(iii) In the case of the representations and warranties of the
Company, no "Distribution Date" or "Stock Acquisition Date" (as such terms are
defined in the Company Rights Plan) has occurred.
(p) Environmental Matters. (i) As used in this Plan, "Environmental
Laws" means all applicable local, state, federal and foreign environmental,
health and safety laws and regulations, including the Resource Conservation and
Recovery Act, the
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Comprehensive Environmental Response, Compensation, and Liability Act, the Clean
Water Act, the Federal Clean Air Act, and the Occupational Safety and Health
Act, each as amended, regulations promulgated thereunder, and state
counterparts.
(ii) Neither the conduct nor operation of such party or its
Subsidiaries nor any condition of any property presently or previously owned,
leased or operated by any of them violates or violated Environmental Laws and no
condition has existed or event has occurred with respect to any of them or any
such property or any predecessor or previously owned or operated asset or
Subsidiary of any of them that, with notice or the passage of time, or both, is
reasonably likely to result in liability under Environmental Laws. Neither such
party nor any of its Subsidiaries has received any notice from any person or
entity that it or its Subsidiaries or the operation or condition of any property
ever owned, leased, operated, held as collateral or held as a fiduciary by any
of them are or were in violation of or otherwise are alleged to have liability
under any Environmental Law, including but not limited to responsibility (or
potential responsibility) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
at, on, beneath, or originating from any such property.
(q) Tax Matters. (A) All material returns, declarations, reports,
estimates, information returns and statements required to be filed under
federal, state, local or any foreign tax laws ("Tax Returns") with respect to it
or any of its Subsidiaries, have been timely filed, or requests for extensions
have been timely filed and have not expired; (B) all Tax Returns filed by it are
complete and accurate in all material respects; (C) all Taxes shown to be due on
such Tax Returns have been paid or adequate reserves have been established for
the payment of such Taxes; and (D) no material (1) audit or examination or (2)
refund litigation with respect to any Tax Return is pending.
(r) Tax Treatment; Accounting Treatment. As of the date hereof, it
is aware of no reason why the Merger will, and has not taken or agreed to take
any action that would cause the Merger to (i) fail to qualify as a
reorganization under Section 368(a) of the Code, or (ii) not be accounted for as
a "pooling of interests" under generally accepted accounting principles.
(s) Opinions of Financial Advisors. It has received the written
opinion of its financial advisor, to the effect that, as of the date of this
Agreement, the Exchange Ratio is (i) in the case of the Company, fair to its
stockholders from a financial point of view, and (ii) in the case of Dana, fair
to Dana from a financial point of view. It has heretofore provided copies of
such opinions to the other party hereto and such opinion has not been withdrawn
or revoked or modified in any material respect.
(t) No Material Adverse Effect. Since December 31, 1997, in the
case of Dana and since, August 31, 1997, in the case of the Company, (i) it and
its Subsidiaries have conducted their respective businesses in the ordinary and
usual course (excluding the incurrence of expenses related to this Agreement and
the trans-
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actions contemplated hereby) and (ii) no event has occurred or circumstance
arisen that, individually or taken together with all other existing facts,
circumstances and events (described in any paragraph of Section 5.3 or
otherwise), is reasonably likely to have a Material Adverse Effect with respect
to it.
ARTICLE VI
COVENANTS
The Company hereby covenants to and agrees with Dana, and Dana
hereby covenants to and agrees with the Company, that:
6.1. Best Efforts. Subject to the terms and conditions of this
Agreement, it shall use its reasonable best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, so as to
permit consummation of the Merger as promptly as practicable and otherwise to
enable consummation of the transactions contemplated hereby including obtaining
(and cooperating with the other party hereto to obtain) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity and any other third party that is required to be obtained by the Company
or Dana or any of their respective Subsidiaries in connection with the Merger
and the other transactions contemplated by this Agreement, and using reasonable
best efforts to lift or rescind any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, and using reasonable best efforts to defend
any litigation seeking to enjoin, prevent or delay the consummation of the
transactions contemplated hereby or seeking material damages, and each shall
cooperate fully with the other parties hereto to that end.
6.2. Stockholder Approvals. (a) Each of them shall take, as soon
as practicable, in accordance with applicable law, applicable stock exchange
rules and their respective articles or certificate of incorporation and by-laws,
all action necessary to convene, respectively, an appropriate meeting of
stockholders of Dana to consider and vote upon the approval of the issuance of
shares of Dana Common Stock pursuant to this Agreement and any other matters
required to be approved by Dana stockholders for consummation of the Merger
(including any adjournment or postponement, the "Dana Meeting"), and an
appropriate meeting of stockholders of the Company to consider and vote upon the
approval of this Agreement, the Merger and any other matters required to be
approved by the Company's stockholders for consummation of the Merger (including
any adjournment or postponement, the "Company Meeting"; and each of the Dana
Meeting and the Company Meeting, a "Meeting"), respectively, as promptly as
practicable after the date hereof. The Board of Directors of each of Dana and
the Company shall recommend such approval, and each of Dana and the Company
shall take all reasonable lawful action to solicit such approval by its
respective stockholders. Notwithstanding the previous sentence, the Company's
Board of Directors
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may withdraw or modify its approval or recommendation of this Agreement or the
Merger if the Board of Directors of the Company, after having consulted with
outside counsel, determines that the refusal to do so would constitute a breach
by the Board of Directors of the Company of their fiduciary duties under
applicable laws, including their duties under Section 33-756(d) of the CBCA;
provided, however, the Company's Board of Directors may not approve or recommend
(and in connection therewith, withdraw or modify its approval or recommendation
of this Agreement or the Merger) a Competing Transaction unless such Competing
Transaction is a Superior Proposal and unless it shall have first consulted with
outside counsel, and have determined that the refusal to do so would constitute
a breach by the Board of Directors of the Company of their fiduciary duties
under applicable laws, including their duties under Section 33-756(d) of the
CBCA. Dana's Board of Directors may withdraw or modify its approval or
recommendation of this Agreement, the Merger or the issuance of shares of Dana
Common Stock in the Merger if the Board of Directors of Dana, after having
consulted with outside counsel, determines that the refusal to do so would
constitute a breach by the Board of Directors of Dana of their fiduciary duties
under applicable laws.
(b) The Company shall promptly (within 8 hours) advise Dana orally
and in writing of its receipt of any proposal or inquiry which may be or may
result in a Superior Proposal, of the substance thereof, and of the identity of
the person making such proposal or inquiry. The Company will keep Dana fully
informed of the status and material details of any such proposal or inquiry or
negotiations or discussions relating thereto.
(c) Prior to approving or recommending (and, in connection
therewith, withdrawing or modifying its approval or recommendation of this
Agreement or the Merger) a third party proposal as a Superior Proposal pursuant
to Section 6.2(a), the Company shall, unless to do so would constitute a breach
by the Board of Directors of the Company of their fiduciary duties under
applicable laws, including their duties under Section 33-756(d) of the CBCA,
first offer Dana and Merger Sub the right to propose alterations to the terms of
the Merger Agreement. If after considering such proposed alterations, the Board
of Directors of the Company determines that the third party proposal is a
Superior Proposal and, after having consulted with outside counsel, that the
failure to approve or recommend (and, in connection therewith, withdraw or
modify its approval or recommendation of this Agreement or the Merger) such
Superior Proposal would constitute a breach by the Board of Directors of the
Company of their fiduciary duties under applicable laws, including their duties
under Section 33-756(d) of the CBCA, then the Company's Board of Directors may
approve or recommend (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement or the Merger) such Superior
Proposal; provided, however, that nothing contained in Section 6.2(a) shall
prohibit the Company or its Board of Directors from taking and disclosing to the
Company's stockholders a position pursuant to Rules 14d-9 and 14e-2(a)
promulgated under the Exchange Act or from making such other disclosure to the
Company's stockholders which, in the reasonable determination of the Board of
Directors of the Company after consultation with outside
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counsel, may be required under applicable law. Any such initial disclosure
pursuant to Rules 14d-9 and 14e-2(a) shall be consistent with the recommendation
of the Board of Directors of the Company in Section 6.2(a), and all disclosures
pursuant to Rules 14d-9 and 14e-2(a) (initial or otherwise) shall be in a form
that has been reviewed by Dana.
6.3. Registration Statement. (a) Each of Dana and the Company
agrees to cooperate in the preparation of a registration statement on Form S-4
(the "Registration Statement") to be filed by Dana with the SEC in connection
with the issuance of Dana Common Stock in the Merger (including the joint proxy
statement, prospectus and other proxy solicitation materials of Dana and the
Company constituting a part thereof (the "Joint Proxy Statement") and all
related documents). Provided the Company has cooperated as required above, Dana
agrees to file the Registration Statement with the SEC as promptly as
practicable, but in no event later than 30 days after the date of this
Agreement. Each of the Company and Dana agrees to use all reasonable best
efforts to cause the Registration Statement to be declared effective under the
Securities Act as promptly as reasonably practicable after filing thereof, and
to cause the Joint Proxy Statement to be mailed as promptly as practicable to
the stockholders of the Company and Dana. Dana also agrees to use all reasonable
best efforts to obtain all necessary state securities law or "Blue Sky" permits
and approvals required to carry out the transactions contemplated by this
Agreement. The Company agrees to furnish to Dana all information concerning the
Company, its Subsidiaries, officers, directors and stockholders as may be
reasonably requested in connection with the foregoing.
(b) Each of the Company and Dana agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act and at the Effective Time,
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Joint Proxy Statement and any amendment or
supplement thereto will, at the date of mailing to stockholders and at the times
of the Dana Meeting and the Company Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading or any statement
which, in the light of the circumstances under which such statement is made,
will be false or misleading with respect to any material fact, or which will
omit to state any material fact necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier statement in the Joint Proxy Statement or any amendment or supplement
thereto. Each of the Company and Dana further agrees that if it shall become
aware prior to the Effective Date of any information that would cause any of the
statements in the Joint Proxy Statement to be false or misleading with respect
to any material fact, or to omit to state any material fact necessary to make
the statements therein not false or misleading, to promptly inform the other
party thereof and to take the necessary steps to correct the Joint Proxy
Statement.
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(c) In the case of Dana, Dana will advise the Company, promptly
after Dana receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, of the
issuance of any stop order or the suspension of the qualification of the Dana
Stock for offering or sale in any jurisdiction, of the initiation or threat of
any proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information.
6.4. Press Releases. It will not, without the prior approval of
the other party hereto, which approval shall not be unreasonably withheld or
delayed, issue any press release or written statement for general circulation
relating to the transactions contemplated hereby, except as otherwise required
by applicable law or regulation or the rules of the NYSE.
6.5. Access; Information. (a) Upon reasonable notice and subject
to applicable laws relating to the exchange of information, it shall, and shall
cause its Subsidiaries to, afford the other parties and their officers,
employees, counsel, accountants and other authorized representatives, access,
during normal business hours throughout the period prior to the Effective Date,
to all of its properties, books, contracts, commitments and records, and to its
officers, employees, accountants, counsel or other representatives, and, during
such period, it shall, and shall cause its Subsidiaries to, furnish promptly to
such other parties and representatives (i) a copy of each material report,
schedule and other document filed by it pursuant to the requirements of federal
or state securities or banking laws (other than reports or documents that Dana
or the Company, or their respective Subsidiaries, as the case may be, are not
permitted to disclose under applicable law), and (ii) all other information
concerning the business, properties and personnel of it as the other may
reasonably request. Neither Dana nor the Company nor any of their respective
Subsidiaries shall be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of its
customers, jeopardize the attorney-client privilege of the institution in
possession or control of such information or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under the circumstances in which
the restrictions of the preceding sentence apply.
(b) It will not use any information obtained pursuant to this
Section 6.5 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement and, if this Agreement is terminated, will
promptly destroy all information and documents obtained pursuant to this
paragraph. No investigation by either party of the business and affairs of the
other shall affect or be deemed to modify or waive any representation, warranty,
covenant or agreement in this Agreement, or the conditions to either party's
obligation to consummate the transactions contemplated by this Agreement.
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6.6. Acquisition Proposals. Without the prior written consent of
Dana, the Company shall not, shall cause its Subsidiaries not to, and shall use
best efforts to cause the Company's and its Subsidiaries' officers, directors,
agents, advisors and affiliates not to, facilitate, solicit or encourage any
inquiries or proposals, whether made prior to or after the date hereof, with
respect to, or engage in any negotiations concerning, or provide any information
to, or have any discussions with, any person relating to, any Competing
Transaction; provided, however that the Company's Board of Directors may, and
may authorize and permit its officers, directors, employees or agents to,
furnish information and participate in such discussions and negotiations if the
Company's Board of Directors, after having consulted with outside counsel, has
reasonably determined that the failure to provide information or participate in
negotiations and discussions in response to a proposed Competing Transaction
which may be a Superior Proposal would constitute a breach by the Board of
Directors of the Company of their fiduciary duties under applicable laws. Upon
such determination, the Company shall notify Dana of its taking of such actions
within 8 hours thereof.
6.7. Affiliate Agreements. (a) Not later than the 15th day prior
to the mailing of the Joint Proxy Statement, the Company shall deliver to Dana
and Dana shall deliver to the Company, a schedule of each person that, to the
best of its knowledge, is or is reasonably likely to be, as of the date of the
relevant Meeting, deemed to be an "affiliate" of it (each, an "Affiliate") as
that term is used in SEC Accounting Series Releases 130 and 135 and, in the case
of the Company only, in Rule 145 under the Securities Act.
(b) The Company and Dana shall use its respective reasonable best
efforts to cause each person who may be deemed to be an Affiliate of the Company
or Dana, as the case may be, to execute and deliver to the Company and Dana on
or before the date of mailing of the Joint Proxy Statement an agreement in the
form attached hereto as Exhibit B (in the case of affiliates of the Company) or
Exhibit C (in the case of affiliates of Dana).
(c) Dana shall use its reasonable best efforts to publish, not
later than 45 days after the end of the first full calendar month commencing
after the Effective Time occurs, financial results covering at least thirty (30)
days of post-Merger combined operations as contemplated by and in accordance
with the terms of SEC Accounting Series Release No. 135.
6.8. Takeover Laws. Neither party shall take any action that would
cause the transactions contemplated by this Agreement and the Stock Option
Agreement to be subject to requirements imposed by any Takeover Law and each of
them shall take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement and the
Stock Option Agreement from, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect,
including Sections 33-841 and 33-844 of the CBCA, Sections 13.1-725, 13.1-726
and 13.1-728 of the Virginia Stock Corporation Act and Takeover Laws of any
other State that purport to apply to this
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Agreement, the Stock Option Agreement or the transactions contemplated hereby or
thereby.
6.9. No Rights Triggered. Each of Company and Dana shall use their
respective reasonable best efforts to ensure that the entering into of this
Agreement and the consummation of the transactions contemplated hereby and any
other action or combination of actions, or any other transactions contemplated
hereby, do not and will not result in the grant of any rights to any person (i)
under any material agreement to which it or any of its Subsidiaries is a party
(including, in the case of the Company, the Company Rights Agreement), or (ii)
in the case of the Company, to exercise or receive certificates for Rights, or
acquire any property in respect of Rights, under the Company Rights Agreement.
6.10. Shares Listed. In the case of Dana, Dana shall use its best
efforts to list, prior to the Effective Date, on the NYSE, PSE and International
Stock Exchanges, upon official notice of issuance, the shares of Dana Common
Stock to be issued in the Merger.
6.11. Regulatory Applications. Dana and the Company and their
respective Subsidiaries shall cooperate and use their respective reasonable best
efforts (i) to prepare all documentation, to effect all filings, to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Entities necessary to consummate the transactions contemplated by
this Agreement, and to comply with the terms and conditions of such permits,
consents, approvals and authorizations and (ii) to cause the Merger to be
consummated as expeditiously as practicable. Each of Dana and the Company shall
have the right to review in advance, and to the extent practicable each will
consult with the other, in each case subject to applicable laws relating to the
exchange of information, with respect to, all material written information
submitted to any third party or any Governmental Entities in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto agrees to act reasonably and as promptly as
practicable. Each party hereto agrees that it will consult with the other
parties hereto with respect to the obtaining of all material permits, consents,
approvals and authorizations of all third parties and Governmental Entities
necessary or advisable to consummate the transactions contemplated by this
Agreement and each party will keep the other parties apprised of the status of
material matters relating to completion of the transactions contemplated hereby.
6.12. Indemnification; Directors' and Officers' Insurance. (a)
>From and after the Effective Time, Dana shall indemnify, defend and hold
harmless the present and former officers and directors of the Company in respect
of acts or omissions occurring on or prior to the Effective Time to the fullest
extent permitted by applicable law, including with respect to taking all actions
necessary to advance expenses to the extent permitted by applicable law.
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(b) Dana shall use its best efforts to cause the Surviving
Corporation or Dana to obtain and maintain in effect for a period of six years
after the Effective Time policies of directors' and officers' liability
insurance at no cost to the beneficiaries thereof with respect to acts or
omissions occurring on or prior to the Effective Time with substantially the
same coverage and containing substantially similar terms and conditions as
existing policies; provided, however, that neither the Surviving Corporation nor
Dana shall be required to pay an annual premium for such insurance coverage in
excess of 200% of the Company's current annual premium, but in such case shall
purchase as much coverage as possible for such amount.
(c) In the event Dana or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Dana shall
assume the obligations set forth in this Section 6.12.
(d) The provisions of this Section 6.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
6.13. Benefits Plans. (a) At and following the Effective Time,
Dana agrees that it shall honor all obligations of the Company or its
Subsidiaries under the severance plans, policies or agreements, and
indemnification agreements of the Company or its Subsidiaries set forth on
Section 5.3(m) of the Company Disclosure Schedule. Dana agrees to employ all key
management employees of the Company through October 31, 1998 and to employ the
employees of the Company set forth on Schedule 6.13(a) of the Company Disclosure
Schedule until January 31, 1999, and to give each employee at least one business
day's notice of any termination of such employee's employment thereafter.
(b) Dana shall, during the period commencing at the Effective Time
and ending on the first anniversary thereof, provide or cause the Company or its
Subsidiaries to provide the employees of the Company and its Subsidiaries with
benefits under employee benefit plans (other than plans involving the issuance
of stock-based awards) that are no less favorable in the aggregate than either
those benefits currently provided by the Company and its Subsidiaries to such
employees or provided by Dana and its Subsidiaries to similarly situated
employees of Dana and its Subsidiaries.
(c) The parties hereto agree that, except as provided on Section
6.13(c) of the Company Disclosure Schedule, the Merger and the other
transactions contemplated by this Agreement (including any stockholder approval
of the Merger and the appointment and election of directors under Section 2.3)
will not be treated as a Change in Control under any Compensation and Benefit
Plan of the Company or any of its Subsidiaries.
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(d) The Company shall be permitted to establish a retention pool in
an amount not to exceed $8.7 million in the aggregate to be paid to key
management employees of the Company who are employed by the Company at least
through October 31, 1998.
6.14. Notification of Certain Matters. Each of the Company and
Dana shall give prompt notice to the other of any fact, event or circumstance
known to it that (i) is reasonably likely, individually or taken together with
all other existing facts, events and circumstances known to it, to result in any
Material Adverse Effect with respect to it, or (ii) would cause or constitute a
material breach of any of its representations, warranties, covenants or
agreements contained herein.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of each of the parties to consummate the Merger is
conditioned upon the satisfaction (or waiver by the party for whose benefit the
applicable condition exists) of each of the following:
7.1. Shareholder Vote. Approval of the Plan of Merger
contained in this Agreement by the requisite votes of the stockholders of the
Company and of Dana, respectively.
7.2. Regulatory Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby, including the termination or
expiration of the waiting period under the HSR Act, shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired, other than any such regulatory approvals the
failure to obtain which are not reasonably likely, individually, in the
aggregate or together with all other existing facts, events and circumstances,
to result in any Material Adverse Effect with respect to the Company or Dana.
7.3. No Injunction, Etc. No order, decree or injunction of any
court or agency of competent jurisdiction shall be in effect, and no law,
statute or regulation shall have been enacted or adopted, that enjoins,
prohibits or makes illegal consummation of any of the transactions contemplated
hereby provided, however, that each of Dana and the Company shall have used its
best efforts to prevent any such rule, regulation, injunction, decree or other
order, and to appeal as promptly as possible any injunction, decree or other
order that may be entered.
7.4. Representations, Warranties and Covenants of Dana. In the
case of the Company's obligation to consummate the Merger: (i) each of the
representations and warranties contained herein of Dana shall be true and
correct as of the Effective Date with the same effect as though all such
representations and warranties
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<PAGE>
had been made on the Effective Date, except for any such representations and
warranties made as of a specified date, which shall be true and correct as of
such date, in any case subject to the standard set forth in Section 5.2, (ii)
each and all of the agreements and covenants of Dana to be performed and
complied with pursuant to this Agreement on or prior to the Effective Date shall
have been duly performed and complied with in all material respects, and (iii)
the Company shall have received a certificate signed by an executive officer of
Dana, dated the Effective Date, to the effect set forth in clauses (i) and (ii)
of this Section 7.5.
7.5. Representations, Warranties and Covenants of the Company. In
the case of Dana's obligation to consummate the Merger: (i) each of the
representations and warranties contained herein of the Company shall be true and
correct as of the Effective Date with the same effect as though all such
representations and warranties had been made on the Effective Date, except for
any such representations and warranties made as of a specified date, which shall
be true and correct as of such date, in any case subject to the standard set
forth in Section 5.2, (ii) each and all of the agreements and covenants of the
Company to be performed and complied with pursuant to this Agreement on or prior
to the Effective Date shall have been duly performed and complied with in all
material respects, and (iii) Dana shall have received a certificate signed by an
executive officer of the Company, dated the Effective Date, to the effect set
forth in clauses (i) and (ii) of this Section 7.5.
7.6. Effective Registration Statement. The Registration Statement
shall have become effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
Governmental Entity.
7.7. Tax Opinion. In the case of Dana, Dana shall have received an
opinion from Wachtell, Lipton, Rosen & Katz dated as of the Effective Time, and
in the case of the Company, the Company shall have received an opinion from
Davis Polk & Wardwell dated as of the Effective Time, each substantially to the
effect that, on the basis of the facts, representations, covenants and
assumptions set forth in such opinions or certificates of officers referred to
below, the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that
accordingly (other than in the case of the opinion of Davis Polk & Wardwell,
which shall not address (i)):
(i) No gain or loss will be recognized by Dana, Merger Sub, or the
Company as a result of the Merger;
(ii) No gain or loss will be recognized by the stockholders of the
Company who exchange all of their Company Common Stock solely for Dana Common
Stock pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Dana Common Stock); and
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<PAGE>
(iii) The aggregate tax basis of the Dana Common Stock received by
stockholders who exchange all of their Company Common Stock solely for Dana
Common Stock in the Merger will be the same as the aggregate tax basis of the
Company Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
In rendering such opinions, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of Dana, the Company and others, reasonably satisfactory in form and
substance to such counsel.
7.8. Exchange Listing. The shares of Dana Common Stock issuable
pursuant to this Agreement shall have been approved for listing on the NYSE,
subject to official notice of issuance.
7.9. Company Rights Agreement. Each of the representations and
warranties of the Company contained in Section 5.3(o) shall be true and correct
as of the Effective Time in all respects with the same effect as though such
representations and warranties had been made at the Effective Time, without
giving effect to the standard set forth in Section 5.2.
7.10. Accounting Treatment. Dana and the Company shall have
received from Price Waterhouse LLP, independent public accountants for Dana and
the Company, a letter, dated as of or shortly before the Effective Date, stating
its opinion that the Merger shall qualify for "pooling of interests" accounting
treatment.
A failure to satisfy any of the conditions set forth in Section 7.5 or 7.9 shall
only constitute conditions if asserted by Dana, and a failure to satisfy the
condition set forth in Section 7.4 shall only constitute a condition if asserted
by the Company, and a failure to satisfy the condition set forth in Section 7.7
shall only constitute a condition if asserted by the party which has not
received an opinion contemplated thereby to be delivered to such party.
ARTICLE VIII
TERMINATION
8.1. Termination. This Agreement may be terminated, and the Merger
may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by the
mutual consent of Dana and the Company in a written instrument, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board.
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<PAGE>
(b) Breach. At any time prior to the Effective Time, by Dana or the
Company (provided that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained herein), if
its Board of Directors so determines by vote of a majority of the members of its
entire Board, in the event of either: (i) a breach by the other party of any
representation or warranty contained herein (subject to the standard set forth
in Section 5.2), which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach; or
(ii) a material breach by the other party of any of the covenants or agreements
contained herein, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such breach.
(c) Delay. At any time prior to the Effective Time, by Dana or the
Company, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Merger is not consummated by
December 31, 1998, except to the extent that the failure of the Merger then to
be consummated arises out of or results from the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements of
such party set forth herein.
(d) No Approval. By the Company or Dana, if its Board of Directors
so determines by a vote of a majority of the members of its entire Board, in the
event (i) any Governmental Entity of competent jurisdiction shall have issued a
final nonappealable order enjoining or otherwise prohibiting the consummation of
the transactions contemplated by this Agreement, or (ii) any stockholder
approval required by Section 7.1 herein is not obtained at (x) the Company
Meeting or (y) the Dana Meeting.
(e) Company Recommendation. By the Board of Directors of Dana if
the Board of Directors of the Company shall or shall resolve to (i) not
recommend, or withdraw its approval or recommendation of, the Merger, this
Agreement or any of the transactions contemplated hereby, (ii) modify such
approval or recommendation in a manner adverse to Dana or Merger Sub, or (iii)
approve, recommend or fail to take a position that is adverse to any proposed
Competing Transaction.
(f) Dana Recommendation. By the Board of Directors of the Company
if the Board of Directors of Dana shall or shall resolve to (i) not recommend,
or withdraw its approval or recommendation of, the Merger, this Agreement or any
of the transactions contemplated hereby, or (ii) modify such approval or
recommendation in a manner adverse to the Company.
(g) Competing Transaction. By the Board of Directors of the Company
if to the extent permitted by Section 6.2, the Board of Directors of the Company
approves or recommends any Superior Proposal.
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<PAGE>
8.2. Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (i) as set forth in Section 9.1,
and (ii) that termination will not relieve a breaching party from liability for
any willful breach of this Agreement giving rise to such termination.
8.3. Break-up Expenses. (a) Provided that neither of Dana or
Merger Sub is in material breach of their representations, warranties and
agreements under this Agreement, (w) if this Agreement is terminated by the
Board of Directors of the Company pursuant to Section 8.1(g), (x) if this
Agreement is terminated by the Board of Directors of Dana pursuant to Section
8.1(e) and any Competing Transaction has been proposed or announced on or after
the date hereof, (y) if this Agreement is terminated by Dana pursuant to Section
8.1(d)(ii)(x) and any Competing Transaction has been proposed or announced on or
after the date hereof, or (z) if within 12 months of the termination of this
Agreement by Dana pursuant to Section 8.1(b), 8.1(c), 8.1(d)(ii)(x) or 8.1(e),
any Competing Transaction is entered into, agreed to or consummated by the
Company (any such event specified in clauses (w)-(z) of this Section 8.3, a
"Triggering Event"), then the Company shall pay to Dana (or to any Subsidiary of
Dana designated in writing by Dana to the Company) $87,500,000 (the "Termination
Fee") (less any Expense Fee that may previously have been paid or is payable in
the same circumstances) in same-day funds, on the date of such termination, in
the case of clause (w), (x), or (y), or on the earlier of the date an agreement
is entered into with respect to a Competing Transaction or a Competing
Transaction is consummated in the case of clause (z). In no event shall more
than one Termination Fee be payable under this Agreement.
(b) If this Agreement is terminated by either the Company or Dana
for any reason pursuant to Section 8.1(b), 8.1(e) or 8.1(f), then the
non-terminating party shall (notwithstanding Section 9.5), on the date of such
termination, pay to the terminating party (or to any Subsidiary of the
terminating party designated in writing to the other party) $5,000,000 (the
"Expense Fee") representing the cash amount necessary to compensate the
terminating party and its affiliates for all fees and expenses incurred at any
time prior to such termination by any of them or on their behalf in connection
with the Merger, the preparation of this Agreement and the transactions
contemplated by this Agreement.
(c) The parties acknowledge that the agreements contained in
paragraphs (a) and (b) of this Section 8.3 are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
they would not enter into this Agreement; accordingly, if any party fails to pay
promptly any amount due pursuant to this Section 8.3 and, in order to obtain
such payment, any other party commences a suit that results in a judgment
against any other party for any such amount, such first party shall pay to such
other party its cost and expenses (including attorneys' fees) in connection with
such suit, together with interest on the amount of
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<PAGE>
the fee at the prime or base rate of Citibank, N.A. from the date such payment
was due under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. All representations, warranties, agreements and
covenants contained in this Agreement shall not survive the Effective Time or
termination of this Agreement if this Agreement is terminated prior to the
Effective Time; provided, however, if the Effective Time occurs, the agreements
of the parties in Sections 3.4, 3.7, 6.7(c), 6.12, 6.13, 9.1, 9.4 and 9.8 shall
survive the Effective Time, and if this Agreement is terminated prior to the
Effective Time, the agreements of the parties in Sections 6.5(b), 8.2, 8.3, 9.1,
9.4, 9.5, 9.6, 9.7 and 9.8, shall survive such termination.
9.2. Waiver; Amendment. (a) Subject to compliance with applicable
law, prior to the Effective Time, any provision of this Agreement may be amended
or waived if, but only if, such amendment or waiver is in writing and is signed,
in the case of an amendment, by each party to this Agreement or in the case of a
waiver, by the party against whom the waiver is to be effective; provided that
after the adoption of this Agreement by the stockholders of the Company, no such
amendment or waiver shall, without the further approval of such stockholders,
reduce the amount or change the kind of consideration to be received in exchange
for any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
9.3. Counterparts. This Agreement may be executed in one
or more counterparts and by facsimile, each of which shall be deemed to
constitute an original.
9.4. Governing Law. (a) This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Connecticut, without
regard to the conflict of law principles thereof (except to the extent that
mandatory provisions of Federal law govern).
(b) Any suit, action or proceeding seeking to enforce any provision
of, or based on any matter arising out of or in connection with, this Agreement
or the transactions contemplated hereby may be brought in any federal court
located in the State of Connecticut or any Connecticut state court, and each of
the parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest
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<PAGE>
extent permitted by law, any objection which it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or
that any such suit, action or proceeding which is brought in any such court has
been brought in an inconvenient form. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 9.7
shall be deemed effective service of process on such party.
(c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
9.5. Expenses. Except as set forth in Section 8.3, each party
hereto will bear all expenses incurred by it in connection with this Agreement
and the transactions contemplated hereby, except that the costs of printing,
mailing and filing the Registration Statement with the SEC and the filings of
the pre-merger notification and report forms under the HSR Act (including filing
fees) shall be shared equally between the Company and Dana.
9.6. Confidentiality. Each of the parties hereto and their
respective agents, attorneys and accountants will maintain the confidentiality
of all information provided in connection herewith in accordance, and subject to
the limitations of, the Confidentiality Agreement. From and after the date
hereof, unless and until this Agreement shall have been terminated in accordance
with the terms hereof (and including that any Expense Fee or Termination Fee
shall have been paid to the extent payable in accordance with the terms hereof)
Section 10 of the Confidentiality Agreement shall no longer be of any force or
effect.
9.7. Notices. All notices, requests and other communications
hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Dana, to:
Dana Corporation
4500 Dorr Street
Toledo, Ohio 43615
Attention: Martin J. Strobel, Esq.
Telecopier: (419) 535-4544
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<PAGE>
With copies to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam O. Emmerich, Esq.
Telecopier: (212) 403-2234
If to the Company, to:
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405
Attention: Jon P. Leckerling, Esq.
Telecopier: (203) 481-3628
With copies to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John J. McCarthy, Jr., Esq.
Telecopier: (212) 450-4800
9.8. Understanding; No Third Party Beneficiaries. Except for the
Confidentiality Agreement (which shall remain in effect; provided, however, that
the provisions of Section 10 thereof will remain in effect as modified by
Section 9.6) and the Stock Option Agreements, this Agreement represents the
entire understanding of the parties hereto with reference to the transactions
contemplated hereby and thereby and supersede any and all other oral or written
agreements heretofore made. Except for Section 6.12, nothing in this Agreement,
expressed or implied, is intended to confer upon any person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
9.9. Interpretation; Absence of Presumption. (a) For the purposes
hereof, (i) words in the singular shall be held to include the plural and vice
versa and words of one gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph and Schedule and Exhibit references are to the Articles, Sections,
paragraphs, Schedules and Exhibits to this Agreement unless otherwise specified,
(iv) the word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified, (v) the word "or" shall not be
exclusive,
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<PAGE>
and (vi) provisions shall apply, when appropriate, to successive events and
transactions.
(b) This Agreement shall be construed without regard to any
presumption or rule requiring construction or interpretation against the Party
drafting or causing any instrument to be drafted.
9.10. Headings. The Section, Article and other headings contained
in this Agreement are inserted for convenience of reference only and shall not
affect the meaning or interpretation of this Agreement. All references to
Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
9.11. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
9.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy to which they are entitled at law or in equity.
9.13. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed in counterparts by their duly authorized officers, all as of the
day and year first above written.
ECHLIN INC.
By: /s/ Larry W. McCurdy
---------------------------------
Name: Larry W. McCurdy
Title: Chairman, President and
Chief Executive Officer
DANA CORPORATION
By: /s/ Southwood J. Morcott
---------------------------------
Name: Southwood J. Morcott
Title: Chairman and Chief Executive
Officer
ECHO ACQUISITION CORP.
By: /s/ Martin J. Strobel
---------------------------------
Name: Martin J. Strobel
Title: Vice President
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of May 3, 1998, between Echlin
Inc., a Connecticut corporation ("Issuer"), and Dana Corporation, a Virginia
corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan
of Merger of even date herewith (the "Merger Agreement"), which agreement has
been executed by the parties hereto simultaneously with this Stock Option
Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 12,655,345 fully paid and nonassessable shares
of Issuer's Common Stock, par value $1.00 per share ("Common
Stock"), at an aggregate price of $55 per share (the "Option
Price"); provided, however, that in no event shall the number of
shares of Common Stock for which this Option is exercisable exceed
19.9% of the Issuer's issued and outstanding shares of Common
Stock without giving effect to any shares subject to or issued
pursuant to the Option. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
either (i) issued or otherwise become outstanding after the date
of this Agreement (other than pursuant to this Agreement), or (ii)
redeemed, repurchased, retired or otherwise cease to be
outstanding after the date of the Agreement, the number of shares
of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance, such
number equals 19.9% of the number of shares of Common Stock then
issued and outstanding without giving effect to any shares subject
or issued pursuant to the Option. Noth-
<PAGE>
ing contained in this Section 1(b) or elsewhere in this Agreement
shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if,
a Triggering Event (as defined in Section 8.3(a) of the Merger
Agreement) shall have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined), provided that
the Holder shall have sent the written notice of such exercise (as
provided in subsection (c) of this Section 2 within 60 days
following such Triggering Event. Each of the following shall be an
"Exercise Termination Event": (i) the Effective Time (as defined
in the Merger Agreement) of the Merger; or (ii) the passage of 12
months after termination of the Merger Agreement. The term
"Holder" shall mean the holder or holders of the Option.
(b) Issuer shall notify Grantee promptly in writing of the
occurrence of any Triggering Event of which it has knowledge, it
being understood that the giving of such notice by Issuer shall
not be a condition to the right of the Holder to exercise the
Option, but that the 60-day time period set forth in the prior
subsection shall not commence until the giving of such notice.
(c) In the event the Holder is entitled to and wishes to exercise
the Option, it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying
(i) the total number of shares it will purchase pursuant to such
exercise and (ii) a place and date not earlier than three business
days nor later than 60 days from the Notice Date for the closing
of such purchase (the "Closing Date"); provided that if prior
notification to or approval of any regulatory agency is required
in connection with such purchase, the Issuer and the Holder shall
promptly file the required notice or application for approval and
shall cooperate and use reasonable best efforts to expeditiously
process the same, and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which
any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting
period or periods shall have passed; provided further that if any
such required notification periods have not expired or been
terminated or such approvals have not been obtained or any
requisite waiting period or periods shall not have passed on or
prior to the 12-month anniversary of the Notice Date, despite the
Issuer's compliance with all of its obligations hereunder, the
provisions of Section 7(a)(i) shall be deemed to have been
invoked, without regard to the expiration of any time periods that
might otherwise apply thereto, and the
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<PAGE>
Issuer shall thereupon immediately pay to the Holder the Option
Repurchase Price. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(d) At the closing referred to in subsection (c) of this Section
2, the Holder shall pay to Issuer the aggregate purchase price for
the shares of Common Stock purchased pursuant to the exercise of
the Option in immediately available funds by wire transfer to a
bank account designated by Issuer, provided that failure or
refusal of Issuer to designate such a bank account shall not
preclude the Holder from exercising the Option.
(e) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (d) of this
Section 2, Issuer shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock
purchased by the Holder and, if the Option should be exercised in
part only, a new Option evidencing the rights of the Holder
thereof to purchase the balance of the shares purchasable
hereunder, and the Holder shall deliver to Issuer a copy of this
Agreement and a letter agreeing that the Holder will not offer to
sell or otherwise dispose of such shares in violation of
applicable law or the provisions of this Agreement.
(f) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall
read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933
Act"), in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Holder
shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend
is not required for purposes of the 1933 Act; (ii) the reference
to the provisions to this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under
circum-
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<PAGE>
stances that do not require the retention of such reference;
and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other
legend as may be required by law.
(g) Upon the giving by the Holder to Issuer of the written notice
of exercise of the Option provided for under subsection (c) of
this Section 2 and the tender of the applicable purchase price in
immediately available funds, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the
Holder. Issuer shall pay all expenses, and any and all United
States federal, state and local taxes and other charges that may
be payable in connection with the preparation, issue and delivery
of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or
treasury shares of Common Stock so that the Option may be
exercised without additional authorization of Common Stock after
giving effect to all other options, warrants, convertible
securities and other rights to purchase Common Stock; (ii) that it
will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder by Issuer; (iii) use its best
efforts to promptly take all action as may from time to time be
required (including (x) complying with all premerger notification,
reporting and waiting period requirements specified in the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
and regulations promulgated thereunder and (y) in the event prior
approval of or notice to any regulatory authority is necessary
before the Option may be exercised, cooperating fully with the
Holder in preparing such applications or notices and providing
such information to such regulatory authority as they may require)
in order to permit the Holder to exercise the Option and Issuer
duly and effectively to issue shares of Common Stock pursuant
hereto; and (iv) use its best efforts to promptly take all action
provided herein to protect the rights of the Holder against
dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal
office of Issuer, for other Agreements providing for Options of
different denominations entitling the holder thereof to purchase,
on the same terms and subject
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<PAGE>
to the same conditions as are set forth herein, in the aggregate
the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any
Stock Option Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon
receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and
(in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver
a new Agreement of like tenor and date. Any such new Agreement
executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so
lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option
pursuant to Section 1 of this Agreement, the number of shares of
Common Stock purchasable upon the exercise of the Option and the
Option Price shall be subject to adjustment from time to time as
provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on
or in respect of the Common Stock, in each case, that would be
prohibited under the terms of the Merger Agreement, the type and
number of shares of Common Stock purchasable upon exercise hereof
and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations
hereunder.
6. Upon the occurrence of a Triggering Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 60 days of such Triggering Event (whether
on its own behalf or on behalf of any subsequent holder of this
Option (or part thereof) or any of the shares of Common Stock
issued pursuant hereto), promptly prepare, file and keep current a
shelf registration statement under the 1933 Act covering this
Option and any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such
registration statement to become effective and remain current in
order to permit the sale or other disposition of this Option and
any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its rea-
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sonable best efforts to cause such registration statement first to
become effective and then to remain effective for such period not
in excess of 120 days from the day such registration statement
first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations. The
foregoing notwithstanding, if, at the time of any request by
Grantee for registration of the Option or Option Shares as
provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in
the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters,
of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares
otherwise to be covered in the registration statement contemplated
hereby may be reduced; and provided, however, that after any such
required reduction the number of Option Shares to be included in
such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that
if such reduction occurs, then the Issuer shall file a
registration statement for the balance as promptly as practical
and no reduction shall thereafter occur. Each such Holder shall
provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registration,
Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating
itself in respect of representations, warranties, indemnities and
other agreements customarily included in secondary offering
underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to
registration rights under this Section 6, in each case by promptly
mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies. Notwithstanding anything
to the contrary contained herein, in no event shall Issuer be
obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one
Grantee as a result of any assignment or division of this
Agreement.
7. (a) At any time from or after the occurrence of a Triggering
Event, (i) at the request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto)
shall repurchase the Option from the Holder at a price (the
"Option Repurchase Price") equal to the amount by which (A) the
Market/Offer Price (as
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defined below) exceeds (B) the Option Price, multiplied by the
number of shares for which this Option may then be exercised and
(ii) at the request of the owner of Option Shares from time to
time (the "Owner"), delivered within 60 days of such occurrence
(or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase
Price") equal to the Market/Offer Price multiplied by the number
of Option Shares so designated. The term "Market/Offer Price"
shall mean the highest of (i) the highest price per share of
Common Stock to be paid or received in connection with or as a
result of such Triggering Event (including, in the event of a
sale of all or a substantial portion of Issuer's assets, the sum
of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the
Holder or the Owner, as the case may be, and reasonably
acceptable to the Issuer, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale), or
(ii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder
gives notice of the required repurchase of this Option or the
Owner gives notice of the required repurchase of Option Shares,
as the case may be. In determining the Market/Offer Price, the
value of consideration other than cash shall be determined by a
nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to
the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any
Option Shares pursuant to this Section 7 by surrendering for such
purpose to Issuer, at its principal office, a copy of this
Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to
repurchase this Option and/or the Option Shares in accordance with
the provisions of this Section 7. Within the latter to occur of
(x) five business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such
notice or notices relating thereto and (y) the time that is
immediately prior to the occurrence of a Triggering Event, Issuer
shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase
Price therefor or the portion thereof, if any, that Issuer is not
then prohibited under applicable law and regulation from so
delivering or with respect to which Issuer does not require the
approval (or has obtained such ap-
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proval) of its stockholders pursuant to Article VIII of Issuer's
Amended Certificate of Incorporation.
(c) To the extent that Issuer is prohibited under applicable law
or regulation from repurchasing, or requires any approval of its
stockholders to repurchase, the Option and/or the Option Shares in
full, Issuer shall immediately so notify the Holder and/or the
Owner and thereafter deliver or cause to be delivered, from time
to time, to the Holder and/or the Owner, as appropriate, the
portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited
from delivering, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 7 is prohibited under
applicable law or regulation from delivering, or requires any
approval of its stockholders to deliver, to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option
Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its best efforts to obtain such approval of its
stockholders and all required regulatory and legal approvals and
to file any required notices, in each case as promptly as
practicable in order to accomplish such repurchase), the Holder or
Owner may revoke its notice of repurchase of the Option or the
Option Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, Issuer shall promptly (i) deliver
to the Holder and/or the Owner, as appropriate, that portion of
the Option Repurchase Price or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver,
as appropriate, either (A) to the Holder, a new Stock Option
Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the
Option Repurchase Price less the portion thereof theretofore
delivered to the Holder and the denominator of which is the Option
Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing.
(d) The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event
unless no Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or
merge
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into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge
into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then
outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other person or
cash or any other property or the then outstanding shares of
Common Stock shall after such merger represent less than 50% of
the outstanding voting shares and voting share equivalents of the
merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee
or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provision
so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined), or (y) any person
that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(A) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or
merger with Issuer (if other than Issuer), (ii) Issuer in
a merger in which Issuer is the continuing or surviving
person, and (iii) the transferee of all or substantially
all of Issuer's assets.
(B) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(C) "Assigned Value" shall mean the Market/Offer Price,
as defined in Section 7.
(D) "Average Price" shall mean the average closing price
of a share of the Substitute Common Stock for the 45
business days immediately preceding the consolidation,
merger or sale in question; provided that if Issuer is
the issuer of the Substitute Option, the Average Price
shall be computed with respect to a share of common stock
issued by the person merging into Issuer or by any
company which controls or is controlled by such person,
as the Holder may elect.
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<PAGE>
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option
cannot, for legal reasons, be the same as the Option, such terms
shall be as similar as possible and in no event less advantageous
to the Holder. The issuer of the Substitute Option shall also
enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned
Value multiplied by the number of shares of Common Stock for which
the Option is then exercisable, divided by the Average Price. The
exercise price of the Substitute Option per share of Substitute
Common Stock shall then be equal to the Option Price multiplied by
a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute
Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing subsections,
shall the Substitute Option be exercisable for more than 19.9% of
the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the
Substitute Option would be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise
but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder
equal to the excess of (i) the value of the Substitute Option
without giving effect to the limitation in this clause (e) over
(ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be
determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and
reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation
and any person that controls the Acquiring Corporation assume in
writing all the obligations of Issuer hereunder.
9. (a) Prior to the Exercise Termination Date, at the request of
the holder of the Substitute Option (the "Substitute Option
Holder"), the Substitute Option Issuer shall repurchase the
Substitute Option from the Substitute Option Holder at a price
(the "Substitute Option Repurchase Price") equal to (x) the amount
by which (i) the Highest Closing Price (as hereinafter defined)
exceeds (ii) the exercise price of
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<PAGE>
the Substitute Option, multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then
be exercised plus (y) Grantee's reasonable out-of-pocket expenses
(to the extent not previously reimbursed), and at the request of
the owner (the "Substitute Share Owner") of shares of Substitute
Common Stock (the "Substitute Shares"), the Substitute Option
Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to (x) the Highest
Closing Price multiplied by the number of Substitute Shares so
designated plus (y) Grantee's reasonable Out-of-Pocket Expenses
(to the extent not previously reimbursed). The term "Highest
Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately
preceding the date the Substitute Option Holder gives notice of
the required repurchase of the Substitute Option or the
Substitute Share Owner gives notice of the required repurchase of
the Substitute Shares, as applicable.
(b) Prior to the Exercise Termination Date, the Substitute Option
Holder and the Substitute Share Owner, as the case may be, may
exercise its respective right to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose
to the Substitute Option Issuer, at its principal office, the
agreement for such Substitute Option (or, in the absence of such
an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share
Owner, as the case may be, elects to require the Substitute Option
Issuer to repurchase the Substitute Option and/or the Substitute
Shares in accordance with the provisions of this Section 9. As
promptly as practicable, and in any event within five business
days after the surrender of the Substitute Option and/or
certificates representing Substitute Shares and the receipt of
such notice or notices relating thereto, the Substitute Option
Issuer shall deliver or cause to be delivered to the Substitute
Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price
therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable
law and regulation, or under any express provision of its
certificate of incorporation or similar charter document requiring
prior stockholder approval, from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing, or requires
any approval of its stockholders pursuant to its certificate of
incorporation or similar charter document to repurchase, the
Substitute Option and/or the Substitute Shares in part or in full,
the Substitute Option
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<PAGE>
Issuer following a request for repurchase pursuant to this
Section 9 shall immediately so notify the Substitute Option
Holder and/or the Substitute Share Owner and thereafter deliver
or cause to be delivered, from time to time, to the Substitute
Option Holder and/or the Substitute Share Owner, as appropriate,
the portion of the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering,
within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that
if the Substitute Option Issuer is at any time after delivery of
a notice of repurchase pursuant to subsection (b) of this Section
9 prohibited under applicable law or regulation from delivering,
or requires the any approval of its stockholders under its
certificate of incorporation or similar charter document to
deliver, to the Substitute Option Holder and/or the Substitute
Share Owner, as appropriate, the Substitute Optio Repurchase
Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts
to obtain any such required stockholder approval and all required
regulatory and legal approvals, in each case as promptly as
practicable, in order to accomplish such repurchase), the
Substitute Option Holder or Substitute Share Owner may revoke its
notice of repurchase of the Substitute Option or the Substitute
Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall
promptly (i) deliver to the Substitute Option Holder or
Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share
Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Substitute Option Holder, a new Substitute
Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock
obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase
by a fraction, the numerator of which is the Substitute Option
Repurchase Price less the portion thereof theretofore delivered
to the Substitute Option Holder and the denominator of which is
the Substitute Option Repurchase Price, or (B) to the Substitute
Share Owner, a certificate for the Substitute Common Shares it is
then so prohibited from repurchasing.
10. The 60-day period for exercise of certain rights under
Sections 2, 6, 7 and 14 shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of
such rights, for the expiration of all statutory waiting periods,
and to the extent required to obtain any required stockholder
approval or until such stockholder approval is no longer required
pursuant to the relevant certificate of
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incorporation or similar charter document; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act
by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of
Issuer and no other corporate proceedings on the part of Issuer
(other than the shareholder approval referred to in Sections 7(b)
and 9(a)) are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the
date hereof through the termination of this Agreement in
accordance with its terms will have reserved for issuance upon the
exercise of the Option, that number of shares of Common Stock
equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly
issued, fully paid, nonassessable, and will be delivered free and
clear of all claims, liens, encumbrance and security interests and
not subject to any preemptive rights.
(c) Issuer has taken all action (including if required redeeming
all of the Rights or amending or terminating the Rights Agreement)
so that the entering into of this Option Agreement, the
acquisition of shares of Common Stock hereunder and the other
transactions contemplated hereby do not and will not result in the
grant of any rights to any person under the Rights Agreement or
enable or require the Rights to be exercised, distributed or
triggered.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by
Grantee.
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<PAGE>
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option
will not be, acquired with a view to the public distribution
thereof and will not be transferred or otherwise disposed of
except in a transaction registered or exempt from registration
under the Securities Act.
13. (a) Notwithstanding anything to the contrary contained
herein, in no event shall Grantee's Total Profit (as defined below
in Section 13(c)) exceed $35 million.
(b) Notwithstanding anything to the contrary contained herein,
the Option may not be exercised for a number of shares as would,
as of the date of exercise, result in a Notional Total Profit (as
defined below in Section 13(d)) of more than $35 million;
provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount
received by Grantee pursuant to Issuer's repurchase of the Option
(or any portion thereof) pursuant to Section 7, (ii) (x) the
amount received by Grantee pursuant to Issuer's repurchase of
Option Shares pursuant to Section 7, less (y) Grantee's purchase
price for such Option Shares, and (iii) any equivalent amount with
respect to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with respect
to any number of shares as to which Grantee may propose to
exercise the Option shall be the Total Profit determined as of the
date of such proposed exercise assuming that the Option were
exercised on such date for such number of shares and assuming that
such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the
closing market price for the Common Stock as of the close of
business on the preceding trading day (less customary brokerage
commissions).
14. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent
of the other party, except that Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and
obligations hereunder to any of its wholly owned subsidiaries.
15. Each of Grantee and Issuer will use its best efforts to make
all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including making
application to list
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<PAGE>
the shares of Common Stock issuable hereunder on the New York
Stock Exchange upon official notice of issuance.
16. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be
enforceable by either party hereto through injunctive or other
equitable relief.
17. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and
covenants and restrictions contained in this Agreement shall
remain in full force and effect, and shall in no way be affected,
impaired or invalidated. If for any reason such court or
regulatory agency determines that the Holder is not permitted to
acquire, or Issuer is not permitted to repurchase pursuant to
Section 7, the full number of shares of Common Stock provided in
Section 1(a) (as adjusted pursuant to Section 1(b) or 5), it is
the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as
may be permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed
given if personally delivered, telecopied (with confirmation) or
mailed by registered or certified mail (return receipt requested)
at the respective addresses of the parties set forth in the Merger
Agreement.
19. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut, regardless
of the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.
20. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own
financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement
between the parties with respect to the transactions contemplated
hereunder and
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<PAGE>
supersedes all prior arrangements or understandings with
respect thereof, written or oral. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto,
and their respective successors except as assigns, any rights,
remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger
Agreement.
24. Subject to compliance with applicable law, prior to the
Effective Time, any provision hereof may be (i) waived by the
party benefited by the provision, or (ii) amended or modified at
any time, by an agreement in writing between the parties hereto
approved by their respective Boards of Directors and executed in
the same manner as this Agreement.
25. The provisions of Sections 9.9 and 9.10 of the Merger
Agreement shall apply equally to this Agreement as if included
herein.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
ECHLIN INC.
By: /s/ Larry W. McCurdy
------------------------------
Name: Larry W. McCurdy
Title: Chairman, President and
Chief Executive Officer
DANA CORPORATION
By: /s/ Southwood J. Morcott
------------------------------
Name: Southwood J. Morcott
Title: Chairman and Chief Executive
Officer
