PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DYNAMIC MATERIALS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE>
DYNAMIC MATERIALS CORPORATION
551 Aspen Ridge Drive
Lafayette, Colorado 80026
Dear Stockholder: March __, 2000
You are cordially invited to attend a special meeting of the stockholders
of Dynamic Materials Corporation, a Delaware corporation ("DMC"), to be held at
the offices of DMC located at 551 Aspen Ridge Drive, Lafayette, Colorado 80026
on __, April __, 2000, at 10:00 a.m., Mountain Standard Time.
At the special meeting, you will be asked to consider and vote upon the
approval of a transaction (the "Transaction") in which DMC will issue to SNPE,
Inc. (i) 2,109,091 shares of the common stock of DMC priced at $2.75 per share
and (ii) a convertible subordinated note of DMC due on the date that is five
years from the closing date of the Transaction, in the principal amount of $1.2
million, convertible in whole or in part by SNPE, Inc. at any time before
maturity into common stock of DMC at a conversion price of $6.00 per share. DMC
will receive in cash at closing $5.8 million as the purchase price for the
common stock and $1.2 million borrowed under the convertible subordinated note,
for a total of $7 million.
SNPE, Inc. currently owns approximately 14.30% of DMC's outstanding common
stock, and will acquire a controlling interest in DMC as a result of the
Transaction. Following completion of the Transaction, SNPE, Inc. will own
approximately 50.80% of DMC's outstanding common stock on a non-diluted basis
before conversion of the convertible subordinated note, or approximately 52.70%
of DMC's outstanding common stock if the convertible subordinated note is
converted. SNPE, Inc. has agreed to vote for the Transaction.
DMC plans to use the $7 million in cash received in the Transaction
primarily to repay debt, to finance working capital requirements and to make
selective capital investments in its businesses. In addition, DMC expects to
benefit from certain synergies with the explosion bonded clad metal products
business of SNPE, Inc. and its affiliates.
The DMC board of directors has approved the proposed Transaction with
SNPE, Inc. and has concluded that the Transaction is fair to the stockholders of
DMC, other than SNPE, Inc. The board of directors recommends that the
stockholders vote for the Transaction.
We urge you to consider carefully the information in the accompanying
proxy statement materials. It is important to us that your vote be represented.
In order to ensure that your vote is represented, please indicate your decision
on the enclosed proxy card, and date, sign and return it in the enclosed
envelope.
Sincerely,
/s/ JOSEPH P. ALLWEIN
Joseph P. Allwein
President and Chief Executive Officer
<PAGE>
DYNAMIC MATERIALS CORPORATION
551 Aspen Ridge Drive
Lafayette, Colorado 80026
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL __, 2000
To the Stockholders of
DYNAMIC MATERIALS CORPORATION: March __, 2000
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of DYNAMIC
MATERIALS CORPORATION, a Delaware corporation ("DMC"), will be held on __,
April __, 2000, at 10:00 a.m., Mountain Standard Time, at the offices of DMC
located at 551 Aspen Ridge Drive, Lafayette, Colorado, 80026 for the following
purposes:
1. To approve a transaction in which DMC will issue to SNPE, Inc. (i)
2,109,091 shares of the common stock of DMC priced at $2.75 per share and (ii) a
convertible subordinated note of DMC due on the date that is five years from the
closing date of the Transaction, in the principal amount of $1.2 million,
convertible in whole or in part at any time before maturity into common stock of
DMC at a conversion price of $6.00 per share.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice, which you are urged to read carefully. A
copy of the Stock Purchase Agreement dated as of January 20, 2000 between DMC
and SNPE, Inc. is attached as appendix A to the accompanying proxy statement,
and a copy of the convertible subordinated note of DMC in favor of SNPE, Inc. is
attached as appendix B to the accompanying proxy statement.
The board of directors of DMC has fixed the close of business on March 13,
2000, as the record date for the determination of stockholders entitled to
notice of, and to vote at, the special meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ Richard A. Santa
RICHARD A. SANTA
Vice President, Finance, Chief Financial
Officer and Secretary
<PAGE>
TABLE OF CONTENTS
Page
SPECIAL MEETING...............................................................1
Date, Time and Place....................................................1
Recommendation of the Board of Directors................................1
Record Date.............................................................1
Votes Required..........................................................2
Voting and Revocation of Proxies........................................2
Solicitation of Proxies.................................................2
SUMMARY.......................................................................4
The Proposal............................................................4
DMC.....................................................................4
SNPE....................................................................5
Relationship between DMC and SNPE.......................................5
Background of and Reasons for the Transaction...........................5
Material Terms of the Transaction.......................................7
Recommendation of the Board of Directors................................9
Opinions of Financial Advisors..........................................9
Interests of Certain Persons in the Transaction........................10
Effects of the Proposal on Existing Holders of Common Stock............11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................................12
Section 16(a) Beneficial Ownership Reporting Compliance................13
RELATIONSHIP WITH SNPE.......................................................13
THE PROPOSAL.................................................................14
Background of the Transaction..........................................14
Reasons for the Transaction............................................21
Opinion of TWC Regarding the Transaction...............................23
Opinion of Stifel Regarding the Transaction............................31
Interests of Certain Persons in the Transaction........................37
Effects of the Transaction on the Rights of Stockholders...............39
MATERIAL TERMS OF THE TRANSACTION............................................40
Stock Purchase Agreement...............................................40
Convertible Subordinated Note..........................................44
Registration Rights Agreement..........................................44
CAPITALIZATION...............................................................46
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY..............................48
Common Stock...........................................................48
Preferred Stock........................................................48
Preferred Share Purchase Rights........................................48
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................52
INDEPENDENT AUDITORS.........................................................52
STOCKHOLDER PROPOSALS........................................................53
DIRECTORS TO BE DESIGNATED BY SNPE PRIOR TO THE NEXT ANNUAL
STOCKHOLDERS MEETING OF DMC............................................53
-i-
<PAGE>
OTHER MATTERS................................................................54
AVAILABLE INFORMATION........................................................54
APPENDICES
APPENDIX A -- Stock Purchase Agreement
APPENDIX B -- Convertible Subordinated Note
APPENDIX C -- Registration Rights Agreement
APPENDIX D -- Opinion of The Wallach Company
APPENDIX E -- Opinion of Stifel, Nicolaus & Company, Incorporated
-ii-
<PAGE>
DYNAMIC MATERIALS CORPORATION
PROXY STATEMENT
This proxy statement is being furnished to the stockholders of Dynamic
Materials Corporation, a Delaware corporation ("DMC"), in connection with the
solicitation of proxies by DMC's board of directors from the holders of
outstanding shares of DMC's common stock, par value $.05 per share, of record on
March 13, 2000, for use at the special meeting of stockholders of DMC to be held
on __, April __, 2000, and at any adjournments or postponements of the special
meeting.
This proxy statement is first being mailed to stockholders on or about
April __, 2000.
SPECIAL MEETING
DATE, TIME AND PLACE
This proxy statement is furnished in connection with the solicitation by
the board of directors of proxies from the holders of common stock for use at
the special meeting to be held on ___, April ___, 2000, at 10:00 a.m., Mountain
Standard Time, at the offices of DMC located at 551 Aspen Ridge Drive,
Lafayette, Colorado 80026, or at any adjournment(s) or postponement(s) of the
special meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors recommends that the stockholders vote for approval
of the transaction (the "Transaction") in which DMC will issue to SNPE, Inc.
(i) 2,109,091 shares of the common stock of DMC priced at $2.75 per share and
(ii) a convertible subordinated note of DMC due on the date that is five years
from the closing date of the Transaction, in the principal amount of $1.2
million, convertible in whole or in part by SNPE, Inc. at any time before
maturity into common stock of DMC at a conversion price of $6.00 per share, as
adjusted. DMC will receive in cash at closing $5.8 million as the purchase price
for the common stock and $1.2 million borrowed under the convertible
subordinated note, for a total of $7 million. Upon completion of the
Transaction, SNPE, Inc. will own approximately 50.80% of DMC's outstanding
common stock and will have voting control of DMC. Mr. Franson, a Director of
DMC, is a principal in The Wallach Company ("TWC"), the financial advisor to DMC
in connection with the Transaction. TWC will receive fees for serving as
financial advisor, a portion of which is contingent upon stockholder approval
and closing of the Transaction.
RECORD DATE
The board of directors has fixed the close of business on March 13, 2000
as the record date for the special meeting. Only stockholders of record as of
the close of business on March 13, 2000 will be entitled to notice of and to
vote at the special meeting or any adjournment of the special meeting.
<PAGE>
VOTES REQUIRED
As of the close of business on the record date, DMC had outstanding
2,842,429 shares of common stock, held of record by approximately 318 registered
holders. Holders of the common stock are entitled to one vote per share. The
presence in person or by proxy of the holders of a majority of the outstanding
shares of common stock entitled to vote at the special meeting constitutes a
quorum. Broker non-votes and shares as to which a stockholder abstains from
voting will be counted for purposes of determining whether there is a quorum at
the special meeting. The affirmative vote of a majority of the shares of common
stock cast at the special meeting in person or by properly executed proxies is
required to approve the Transaction. Thus broker non-votes and abstentions have
no effect on whether the Transaction is approved.
As of March 13, 2000, directors and officers of DMC owned beneficially an
aggregate of 317,364 shares of common stock (including shares which may be
acquired upon exercise of employee stock options) or approximately 10.54% of the
common stock outstanding on such date, and SNPE, Inc. owned 406,400 shares of
common stock, or 14.30% of the common stock outstanding on such date. Directors
and executive officers of DMC and SNPE, Inc. have indicated their intention to
vote their shares of DMC's stock in favor of the Transaction.
VOTING AND REVOCATION OF PROXIES
The enclosed proxy card is solicited on behalf of DMC's board of
directors. The giving of a proxy does not preclude the right to vote in person
should any stockholder giving the proxy so desire. Each Stockholder has an
unconditional right to revoke his or her proxy at any time prior to its
exercise, either by filing with DMC's Secretary at DMC's principal executive
offices, 551 Aspen Ridge Road, Lafayette, Colorado 80026, a written revocation
or a duly executed proxy bearing a later date or by voting in person at the
special meeting. Attendance at the special meeting without casting a ballot will
not, by itself, constitute revocation of a proxy.
DMC's board of directors is not currently aware of any business to be
acted upon at the special meeting of the Stockholders other than as described in
the proxy statement. If, however, other matters are properly brought before the
special meeting or any adjournments or postponements of the special meeting, the
persons appointed as proxies will have discretion to vote or act on those
matters according to their best judgment. Stockholders of DMC are not entitled
to present any matters for consideration at the special meeting.
SOLICITATION OF PROXIES
The cost of preparing, assembling and mailing this proxy statement, the
notice of special meeting of stockholders and the enclosed proxy card will be
borne by DMC. Banks, brokers and other custodians, nominees and fiduciaries will
be requested to forward soliciting materials to beneficial owners, and will be
reimbursed for their reasonable expenses in doing so. In addition to the
solicitation of proxies by mail, the directors, officers and employees of DMC
and its subsidiaries may, without receiving any additional compensation, solicit
proxies by telephone, telefax, telegram or in person. DMC has retained Corporate
Investor Communications to assist in the solicitation of proxies from its
stockholders. The fees to be paid to Corporate Investor Communications are not
expected to exceed $6,000, plus reasonable out-of-pocket costs and expenses.
-2-
<PAGE>
No person is authorized to give any information or make any representation
not contained in this proxy statement, and if given or made, such information or
representation should not be relied upon as being authorized.
-3-
<PAGE>
SUMMARY
The following summary highlights selected information contained elsewhere
in this proxy statement. This summary may not contain all of the information
that is important to you, and is qualified in its entirety by the more detailed
information contained elsewhere in this proxy statement, including the
appendices to it, and in the documents incorporated by reference. To understand
the proposed Transaction fully and for a more complete description of the terms
of the proposed Transaction, you should read carefully this entire proxy
statement, including the appendices to it, and the documents incorporated by
reference.
THE PROPOSAL
Stockholders are being asked to approve the Transaction under which DMC
will issue to SNPE, Inc.
(i) 2,109,091 shares of the common stock priced at $2.75 per
share pursuant to a Stock Purchase Agreement between DMC and SNPE, Inc.
dated as of January 20, 2000 (the "Stock Purchase Agreement"); and
(ii) The convertible subordinated note, due on the date which is five
years from the closing date of the Transaction, in the principal amount of $1.2
million, bearing interest at a rate of 5% per annum, convertible in whole or in
part at any time before maturity into common stock at a conversion price of
$6.00 per share, as adjusted. If the convertible subordinated note were
converted in its entirety at the $6.00 per share conversion price, an additional
200,000 shares of the common stock would be issued to SNPE, Inc.
DMC will receive in cash on the closing date of the Transaction $5.8
million as the purchase price for the common stock and $1.2 million borrowed
under the convertible subordinated note, for a total of $7 million. Upon the
completion of the Transaction, SNPE, Inc. will own approximately 50.80% of DMC's
outstanding common stock and will have voting control of DMC.
Both the newly issued shares of common stock and the shares of common
stock issuable upon conversion of the convertible subordinated note will be
entitled to registration rights pursuant to a registration rights agreement
between DMC and SNPE, Inc. to be executed on the closing date. See "MATERIAL
TERMS OF THE TRANSACTION."
DMC
DMC is engaged in the manufacture of explosion bonded clad metal products
for the petrochemical and chemical processing industries, a business generally
referred to as the bonding business, and in high precision metal forming,
machining, welding and assembly for the aerospace, defense, satellite launch
vehicle and other industries.
-4-
<PAGE>
SNPE
SNPE, Inc. is a wholly owned indirect subsidiary of SNPE S.A.
SNPE S.A., also known as GROUPE SNPE, is a French corporation wholly
owned by the government of France. Use of the name SNPE throughout
this proxy statement refers to any one or more of GROUPE SNPE and/or
its affiliates and subsidiaries as context requires.
GROUPE SNPE is composed of two main business areas, the energetic
materials business area and the fine chemicals and life science business area.
The energetic materials business area includes four distinct business lines:
explosives and propellants, advanced technologies and propulsion, hunting and
shooting and commercial explosives & metal cladding. The fine chemicals and life
science business area includes three distinct business units: intermediates &
agrochemical, pharmaceuticals, nitrocellulose and cosmetics.
RELATIONSHIP BETWEEN DMC AND SNPE
SNPE currently owns 406,400 shares or approximately 14.30% of the
outstanding shares of common stock of DMC. DMC has been party to certain
litigation with SNPE. See "RELATIONSHIP WITH SNPE."
BACKGROUND OF AND REASONS FOR THE TRANSACTION
DMC has been engaged in the bonding business since the early 1970's. In
1998 DMC increased its long-term debt significantly to approximately $15.5
million by commencing construction of a new facility for the bonding business
and acquiring businesses that supply high precision metal forming and other
services to the aerospace and other industries.
In January 1999 the board of directors considered strategic alternatives
for DMC and decided that the sale of the bonding business and use of the
proceeds from such sale to repay debt and acquire other businesses with greater
growth prospects was the most attractive alternative. Also in January, SNPE
informed DMC that it had acquired approximately 14.44% of DMC's common stock.
SNPE competes with DMC in the bonding business.
From January through March, DMC and TWC, DMC's financial advisor, held
discussions with potential strategic and financial purchasers for the bonding
business. Two written nonbinding offers for the bonding business were submitted
to DMC in March 1999. AMETEK, Inc. ("Ametek") offered to acquire the bonding
business for approximately $17 million in cash, and SNPE offered to pay $6.0
million in cash and contribute its bonding assets, then valued by DMC at
approximately $8.0 million, to DMC in exchange for common stock of DMC at $6.25
per share which, together with SNPE's existing holdings, would total
approximately 52% of the common stock outstanding after the transaction.
-5-
<PAGE>
The board of directors decided on March 26, 1999 to proceed with the
Ametek offer, and a definitive agreement was signed in late June. Commencing in
April 1999, the financial and operating results of DMC's bonding business began
to deteriorate significantly due to reduced demand for its products in the U.S.
and Asia. As a result, DMC violated financial covenants in its debt agreements
and did not make principal payments due in September 1999. Throughout this
period, SNPE continued to express interest in a transaction with DMC of the type
described in its previous offer. The board of directors met several times during
this period to discuss progress on the Ametek transaction. In October 1999,
Ametek terminated its agreement to acquire the bonding business. On October 27,
1999 the Nasdaq National Market System notified DMC that it was not in
compliance with the market capitalization/public float requirement. DMC's common
stock average closing price had declined from approximately $4.70 per share to
$1.50 per share over the period from January through October 1999.
After reviewing various strategic alternatives, including the possibility
of obtaining alternative equity or debt financing, the board of directors
decided on October 29, 1999 to resume negotiations with SNPE. In mid-November,
representatives of DMC and SNPE negotiated a non-binding term sheet for the
Transaction, which would involve a $7 million cash investment in DMC by SNPE and
SNPE's gaining a controlling interest in DMC. Because of DMC's pressing need for
cash, defaults on its bank credit line and desire to complete a transaction
quickly, SNPE and DMC agreed to defer any consideration or discussion of whether
and on what terms the bonding assets of SNPE might be contributed to DMC in
exchange for additional common stock of DMC. Due to the significant
deterioration of its bonding business and decline in its stock price, DMC will
receive a premium of approximately 100% per share on its sale of shares to SNPE
under the proposed Transaction, compared to the premium of approximately 30% DMC
would have received had it completed the transaction originally proposed by SNPE
in March 1999.
From November 1999 through mid-January 2000, representatives of DMC and
SNPE negotiated definitive documentation for the Transaction. The board of
directors met several times during this period to review and direct the progress
of the negotiations. On January 14, 2000, the board of directors determined that
the Transaction was fair and in the best interests of the stockholders of DMC,
and the parties executed the Stock Purchase Agreement on January 20, 2000. See
"MATERIAL TERMS OF THE TRANSACTION."
-6-
<PAGE>
In the course of its deliberations, the board of directors considered the
potential risks and benefits of proceeding with the Transaction, and the
alternatives to the Transaction. The board of directors considered DMC's
pressing need for cash, the defaults under its credit arrangements, the
unavailability of other debt or equity financing on acceptable terms and the
likelihood that any financing that might become available would have terms which
were significantly less favorable than the Transaction. The board of directors
also considered the likelihood that a prolonged period of economic instability
of DMC would negatively affect important customer and supplier relationships.
The board of directors also considered the premium DMC would receive on the
issuance of shares to SNPE and the favorable terms of the convertible
subordinated note, the use of the cash proceeds of the Transaction to achieve
compliance with or replace its credit arrangements and possible operating and
marketing synergies with SNPE's bonding and other businesses. See "THE
PROPOSAL - Background of the Transaction" and "- Reasons for the Transaction."
MATERIAL TERMS OF THE TRANSACTION
The following is a summary of material terms of the Stock Purchase
Agreement, the convertible subordinated note and the registration rights
agreement attached to this proxy statement as appendices A, B and C. See also
"MATERIAL TERMS OF THE TRANSACTION."
STOCK PURCHASE AGREEMENT. The Stock Purchase Agreement provides for the
purchase by SNPE of 2,109,091 shares of common stock at a purchase price of
$2.75 per share, or $5.8 million in the aggregate, and for the purchase of the
convertible subordinated note. The closing of the purchase and sale of the
shares will take place on the earlier of May 15, 2000 and the date on which all
of the closing conditions set forth in the Stock Purchase Agreement, including
approval by the stockholders of DMC, are satisfied.
Pending the closing, DMC has agreed to conduct its business consistent
with past practices and to use reasonable best efforts to preserve its business
organization and relationships intact. DMC also has agreed that it will not take
certain actions, including material amendments to or failures to perform under
material contracts or permits, sales and capital expenditures in excess of
agreed limits, termination of certain officers or plant managers, and increases
in indebtedness above agreed limits.
DMC has agreed that it will not, solicit, initiate or participate in
negotiations or discussions, or take certain other actions with regard to a
possible acquisition, merger, consolidation or liquidation of DMC, or any other
similar transaction, subject to the fiduciary obligations of the Board of
Directors.
-7-
<PAGE>
The obligations of both parties under the Stock Purchase Agreement are
subject to certain conditions to closing including receipt of necessary consents
and approvals, approval by the DMC stockholders and expiration or termination of
required waiting periods under the Hart-Scott Rodino Antitrust Improvements Act
of 1976, as amended, and the Defense Production Act of 1950, as amended
(Exon-Florio). The waiting periods under both statutes have expired without
regulatory action.
In addition, the obligation of SNPE to close the Transaction is subject to
certain other conditions, including ownership by SNPE following the closing of
not less than 50.10% of the outstanding common stock and the amendment by DMC of
its Shareholder Rights Plan to exempt from the provisions triggering exercise of
the share purchase rights any purchase of common stock deemed necessary by SNPE
to maintain legal and beneficial ownership of not less than 50.10% of the common
stock, excluding in each case the number of shares which SNPE may acquire upon
conversion of the convertible subordinated note.
The Stock Purchase Agreement may be terminated prior to the closing by (i)
the mutual written consent of DMC and SNPE, or (ii) by either DMC or SNPE if (a)
the closing does not occur on or before May 15, 2000, and the terminating party
is not in material breach of the agreement, (b) the transaction is prohibited by
any governmental authority of competent jurisdiction, or (c) prior to closing
either party is in material breach of any representation, warranty or covenant
in the agreement and the breach is not cured within 10 days of notice of such
breach, except that this right is not available to any party that is in material
breach of the agreement or to SNPE if the aggregate effect of breaches by DMC
would result in an adverse effect on DMC of less than $1.5 million.
The Stock Purchase Agreement may be terminated by DMC if its board of
directors exercises its fiduciary duties to stockholders in a manner consistent
with certain provisions of the Stock Purchase Agreement. The Stock Purchase
Agreement may be terminated by SNPE if the board of directors of DMC (a)
withdraws, modifies or changes, in any manner adverse to SNPE, its approval or
recommendation of the Stock Purchase Agreement, (b) recommends to the
stockholders an acquisition proposal, or (c) fails to recommend against a tender
offer for 20% or more of the outstanding common stock of DMC.
In certain circumstances set forth in the Stock Purchase Agreement, DMC
will be required to pay to SNPE a $250,000 termination fee plus any documented
expenses incurred by SNPE.
-8-
<PAGE>
CONVERTIBLE SUBORDINATED NOTE. DMC will issue to SNPE a convertible
subordinated note in the principal amount of $1.2 million, bearing interest at
the rate of 5% per annum payable quarterly in arrears, with the principal and
all accrued interest due and payable on the date which is five years from the
closing date. The convertible subordinated note is convertible by SNPE at any
time prior to its maturity, in whole or in part, into shares of common stock at
a conversion price of $6.00 per share of common stock, subject to adjustment
from time to time to avoid dilution. Payment by DMC of principal and interest on
the convertible subordinated note is subordinated to the prior payment in full
of all senior indebtedness of DMC pursuant to its bank credit lines and its
industrial development revenue bonds.
REGISTRATION RIGHTS AGREEMENT. Within five years following the date of the
registration rights agreement, any party holding or having the right to acquire
at least 50% of the common stock issued pursuant to the Stock Purchase Agreement
and issuable upon conversion of the convertible subordinated note may make a
written request, or demand, for registration by DMC under the Securities Act of
1933 of a specified number of shares of such common stock. DMC is not required
to effect more than two demand registrations. In addition, if DMC registers
securities of DMC other than shares of common stock owned by SNPE, then SNPE may
require DMC to register its shares with the same registration.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors believes that the proposed Transaction is fair to
and in the best interests of the stockholders, other than SNPE, and recommends
that stockholders vote for the Transaction. See "THE PROPOSAL - Background of
the Transaction" and "- Reasons for the Transaction." Mr. Franson, a Director of
DMC, is a principal in TWC, the financial advisor to DMC in connection with the
Transaction. TWC will receive fees for serving as financial advisor, a portion
of which is contingent upon stockholder approval and closing of the Transaction.
OPINIONS OF FINANCIAL ADVISORS
TWC has delivered its written opinion dated January 20, 2000 to the board
of directors to the effect that, as of such date, the consideration to be
received by DMC in connection with the Transaction is fair, from a financial
point of view, to DMC's stockholders, other than SNPE. Mr. Franson, a Director
of DMC, is a principal in TWC, the financial advisor to DMC in connection with
the Transaction. TWC will receive fees for serving as financial advisor, a
portion of which is contingent upon stockholder approval and closing of the
Transaction. See "THE PROPOSAL - Opinion of TWC Regarding the Transaction."
Stifel, Nicolaus & Company, Incorporated ("Stifel") also has delivered its
written opinion dated January 20, 2000 to the board of directors to the effect
that, as of such date, the consideration to be received by DMC in connection
with the Transaction is fair, from a financial point of view, to DMC's
stockholders, other than SNPE. See "THE PROPOSAL - Opinion of Stifel Regarding
the Transaction."
-9-
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Following the closing of the Transaction, DMC's board of directors will
have seven members, four of whom will be nominated by SNPE. Messrs. Allwein and
Franson will resign from the board of directors at the time of closing. Messrs.
Allen, Morgenthaler and Bartlett will complete their current terms as directors
and thereafter their successors will be nominated and elected as provided in
DMC's bylaws. Until completion of their current terms, one or more of Messrs.
Allen, Morgenthaler and Bartlett will serve on a committee of the board of
directors, which will initially be composed of equal numbers of representatives
of SNPE and DMC, created to consider and approve the granting of stock options
to directors, officers, employees or affiliates of DMC or SNPE.
Mr. Allwein, DMC's President, is party to an employment agreement with DMC
expiring on March 18, 2000, under which he would be entitled to receive his base
salary for six months following termination if his employment were involuntarily
terminated without cause, but not merely by expiration of his employment
agreement. Mr. Santa, DMC's Chief Financial Officer, is party to an employment
agreement with DMC under which he is entitled to receive 26 weeks of severance
pay if he is involuntarily terminated without cause or as the result of a change
of control. Messrs. Allwein, Santa and Jarman, DMC's Vice President Corporate
Development, are parties to change of control agreements that would provide
certain benefits in the event of a change of control as defined in the
agreements. The Transaction does not constitute a change of control as defined
in the change of control agreements. DMC maintains a severance compensation plan
under which severance payments could be made to employees terminated due to a
change of control of DMC at the election of the board of directors and with the
concurrence of SNPE.
Options granted under DMC's stock option plan must either be maintained or
replaced by DMC or SNPE following the Transaction, or option vesting must be
accelerated and an option exercise period provided before the closing date of
the Transaction, after which the options would terminate. Grants made under
DMC's employee stock purchase plan will continue in full force and effect
following the closing of the Transaction.
DMC has in effect indemnification agreements with all of its directors and
officers, and SNPE has agreed to cause DMC to maintain, until July 1, 2002,
directors and officers liability insurance comparable to that currently in
effect, subject to certain conditions. See "THE PROPOSAL - Interests of Certain
Persons in the Transaction."
Mr. Franson, a Director of DMC, is a principal in TWC, the financial
advisor to DMC in connection with the Transaction. DMC has agreed to pay TWC a
total fee of $300,000 in connection with its services related to the
Transaction, of which $95,000 has been paid as of the date of this proxy
statement at the rate of $7,500 per month since the engagement commenced, an
additional $15,000 has accrued but may not be paid until the closing of the
Transaction, and the current remaining balance of $190,000 is contingent upon
DMC stockholder approval and closing of the Transaction. See "THE PROPOSAL -
Opinion of TWC Regarding the Transaction."
-10-
<PAGE>
EFFECTS OF THE PROPOSAL ON EXISTING HOLDERS OF COMMON STOCK
Assuming the issuance of the shares of common stock to SNPE pursuant to
the Stock Purchase Agreement, the percentage of DMC's voting securities owned of
record and beneficially by existing holders of common stock, other than SNPE,
will be reduced significantly. The Transaction, if approved by Stockholders,
would reduce the aggregate interest of existing holders of common stock other
than SNPE to approximately 49.20% (assuming the convertible subordinated note is
not converted) or 47.30% (assuming the convertible subordinated note is
converted in its entirety) and increase SNPE's ownership to approximately 50.80%
or 52.70%, respectively, of the outstanding common stock. SNPE, as the holder of
more than 50% of the outstanding common stock, will be able to elect all of the
directors of DMC and to direct corporate policy. See "THE PROPOSAL - Effects of
the Transaction on the Rights of Stockholders."
-11-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of DMC's common stock as of March 13, 2000 by: (i) each person or group known by
DMC to be the beneficial owner of more than 5% of DMC's common stock, (ii) each
director of DMC; (iii) each executive officer; and (iv) all executive officers
and directors of DMC as a group.
<TABLE>
<CAPTION>
Beneficial
Ownership (1)
-------------------
Number Percent
Name and Address of Beneficial Owner (2) of Shares of Total
------------------------------------ --------- --------
<S> <C> <C>
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202............................... 537,200 18.90%
SNPE, Inc. (3)
5 Vaughan Drive
Suite 111
Princeton, NJ 08540.............................. 406,400 14.30%
Mr. Joseph P. Allwein (4)(5)......................... 100,000 3.47%
Mr. Richard A. Santa (5)............................. 44,533 1.54%
Mr. Mark W. Jarman (5)............................... 22,053 /*/
Mr. Dean K. Allen (5)................................ 19,500 /*/
Mr. David E. Bartlett (5)............................ 22,500 /*/
Mr. Michael C. Franson (5)........................... 8,500 /*/
Dr. George W. Morgenthaler (5)....................... 100,278 3.51%
All executive officers and directors as a group
group (7) persons) (6)............................. 317,364 10.54%
</TABLE>
--------------------
/*/ Less than 1%
-12-
<PAGE>
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Securities and Exchange Commission (the "SEC"). Unless otherwise indicated
in the footnotes to this table and subject to community property laws
where applicable, DMC believes that each of the stockholders named in this
table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
2,842,429 shares outstanding on March 13, 1999 adjusted as required by
rules promulgated by the SEC.
(2) Unless otherwise indicated, the address of each beneficial owner is c/o
Dynamic Materials Corporation, 551 Aspen Ridge Drive, Lafayette, Colorado
80026.
(3) The information reported is based solely on information contained
in the Schedule 13D filed by each of SNPE, Inc., SOFIGEXI, and
SNPE. Each reported that it had shared voting and investment
power and beneficial ownership of 406,400 shares.
(4) Of the shares reported, DMC has the option to purchase 12,500 shares if
Mr. Allwein ceases to be employed by DMC after March 18, 2000 and before
March 18, 2001. Of the shares reported, 3,750 shares are subject to
forfeiture if Mr. Allwein ceases to be employed by DMC. Of these shares,
1,875 shares will cease to be subject to forfeiture on March 18 in each of
the years 2001 and 2002, assuming Mr. Allwein continues to be employed by
DMC on such date.
(5) Amounts reported include shares subject to stock options exercisable
within 60 days of March 13, 2000 as follows: Mr. Allwein, 37,500 shares;
Mr. Santa, 43,750 shares; Mr. Jarman, 21,167 shares; Mr. Allen, 17,500
shares; Mr. Bartlett, 22,500 shares; Mr. Franson, 7,500 shares; and Mr.
Morgenthaler, 17,500 shares.
(6) The amount reported includes 167,417 shares subject to stock options
exercisable within 60 days of March 13, 2000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires DMC's
directors and officers, and persons who own more than 10% of a registered class
of DMC's equity securities, to file with the SEC an initial report of ownership
and to report changes in ownership of common stock and other equity securities
of DMC. Officers, directors and greater than 10% stockholders are required by
SEC regulations to furnish DMC with copies of all Section 16(a) forms they file.
To DMC's knowledge, based solely on a review of the copies of such reports
furnished to DMC and written representations that no other reports were
required, during the fiscal year ended December 31, 1999, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with, except that SNPE and NEF jointly made late
filings of one Form 3 reporting one transaction and one Form 4 reporting one
transaction.
RELATIONSHIP WITH SNPE
SNPE currently owns 406,400 shares, or approximately 14.30 %, of DMC's
outstanding common stock. These shares were acquired in open market transactions
from July 1998 through March 1999. The Nobelclad Division of Nobel Explosifs
France ("NEF"), a wholly owned subsidiary of SNPE, S.A., is a competitor of DMC
in the bonding business.
-13-
<PAGE>
In early and mid-1997, DMC conducted discussions with NEF regarding the
possible acquisition by DMC of the bonding assets of NEF. These discussions did
not result in a transition between DMC and NEF, and terminated in mid-1997.
In August 1997, DMC sued the Nobelclad Division of NEF, a former DMC
employee, his new business entity, and others. DMC alleged, among other things,
breach of fiduciary duties, misappropriation of trade secrets and unfair trade
practices. The former employee and his new business entity serve as marketing
agents for NEF. In November 1997, NEF commenced an action against DMC, alleging
certain breaches of a nondisclosure agreement entered into between DMC and NEF
in connection with the discussions regarding DMC's possible acquisition of NEF's
bonding assets. Both suits were settled and dismissed with prejudice in February
1999. No cash or other payment was made by any party in connection with the
settlement.
THE PROPOSAL
BACKGROUND OF THE TRANSACTION
DMC has been engaged in the bonding business since the early 1970s. In
early and mid-1997, DMC conducted discussions with NEF regarding the possible
acquisition by DMC of the bonding assets of NEF. These discussions did not
result in a transaction between DMC and NEF, and terminated in mid-1997.
In 1998, DMC commenced construction of a new explosion bonded clad metal
plate manufacturing facility in southwestern Pennsylvania. DMC financed the
construction with $6.85 million in industrial revenue bonds. Also during 1998,
DMC diversified its operations by acquiring the assets of three businesses that
supply high precision metal forming, machining, welding and assembly for the
aerospace, defense, satellite launch vehicle and other industries. The aggregate
purchase price for these acquisitions was approximately $12 million. DMC
financed these acquisitions with approximately $8 million in long-term senior
debt and a combination of working capital loans and cash.
In November 1998, members of DMC's management met with SNPE management in
New York to discuss the settlement of pending litigation matters. See
"RELATIONSHIP WITH SNPE." During those meetings, the potential strategic
benefits of combining the bonding businesses of the two companies were also
discussed briefly.
At a regular meeting of the board of directors on January 8, 1999,
management presented strategic alternatives for DMC, which included the possible
sale of the bonding business and use of the proceeds from such sale to repay
debt and acquire other businesses with greater growth prospects for DMC.
Management identified SNPE and Ametek as likely strategic buyers. The board of
directors discussed the strategic alternatives presented and the retention of
TWC to serve as financial advisors to DMC in its further consideration and
possible implementation of strategic alternatives for DMC, including the
marketing and sale of DMC's bonding business. The board of directors discussed
the interest of Mr. Franson, a director of DMC and a principal
-14-
<PAGE>
in TWC, in the retention of TWC, and related material facts were disclosed to
and discussed by the board of directors. Also, at this meeting, the board of
directors adopted a share purchase rights plan, under which share purchase
rights would become exercisable upon acquisition by a person or group of 15% of
the common stock without the approval of the board of directors. The Board had
begun considering the adoption of a share purchase rights plan in October 1998,
following a significant decline in the price of DMC's common stock, in order to
preserve for DMC's stockholders the long-term value of their investment in DMC
in the event of a hostile takeover. The board of directors declared a dividend
of one share purchase right for each share of common stock payable on January
29, 1999 to shareholders of record on that date. See "DESCRIPTION OF THE CAPITAL
STOCK OF THE COMPANY - Preferred Share Purchase Rights".
On January 11, 1999, SNPE reported to DMC that it had acquired 393,400
shares, or approximately 14.44%, of the common stock of DMC. On January 12,
1999, DMC notified SNPE that it had adopted a share purchase rights plan. See
"DESCRIPTION OF CAPITAL STOCK OF THE COMPANY - Preferred Share Purchase Rights."
At a special telephonic meeting on January 14, 1999, the board of directors
discussed the acquisition of common stock by SNPE, and changed the record date
for the dividend of share purchase rights under the plan to January 15, 1999. In
its Form 13G filed on January 25, 1999, SNPE stated that the securities had not
been acquired and were not held for the purpose or effect of changing or
influencing control of DMC.
On January 21, 1999, DMC formally engaged TWC to act as its financial
advisor to consider strategic alternatives available to DMC, including the
possible sale of DMC's bonding business. The services to be provided included
identification of possible sales opportunities for the bonding business,
assistance in contacting and evaluating prospective purchasers and in the
negotiation of a sales transaction and, if so requested, the rendering of an
opinion to the board of directors as to whether a proposed transaction would be
fair to DMC's stockholders from a financial point of view.
In January and February 1999, TWC prepared an information memorandum
regarding the bonding business, and identified and contacted potential financial
and strategic buyers for the bonding business, which included Ametek, a
diversified manufacturing company with a competing roll bond business, and SNPE.
Litigation settlement discussions between DMC and SNPE continued through
December 1998 and January 1999. In February 1999, the litigation between DMC and
SNPE was settled, and management of DMC and representatives of TWC met with
management of SNPE to discuss the possible acquisition by SNPE of the bonding
business.
In February and March 1999, representatives of SNPE, Ametek and other
potential bidders conducted due diligence visits to DMC's Dunbar and Mt.
Braddock, Pennsylvania and Louisville, Colorado bonding facilities. On March 4,
1999, the board of directors held a special meeting by telephone to discuss
progress in the sale of the bonding business. Management of DMC and Mr. Franson
described the bidding process being conducted by TWC and reviewed
-15-
<PAGE>
financial analyses prepared by TWC of control premiums, valuations of the
bonding businesses of both DMC and SNPE, and other matters. Management and Mr.
Franson also reviewed with the board of directors materials regarding the
bonding businesses of both companies, a proposed transaction structure and other
matters that had been prepared for a scheduled meeting with SNPE regarding the
bonding business.
Management and representatives of TWC met with representatives of SNPE in
Paris on March 8 and 9, 1999. On March 19, 1999 SNPE changed its filing from a
Form 13G to a Form 13D. SNPE reported on its Form 13D that it owned a total of
406,400 shares, or approximately 14.44 %, of DMC's outstanding common stock, had
entered into discussions with DMC regarding possible cooperative ventures
between the companies and might acquire additional shares of DMC's common stock.
A stockholder whose intent is to change or influence the control of the issuer
of those securities must use Form 13D to make its required disclosure of
beneficial ownership of more than 5% of a class of securities to the issuer of
the securities.
At its regular meeting on March 26, 1999, the board of directors
considered the written nonbinding bids of Ametek and SNPE for the bonding
business. Ametek proposed to acquire the bonding business, excluding
approximately $2 million in net working capital assets, for $17 million in cash.
SNPE proposed to pay $6 million in cash and contribute its bonding assets, then
valued by DMC at approximately $8.0 million, to DMC in exchange for common stock
of DMC at $6.25 per share which, together with its existing holdings, would
total approximately 52% of the common stock outstanding following the
Transaction. The board of directors considered strategic options and an analysis
of those options presented by Bruce Hoyt, a principal in TWC. The board of
directors reviewed and compared financial analyses of DMC's business on a status
quo basis (assuming the completion of certain acquisitions), with the sale of
the bonding business to Ametek, and with the transaction proposed by SNPE. Mr.
Hoyt presented, and the board of directors considered, a separate valuation
analysis of the Nobelclad bonding business of SNPE on a stand-alone basis and
combined with DMC's bonding business. The board of directors concluded that the
Ametek transaction was the more attractive alternative and authorized management
to pursue negotiation of a transaction with Ametek in accordance with the
proposal described.
In April, May and early June 1999, Ametek conducted a due diligence
investigation of DMC's bonding business, and Ametek and DMC negotiated an asset
purchase agreement for the sale of DMC's bonding business (the "Asset Purchase
Agreement"). At its special telephonic meeting on May 6, 1999, the board of
directors obtained an update regarding the progress of the Ametek transaction.
On May 10, 1999, SNPE filed a Form 13D/A, amending its previous Form 13D,
stating that SNPE wished to discuss with DMC possible combinations of the
bonding businesses of both companies and the possible subscription for common
stock of DMC. At its regular meeting on May 21, 1999, Mr. Franson and management
provided the board of directors with further information regarding the progress
of the Ametek transaction. The board of directors considered and discussed the
strategic and financial benefits to DMC of the Ametek transaction, including the
anticipated use of the cash received to restructure DMC's long-term
-16-
<PAGE>
debt and fund additional aerospace acquisitions. The board of directors
concluded that TWC and management of DMC should proceed with due diligence and
negotiations with Ametek.
The board of directors held a special telephonic meeting on June 10, 1999
to review and consider the terms of the Asset Purchase Agreement that had been
negotiated with Ametek. The board of directors discussed the strategic and
financial benefits of the transaction with Mr. Hoyt and DMC's management. The
board of directors concluded that it was in the best interests of DMC to proceed
with the sale of the bonding business to Ametek, and authorized DMC's management
to complete and sign definitive documentation on behalf of DMC. In recognition
of his interest in the proposed transaction as a principal of TWC, Mr. Franson
abstained from voting on the Ametek transaction. On June 23, 1999, DMC announced
that it had reached an agreement to sell the assets of its bonding business to
Ametek for approximately $17 million.
During the period from April through August 1999, the financial and
operating results of DMC's bonding business began to deteriorate significantly.
DMC experienced reduced sales and earnings due to reduced demand for chemical
processing equipment and other explosion bonded plate products in the U.S. and
Asia. DMC expects that reduced demand for explosion bonded plate products will
continue through 2000. In June and July 1999, Ametek met with customers of DMC's
bonding business and continued other due diligence activities. During this
period, SNPE management continued to express to DMC orally and in writing SNPE's
interest in increasing its equity position in DMC in exchange for cash and
contribution of its bonding assets.
As a result of the operating loss DMC incurred for the quarter ended June
30, 1999, DMC violated certain financial covenants under both its bank credit
facility and the reimbursement agreement for the letter of credit supporting its
industrial development revenue bonds. The bank waived compliance with these
covenants until September 30, 1999. On July 20, 1999, DMC received a letter from
SNPE requesting that DMC's board of directors reconsider SNPE's original offer,
which the board of directors discussed at its regular meeting on July 22, 1999.
Management reported to the board of directors regarding progress of the Ametek
transaction, including an update on the positive results of Ametek's due
diligence on sales and marketing and progress with respect to certain closing
conditions. The board of directors decided to proceed with the Ametek
transaction, and DMC communicated that decision to SNPE.
By letter dated August 25, 1999, Ametek informed DMC that it was
terminating the Asset Purchase Agreement due to DMC's alleged material breaches
of its representations and warranties, including representations about the
financial condition of its bonding business. The board of directors held a
special telephonic meeting on August 27, 1999 to consider the termination letter
and DMC's response. The board of directors sought and received advice from its
financial and legal advisors regarding various business and legal aspects of the
transaction and Ametek's attempted termination of the transaction. Following a
full discussion of those and other issues, the board of directors directed DMC's
management to respond and to notify Ametek that DMC considered its termination
of the Asset Purchase Agreement to be improper.
-17-
<PAGE>
The board of directors held another special telephonic meeting on
September 3, 1999 to receive and consider additional legal advice and
alternatives regarding the threatened termination by Ametek. DMC announced on
September 14, 1999 that Ametek and DMC were in dispute over the terms of the
agreement for the sale of the bonding business, and that Ametek had indicated
that it might be willing to renegotiate the sale on the basis of a substantial
reduction in the purchase price.
On September 17, 1999, DMC received a letter from SNPE's legal counsel,
demanding that any contemplated sale of the bonding business be submitted to
DMC's shareholders for approval, and alleging that failure to do so would
violate Section 271 of the Delaware General Corporation Law and the fiduciary
duties of DMC's board of directors. Section 271 of the Delaware General
Corporation Law provides that the board of directors of a corporation may sell
or otherwise dispose of all or substantially all of the corporation's assets
only with the approval of the holders of a majority of the corporation's
outstanding stock. On September 29 and 30, 1999, members of DMC's management and
representatives of TWC met with SNPE management and legal counsel in New York to
communicate the possibility that, if the Ametek transaction did not close, DMC
would be interested in renewing discussions with SNPE. SNPE management expressed
its interest in pursuing a transaction similar to that which SNPE had previously
proposed.
On October 15, 1999, DMC and KeyBank entered into a Deferral and Waiver
Agreement pursuant to which KeyBank waived until December 30, 1999 certain
defaults under its credit facility and the reimbursement agreement which
supports DMC's industrial revenue bonds. DMC's defaults included breaches of
covenants regarding (i) minimum debt service ratios; (ii) ratios of DMC's
outstanding borrowings to its earnings before income taxes, depreciation and
amortization; (iii) ratios of current assets to current liabilities; and (iv)
ratio of total indebtedness to tangible net worth. DMC and KeyBank have executed
subsequent amendments to the Deferral and Waiver Agreement which extended
KeyBank's waiver of DMC's defaults until May 15, 2000. In the absence of the
payment deferrals and default waivers agreed to by KeyBank, KeyBank's remedies
against DMC would include acceleration of all amounts outstanding under the
credit facility and foreclosure against the assets securing the Loan including
DMC's accounts receivable, inventory, equipment and general intangibles.
On October 20, 1999, Ametek notified DMC that it had terminated the Asset
Purchase Agreement as of that date, claiming breaches of certain representations
and failure to comply with certain closing conditions. On October 21, 1999, DMC
announced the termination of the Asset Purchase Agreement and that its lender
had deferred certain principal payments due in September 1999 and waived certain
covenant defaults until December 30, 1999.
On October 27, 1999, the Nasdaq National Market notified DMC that it was
not in compliance with the market capitalization/public float requirement.
Nasdaq advised DMC that it would be provided until January 27, 2000 to comply
with the public float requirement, or be delisted by the Nasdaq National Market.
DMC's common stock average closing price had declined from approximately $4.70
per share to $1.50 per share over the period from January
-18-
<PAGE>
through October 1999. On January 3, 2000, DMC applied to change its listing to
the Nasdaq SmallCap Market. On February 4, 2000, DMC's common stock began
trading on the Nasdaq SmallCap Market.
During October and November 1999, DMC's management and representatives of
TWC contacted eight potential buyers, of which six were the potential strategic
and financial buyers initially identified in early 1999, as well as
approximately 15 potential equity or debt providers, in an attempt to determine
whether a cash infusion might be quickly available and whether possible
alternatives existed to transactions with Ametek and SNPE. All of the potential
buyers, and equity and debt providers declined to enter into discussions
regarding possible transactions with DMC due to the deterioration in DMC's
bonding business and financial condition, including its defaults under its debt
arrangements.
At its regular meeting on October 29, 1999, the board of directors
received legal advice regarding Ametek's termination of the Asset Purchase
Agreement. The board of directors considered several strategic alternatives
available to DMC, including the possible sale of the bonding business to another
purchaser, the possible availability of subordinated debt or equity financing
and the transaction originally proposed by SNPE. Mr. Franson and Mr. Hoyt
reported on the assumptions and financial analyses prepared by TWC regarding
each of these alternatives, and on the unsuccessful efforts of TWC and DMC's
management to interest potential lenders, equity investors or purchasers other
than SNPE in a transaction. Following a full discussion of these matters and the
financial condition of DMC, the board of directors concluded that a possible
transaction with SNPE resulting in a cash investment in DMC presented the most
attractive alternative. The board of directors directed TWC and DMC's management
to commence negotiations with SNPE.
On November 15 and 16, 1999, representatives of TWC, DMC's management and
legal counsel met with SNPE management and legal counsel in New York, and
negotiated a nonbinding term sheet for a transaction on substantially the terms
of the Transaction that would involve a $7 million cash investment in DMC by
SNPE and SNPE's gaining a controlling interest in DMC. Because of DMC's pressing
need for cash, defaults on its bank credit line and desire to complete a
transaction quickly, SNPE and DMC agreed to defer any consideration or
discussion of whether and on what terms the bonding assets of SNPE might be
contributed to DMC in exchange for additional common stock of DMC. DMC will
receive a premium of approximately 100% per share on its sale of shares to SNPE
under the proposed Transaction, compared to the premium of approximately 30% DMC
would have received had it completed the transaction originally proposed by SNPE
in March 1999.
At a special telephonic board of directors meeting held on November 19
and 20, 1999, the board of directors considered the terms of the proposed
transaction with SNPE outlined in a term sheet previously circulated to the
board of directors. The board of directors also considered alternatives to the
proposed transaction and the financial condition of DMC. The board of directors
received the advice of management and its legal and financial advisors regarding
the proposed transaction and the alternatives. After full discussion of the
issues, the board of
-19-
<PAGE>
directors instructed TWC to enter into further negotiations with SNPE on several
issues, including improvement of the financial terms of the proposed
transaction, limitation of SNPE's ability to acquire common stock in addition to
that acquired in the proposed transaction, and the need for a due diligence
review of SNPE's bonding assets. The board of directors also instructed TWC to
arrange a meeting between the board of directors and SNPE management to discuss
certain issues related to the business of DMC following SNPE's acquisition of a
controlling interest in DMC.
As directed by the board of directors, representatives of TWC and
management proceeded to conduct negotiations with SNPE by telephone during
approximately the last two weeks of November and the first two weeks of December
1999. DMC was unsuccessful in improving the financial terms of the proposed
transaction or in limiting SNPE's ability to acquire common stock in addition to
that acquired in the proposed transaction. SNPE did agree to requested changes
in the composition of a board committee to consider and approve stock option
grants for employees following the closing of the Transaction, and to certain
other matters. These agreements were reflected in a revised term sheet provided
to the Board.
During November and December 1999 and January 2000, SNPE conducted a due
diligence review of DMC and its operations. Representatives of SNPE toured DMC's
operations and DMC provided SNPE with additional information regarding its
business, including operating and financial projections. Also during this
period, a representative of DMC's management and Mr. Allen, a director of DMC,
conducted due diligence visits to SNPE facilities in Sweden and France. On
December 7, 1999, certain members of the board of directors met with SNPE
management at DMC's offices and discussed certain organizational and management
issues, as well as potential strategic synergies between the bonding businesses
of the two companies.
On December 13, 1999, the board of directors met by telephone to review
the results of DMC's due diligence review of SNPE's bonding assets, the revised
term sheet reflecting the most recent discussions between DMC and SNPE, and the
financial condition of DMC. After a thorough discussion of the terms of the
proposed transaction, and receiving and considering the advice of its legal and
financial advisors, the board of directors instructed DMC's management and TWC
to proceed to negotiate definitive documentation on the basis of the revised
term sheet presented to the board of directors.
Representatives of DMC and legal counsel met on December 21 and 22, 1999
in New York with legal counsel of SNPE to negotiate definitive documentation.
Negotiations continued through early January 2000. In view of the significant
role of TWC as the financial advisor to DMC in the bidding and negotiation
process, including negotiation of the Transaction, DMC retained Stifel to
provide a second analysis of the proposed Transaction and determine whether the
Transaction is fair, from a financial point of view, to the stockholders of DMC
other than SNPE.
SNPE stated in its Form 13D filing on January 5, 2000 that NEF had
transferred its shares in DMC to SNPE, Inc. SNPE also stated in the Form 13D
that it had recently reentered
-20-
<PAGE>
discussions with DMC. DMC issued a press release on January 10, 2000, announcing
that it was discussing with SNPE the possible issuance for cash of common stock
of DMC and a Note convertible into common stock, but had not reached a
definitive agreement.
On January 11, 2000, the board of directors met by telephone to review
DMC's progress in documentation on the Transaction. The board of directors
received information from DMC's legal counsel about the progress of negotiations
and from DMC's management about the financial condition of DMC, including the
extension until March 30, 2000 by DMC's lender of the principal payment
deferrals and covenant waivers previously received and DMC's application to move
its common stock listing to the NASDAQ SmallCap Market. The board of directors
considered these matters and DMC's liquidity, together with the advice of its
legal and financial advisors.
On January 14, 2000, the board of directors, with its legal counsel, TWC
and Stifel in attendance, considered the Transaction at its regular meeting. The
board of directors received an update on the outcome of negotiations with SNPE.
Then TWC presented its oral opinion to the board of directors that, as of such
date, the transaction was fair, from a financial point of view, to DMC's
stockholders, other than SNPE. Mr. Franson, a director of DMC, is a principal in
TWC. TWC will receive fees for serving as financial advisor in connection with
the Transaction, a portion of which is contingent upon stockholder approval and
closing of the Transaction. Stifel presented its oral opinion to the board of
directors that, as of such date, the Transaction was fair, from a financial
point of view, to DMC's stockholders, other than SNPE. The board of directors
concluded that DMC should proceed with the Transaction pursuant to the terms of
the Stock Purchase Agreement and the convertible subordinated note. In
recognition of his interest in the proposed transaction as a principal of TWC,
Mr. Franson abstained from voting on the Transaction. Thereafter, the parties
executed the Stock Purchase Agreement on January 20, 2000, and TWC and Stifel
delivered their written opinions, which merely confirmed their earlier oral
opinions.
REASONS FOR THE TRANSACTION
The board of directors determined on January 14, 2000 that the Transaction
was fair to, and in the best interests of, DMC and its stockholders, other than
SNPE. This determination was based on the following material factors (not
necessarily in order of importance).
(i) DMC has pressing needs for cash. DMC projects that cash flows
will be insufficient to fund projected debt service requirements
in 2000 and any operating losses that may occur, due to continued
reduced demand for products of the bonding business. DMC failed
to make principal payments due on its senior bank debt in
September and December 1999, and has failed to comply with
certain financial covenants since June 30, 1999. DMC's lender had
deferred principal payments and waived financial covenant
compliance until March 30, 2000, but had indicated the importance
of a significant and timely cash infusion into DMC. Subsequent to
the board meeting, DMC's lender extended the waiver until
-21-
<PAGE>
May 15, 2000. There can be no assurance that the lender will
continue to defer payments and waive covenants.
(ii) DMC will receive a premium of approximately 100% on its sale of
shares to SNPE, compared to the average share price during the 30
day period ending December 31, 1999. The board of directors chose
a 30-day period to reduce the possible effect of short-term
volatility in DMC's low volume, low priced, common stock which
might result from a small number of trades. The board of
directors chose a period ending on December 31, 1999 to reduce or
eliminate the effect of the first public disclosure of
discussions between DMC and SNPE, which occurred when SNPE filed
its Form 13D on January 5, 2000. The interest rate and payment
terms of the convertible subordinated note are more favorable
than the terms of DMC's bank loan and the terms of other
financing, if any, that might be available to DMC. The Note is
unsecured, subordinated to DMC's senior debt, and imposes no
financial, operational or other covenants on DMC. The equity and
debt financing comprising the Transaction provide financing on
favorable terms, when compared to those that might be available
in the equity and debt markets generally.
(iii) The board of directors evaluated various debt financing
opportunities considered most likely to be available to DMC. DMC and
its financial advisors solicited debt financing opportunities from
numerous sources, including asset based lenders, mezzanine funds and
other sources of debt and equity funding, and received no favorable
responses, due primarily to the financial condition of DMC. The
board of directors was advised that third party financing was
unlikely to be available within the required time frame and that
such financing would have required DMC to pay higher interest rates
and transaction costs.
(iv) Alternative equity financing is unlikely due to the current price of
the common stock and the continuing low demand for the products
of DMC's bonding business. If alternative equity financing could
be obtained, it would likely be at a discount to the current
price of the common stock, rather than at the premium to the
current price of the common stock to be paid by SNPE in the
transaction. In addition, alternative equity financing would
potentially be more dilutive than the Transaction, and would
probably result in significantly higher transaction costs.
(v) TWC, on behalf of the board of directors, conducted a thorough
identification and solicitation of potential strategic and
financial purchasers of the bonding business and potential
investors in DMC, which resulted in the two offers from Ametek
and SNPE. These efforts were intensive from January through March
1999 and September through November 1999, and spanned almost one
year, during a period in which the worldwide sales markets for
products of the bonding business declined significantly. The
decrease in sales volume is due primarily to a reduced demand for
chemical processing equipment and other explosion bonded plate
-22-
<PAGE>
products in the U.S. and Asia, and is expected to continue at
least through 2000. The initial transaction with Ametek was
terminated in part due to Ametek's unwillingness to pay the
purchase price it had originally offered for the bonding business
due to the financial deterioration of the business.
(vi) DMC will be able to use a substantial portion of the cash it
receives in the Transaction to achieve compliance with the terms of
its bank facility, under which approximately $9.5 million is
currently outstanding, or to attempt to secure replacement financing
on terms with which DMC can comply. The financial prospects for DMC
will be enhanced by the Transaction, which will improve the
capitalization of DMC.
(vii) DMC has received the opinions of both TWC and Stifel that the
Transaction is fair, from a financial point of view, to the
stockholders of DMC, other than SNPE.
(viii) The board of directors considered the possibility that operating and
marketing synergies with SNPE's bonding businesses may result from
SNPE's investment.
(ix) Although the Transaction results in dilution to existing holders of
common stock and provides SNPE with rights to acquire additional
common stock, in the absence of the Transaction DMC could be forced
into less attractive financing alternatives, if any were available.
In such event, the holders of common stock could experience greater
dilution.
(x) The board of directors believed that SNPE's willingness to provide
financial support to DMC in exchange for a larger stake in DMC will
be viewed favorably by the public equity market and commercial
lenders as a vote of confidence in the future performance of DMC by
a large stockholder.
(xi) A prolonged period of economic instability of DMC, without a cash
infusion, is likely to negatively affect long-term relationships
with DMC's key suppliers and customers, and further reduce
shareholder value in DMC.
(xii) A prolonged period of economic instability of DMC, without a cash
infusion, could force DMC to liquidate assets to satisfy outstanding
obligations within a time frame which would result in receipt by DMC
of less than fair value for its assets.
OPINION OF TWC REGARDING THE TRANSACTION
DMC retained TWC to act as its financial advisor in connection with the
Transaction. The board of directors selected TWC based on TWC's experience and
expertise in merger and acquisition and private placement transactions, and
because of TWC's familiarity with DMC and its business as DMC's financial
advisor in connection with, among other things, the financing of its acquisition
of Detaclad in 1996, and the exploration of strategic alternatives.
-23-
<PAGE>
During the period from January through April 1999, TWC identified a number
of potential strategic and financial buyers for DMC's bonding business, and
after discussion with DMC, contacted such potential buyers. In January and
February 1999, TWC prepared an information memorandum describing DMC and its
bonding business and provided copies of the memorandum and other information to
six potential buyers who expressed interest in the transaction. TWC actively
participated with Company management in initial discussions with all of the
potential buyers regarding the bonding business and the structure of possible
transactions, and assisted in the due diligence efforts of those buyers in
February and March 1999. TWC, with Company management, conducted negotiations
with Ametek and SNPE that led to their initial bids for the bonding business in
March 1999. TWC advised DMC's board of directors regarding strategic, financial
and other aspects of these two initial bids.
Once the board of directors decided to proceed with the Ametek
transaction, TWC was actively involved with Company management in the
negotiation of the Asset Purchase Agreement with Ametek. TWC continued
communications with Ametek throughout June, July and August 1999, during
Ametek's continuing due diligence regarding the bonding business. TWC provided
advice to the board of directors in connection with Ametek's initial attempts to
terminate the Asset Purchase Agreement in August 1999 and its subsequent
termination of the Asset Purchase Agreement in October 1999, including advice
regarding strategic alternatives to the Ametek transaction. TWC, with Company
management, resolicited in October and November 1999 the six initial potential
buyers, two additional potential strategic buyers and numerous other potential
sources of debt or equity financing. TWC participated with Company management
and legal counsel in structuring and negotiation the Transaction with SNPE from
November 1999 through execution of the Stock Purchase Agreement on January 20,
2000.
On January 14, 2000, TWC rendered its oral opinion to the board of
directors of DMC that, as of such date, and based upon and subject to the
factors and assumptions set forth in the opinion, the consideration to be paid
by SNPE in the Transaction was fair, from a financial point of view, to the
stockholders of DMC, other than SNPE. TWC confirmed its oral opinion with a
subsequent written opinion dated and delivered on January 20, 2000, the date on
which the Stock Purchase Agreement was signed.
A copy of TWC's written opinion dated January 20, 2000, which sets forth
the factors considered, assumptions made, and certain limitations on the scope
of the review conducted by TWC, is included as appendix D to this proxy
statement. Stockholders are urged to read this opinion in its entirety. The TWC
opinion was intended for the use and benefit of the board of directors of DMC
and was directed only to the fairness of the Transaction from a financial point
of view to the stockholders of DMC, other than SNPE. The opinion does not
constitute a recommendation to any stockholder of DMC as to how such stockholder
should vote on the proposed Transaction.
In arriving at its opinion, TWC:
-24-
<PAGE>
(i) reviewed DMC's 1999 unaudited financial statements for the nine
months ended September 30, 1999, management's fourth quarter 1999
projections and audited consolidated financial statements for the
fiscal years 1995 to 1998;
(ii) visited and toured the facilities of DMC;
(iii) held discussions with certain members of DMC's management and board
of directors;
(iv) reviewed certain terms of the contemplated transactions, including
but not limited to the equity price per share and terms of the
convertible subordinated note;
(v) evaluated and reviewed the possible alternative transactions
available to DMC;
(vi) reviewed documentation related to the transaction including the term
sheet, Stock Purchase Agreement, Note and the registration rights
agreement;
(vii) reviewed publicly available data on companies deemed comparable
or otherwise relevant to DMC;
(viii) compared business profile, financial strength, financial
performance, potential growth, size and risk of DMC to that of
comparable or otherwise relevant companies;
(ix) reviewed publicly available data on precedent merger transactions,
where the target was deemed to be comparable to DMC by size or
industry or otherwise relevant;
(x) compared business profile, financial strength, financial
performance, potential growth and risk of DMC to that of precedent
merger transaction target companies;
(xi) reviewed certain financial projections, as provided by DMC in its
forecasts of fiscal years 1999, 2000, 2001, 2002 and 2003;
(xii) determined a discount rate applicable to an equity investment in
DMC;
(xiii) performed discounted cash flow analysis of DMC's projections
under several scenarios;
(xiv) reviewed studies on size discounts and control premiums;
(xv) conducted a lengthy sales process during 1999 in which potential
strategic and financial acquirers were contacted, bids were
solicited, and an agreement for the
-25-
<PAGE>
purchase of DMC's bonding business and subsequently for an
investment in DMC were negotiated and signed; and
(xvi) performed such additional review as TWC deemed appropriate.
In preparing its opinion, TWC relied upon the accuracy and completeness of
all information supplied or made available to TWC. TWC did not assume any
responsibility for independently reviewing or verifying such information. With
respect to information involving financial forecasts for DMC, TWC assumed that
such forecasts were the best current estimates of management and were reasonably
prepared based on the judgement of management to reflect the expected future
financial performance of DMC. In preparing its opinion, TWC based its analysis
on the economic and market conditions and on DMC's financial condition as they
existed and could be evaluated on the date of the opinion.
Following is a summary of all of the material analyses performed by TWC in
connection with its work on its opinion:
DMC'S FINANCIAL CONDITION. TWC spent considerable time analyzing the
current financial condition of DMC. Specifically, TWC focused on the prospects
for DMC to be able to continue operating in the normal course given that (i) DMC
is highly leveraged with debt, (ii) DMC is in default on its senior debt and
operating under a temporary deferral of principal payments and waiver of
covenant compliance, (iii) DMC's auditors may consider whether DMC is viable as
a going concern in conjunction with their year-end 1999 audit report, and (iv)
both a key vendor and customer of DMC have inquired as to the financial
viability of DMC and its relationship with its senior lender. TWC concluded that
there is a significant risk that DMC would not be able to continue normal
operations of the business in the future due to its weak current financial
condition.
TRANSACTION SHARE PRICE AND BLENDED PRICE. TWC reviewed the terms of the
Transaction, consisting of the sale to SNPE of 2,109,091 shares of DMC common
stock at $2.75 per share for a $5.8 million cash payment, and the payment to DMC
of an additional $1.2 million pursuant to a subordinated note bearing interest
at the rate of 5% per year and convertible into DMC common stock at $6.00 per
share. TWC calculated the blended share purchase price, reflecting the value and
assuming conversion of the convertible subordinated note, at $3.03 per share of
DMC common stock as follows:
-26-
<PAGE>
=======================================================
Proceeds Security Price/Share Shares
Issued
---------- ------------ -------- ---------
$5,800,000 Common Stock $ 2.75 2,109,091
$1,200,000 Note $ 6.00 200,000
---------- ------------ -------- ---------
$7,000,000 $ 3.03 2,309,091
-------------------------------------------------------
MARKET ANALYSIS. TWC reviewed market and stock trading information
concerning DMC. The following represents recent stock trading activity and
average prices for DMC's shares prior to the announcement of the proposed
Transaction.
==================================================================
Closing stock price as of December 31, 1999 $1.1875
30 day average stock price as of December 31, 1999 $1.3969
Share volume on December 31, 1999 45,900
Average daily share volume for the 30 days ended 18,193
December 31, 1999
------------------------------------------------------------------
In conducting its market and stock trading analysis, TWC also considered
the information that DMC had been notified it no longer qualifies for listing on
the Nasdaq National Market and was in the process of applying for listing on the
Nasdaq SmallCap Market.
CONTROL PREMIUM ANALYSIS. TWC studied average control premiums paid for
public companies with equity values less than $25 million from 1993 through the
third quarter of 1999. Based upon its study, TWC concluded that the average
control premium paid for public companies in that period was 38.8%. TWC applied
this premium to DMC's December 31, 1999 and 30 day average stock prices. The
December 31, 1999 share price was used as the last day of the measurement period
as it is the closing price three days prior to SNPE's public filing of its
amended 13D filing which discussed the Transaction. Applying the 38.8% average
control premium to DMC's 30 day average share price and December 31, 1999
closing share price resulted in implied values of $1.94 per share and $1.65 per
share, respectively.
-27-
<PAGE>
=================================================
30 Day
Average Current Stock
Stock Price Price
------------- --------------
Stock Price $1.3969 $1.1875
Control Premium 38.8% 38.8%
------------- --------------
Implied Value $1.9389 $1.6483
-------------------------------------------------
The $2.75 per share purchase price and $3.03 blended price which DMC will
receive in the Transaction represent a control premium of approximately 96.9%
and 116.9%, respectively, to DMC's average 30 day closing share price. When
applied to DMC's December 31, 1999 closing share price, the Transaction share
price and blended share price represent 131.6% and 155.7% control premiums. The
control premium to be received by DMC in the Transaction is thus significantly
higher than the average control premiums paid for public companies with equity
values less than $25 million.
COMPARABLE COMPANY ANALYSIS. TWC compared financial information relating
to DMC to corresponding data from a group of five publicly traded companies
deemed comparable to DMC. The comparable companies include Ducommun Inc.,
Fansteel Inc., Precision Cast Corp., RTI International Metals Inc. and SPS
Technologies, Inc. The comparable group of companies was chosen because they
participate in the specialty metal fabricating industry, the aerospace industry,
or both. These companies are generally much larger and more profitable than DMC.
TWC calculated the comparable company valuation statistics including price to
earnings ratios, enterprise to operating income, enterprise value to EBITDA,
enterprise value to revenue and price to book value. The comparable company
valuation statistics were adjusted by reducing valuations to reflect a 35.6%
size discount, reflecting an average reduction in prices paid for small
companies like DMC from prices paid for companies the size of those in the
comparable group, and increasing valuations to reflect the 38.8% average control
premium determined as described above.
==============================================
Average
Ratios
-------------
Price to Earnings 9.9x
Enterprise to Operating Income 8.0x
Enterprise to EBITDA 5.4x
Enterprise to Revenue 0.7x
Price to Book Value 0.9x
----------------------------------------------
-28-
<PAGE>
The table above summarizes the comparable company multiples. DMC's lack of
positive trailing net income, EBIT, or EBITDA restricts the analysis to
multiples of sales and book value, generally less reliable valuation standards
than earnings based ratios. Taking the comparable company group average,
adjusting for size discounts and control premiums, and calculating equity value
results in an average implied equity value of $2.12 per share for DMC. The $2.75
share purchase price and $3.03 blended price which DMC will receive in the
Transaction are significantly higher than its average implied equity value of
$2.12.
PRECEDENT TRANSACTIONS. TWC reviewed recent merger and acquisition
transactions for which public information was publicly available involving two
groups of companies. The first group studied included companies in the specialty
metal fabrication or aerospace industries, similar lines of business to those of
DMC. This comparable group included only three companies, including DMC's
acquisition of Detaclad in 1996. The second group studied included a group of
smaller specialty manufacturing companies in a variety of industries that were
more similar in size and slow growth characteristics to DMC. This group included
eleven companies.
As with the comparable public company group, TWC calculated relevant
valuation multiples for each of the precedent transactions, including price to
earnings, enterprise value to operating income, enterprise value to EBITDA,
enterprise value to revenue and price to book value. Once again, DMC's weak
current operating results prevented meaningful comparison to the comparable
groups in terms of earnings, operating income or EBITDA. The multiples of
enterprise to book value were not meaningful for one company in each of the two
groups, and were excluded from the information analyzed and summarized below.
The precedent transaction group valuation multiples were adjusted for size and
compared with the proposed Transaction valuation.
=============================================================
Average Ratios
-----------------------------
Group One Group Two
------------- -------------
Price to Earnings 14.7x 13.1x
Enterprise to Operating Income 9.0x 8.8x
Enterprise to EBITDA 6.8x 6.0x
Enterprise to Revenue 0.9x 0.6x
Price to Book Value 2.0x 1.7x
-------------------------------------------------------------
The table above shows the valuation ratios of the two precedent
transaction groups. Taking an average of these two groups and applying the
enterprise to revenue and price to book value ratios to DMC results in an
implied price of $3.01 per share for DMC, slightly lower than the $3.03 blended
price DMC will receive in the Transaction (which assumes conversion of the
convertible subordinated note), although higher than the $2.75 share purchase
price.
-29-
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS. TWC estimated the present value of the
projected future cash flows of DMC using discounted cash flow analysis. TWC used
management's cash flow projections for the fiscal years 2000 through 2003,
applied a range of estimated terminal multiple values of 4.0 times through 6.0
times DMC's estimated 2003 EBITDA and discounted the resulting cash flows back
using discounts of 15% through 20% based on weighted average cost of capital
computations. This analysis resulted in a range of estimated present values of
DMC's equity of approximately $0.05 per share to $3.82 per share with a midpoint
of $1.80 per share. The $2.75 share purchase price and $3.03 blended price which
DMC will receive in the Transaction (which assumes conversion of the convertible
subordinated note) compare favorably to the midpoint equity value of $1.80 per
share.
LIQUIDATION ANALYSIS. Management provided TWC with an estimated forced
liquidation value for the bonding assets and all of the assets of DMC.
Management estimates that DMC could generate approximately $8.3 million of net
proceeds from the forced liquidation of the bonding business. Applying this cash
to pay down debt, and utilizing management's forecast for the aerospace division
going forward, TWC calculated a discounted cash flow equity value of $(0.84) per
share for DMC. The $2.75 share purchase price and the $3.03 blended price which
DMC will receive in the Transaction (which assumes conversion of the convertible
subordinated note) compare favorably to the discounted cash flow equity value of
$(0.84) per share
Management estimates net cash proceeds of approximately $13.8 million
would result from the forced liquidation of the entire Company. Applying this
cash to the assumed outstanding debt balance of $16.8 million leaves DMC with an
assumed unpaid debt balance of $3.0 million, leaving no value for stockholders.
CONCLUSION. In reaching its conclusion as to the fairness of the
Transaction and in its presentation to the board of directors, TWC did not rely
on any single analysis or factor described above, assign relative weights to the
analyses or factors considered by it, or make any conclusion as to how the
results of any given analysis, taken alone, supported its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. TWC believes that its
analyses must be considered as a whole and that selection of portions of its
analyses and of the factors considered by it, without considering all of the
factors and analyses, would create a misleading view of the processes underlying
the opinion.
The analysis of TWC is not necessarily indicative of actual values or
future results, which may be significantly different than those suggested by the
analyses. Analyses relating to the value of companies are not intended to be
appraisals or valuations or to necessarily reflect the price at which companies
may actually be sold. No company or transaction used in any analysis for
purposes of comparison is identical to DMC or the Transaction. Accordingly, an
analysis of the results of the comparisons is not mathematical; rather, it
involves complex considerations and judgments about differences in the companies
to which DMC was compared and other factors that could affect the public trading
values of the companies. In this regard, TWC noted
-30-
<PAGE>
substantially lower profitability and smaller revenues for DMC when compared to
comparable companies or precedent merger transactions.
For purposes of its opinion, TWC relied upon and assumed the accuracy,
completeness and fairness of the financial statements and other information
provided to it by DMC or otherwise made available to TWC and did not assume
responsibility for the independent verification of such information. TWC relied
upon the assurances of the management of DMC that (i) the information provided
to it by DMC was prepared on a reasonable basis, (ii) the financial forecasts
reflected the best currently available estimates of management, (iii) management
was not aware of any information or facts that would make the information
provided to TWC incomplete or misleading and (iv) there were no material changes
in DMC's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements or information made
available to TWC.
Pursuant to the terms of an engagement letter dated March 15, 2000, DMC
has agreed to pay TWC a total fee of $300,000 in connection with its services
related to the Transaction. At the date of this proxy statement, TWC has been
paid $95,000 at the rate of $7,500 per month for the period commencing with
TWC's engagement and ending on January 31, 2000. Fees continue to accrue at the
rate of $7,500 per month, but TWC has permitted DMC to defer the payment of
these fees. If the Transaction were to close on May 15, 2000, total additional
fees of $26,250 will have been accrued. The remaining fee owed to TWC, $190,000
as of the date of this proxy statement or $178,750 if the Transaction were to
close on May 15, 2000, is contingent upon the closing of the Transaction. In
addition, DMC has agreed to indemnify TWC against certain liabilities, including
liabilities under federal securities laws, in connection with such engagement.
OPINION OF STIFEL REGARDING THE TRANSACTION
OPINION OF FINANCIAL ADVISOR. On January 20, 2000, Stifel delivered its
written opinion, dated January 20, 2000, to the board of directors to the effect
that, as of such date, based upon and subject to the assumptions made, matters
considered and limits on review set forth in Stifel's opinion, the consideration
to be received by DMC in the Transaction, consisting of consideration received
by DMC from the investment contemplated by the Stock Purchase Agreement, dated
January 20, 2000, and the convertible subordinated note, is fair to DMC from a
financial point of view. Stifel's written opinion confirmed its oral opinion
previously delivered to the board or directors on January 14, 2000.
THE FULL TEXT OF THE OPINION OF STIFEL, DATED JANUARY 20, 2000, IS
ATTACHED AS APPENDIX E TO THIS PROXY STATEMENT AND SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN. STOCKHOLDERS ARE
URGED TO READ THE OPINION OF STIFEL IN ITS ENTIRETY. Stifel's opinion is
directed only to the fairness, from a financial point of view, of the
consideration to be received by DMC from the investment contemplated pursuant to
the Stock Purchase Agreement, whereby DMC will sell and SNPE will purchase
2,109,091 shares (the "Shares") of common stock for $5,800,000 or $2.75 per
share, and the convertible subordinated note in an aggregate principal amount of
$1,200,000, is convertible by
-31-
<PAGE>
SNPE in whole or in part into 200,000 common shares at $6.00 per share within
five years of the closing date. Except as set forth below and in the full text
of Stifel's opinion, no limitations were imposed by the board of directors upon
Stifel with respect to the investigations made or procedures followed by it in
rendering its opinion. In rendering its opinion, Stifel did not opine as to any
other transactions or contractual arrangements to be entered into or payments to
be made by or to DMC or any other person concurrently with the Transaction. In
addition, Stifel was not requested to opine as to, and its opinion did not
address, the underlying business decision of the board of directors to proceed
with or to effect the Transaction.
THE SUMMARY OF THE OPINION OF STIFEL SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION SET
FORTH AS APPENDIX E TO THIS PROXY STATEMENT AND INCORPORATED HEREIN BY
REFERENCE. STIFEL'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF DMC AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE PROPOSALS AT
THE SPECIAL MEETING.
In arriving at its opinion, Stifel:
(i) reviewed DMC's Annual Reports to Stockholders for the fiscal years
ended December 31, 1996, 1997 and 1998, its Annual Reports on
Form 10K for the fiscal years ended December 31, 1996, 1997 and
1998, and its Quarterly Reports on Form 10Q for the periods ended
March 31, June 30 and September 30, 1999;
(ii) reviewed certain operating and financial information, including
current estimates for fiscal 1999 through 2003 provided to Stifel
by DMC's senior management, relating to DMC's businesses and
prospects;
(iii) reviewed the Term Sheet, the Stock Purchase Agreement, the
convertible subordinated note and the registration rights agreement;
(iv) met with or had telephone conversations with certain members of
DMC's senior management to discuss DMC's businesses and
operations, historical financial performance, estimated financial
performance for fiscal 1999 through 2003, current financial
condition and liquidity, expected capital requirements and future
prospects;
(v) reviewed the historical prices, trading activity and valuation
parameters of the shares of the common stock;
(vi) reviewed possible strategic alternatives available to DMC;
(vii) determined DMC's cost of capital based on its current borrowing
ratios and risk profile and performed a discounted cash flow
analysis of DMC's financial projections;
(viii) determined an applicable control premium based on transactions of
similar size;
-32-
<PAGE>
(ix) reviewed publicly available financial data, stock market performance
data and valuation parameters of certain companies which Stifel
deemed reasonably comparable to DMC, or otherwise relevant;
(x) reviewed the terms of selected precedent merger and acquisition
transactions, to the extent publicly available, involving
companies which Stifel deemed reasonably comparable to DMC or
otherwise relevant;
(xi) reviewed a draft of this proxy statement in substantially the form
in which it is being distributed to stockholders; and
(xii) conducted such other studies, analyses, inquiries and investigations
as Stifel deemed appropriate.
In connection with the foregoing, Stifel relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
by DMC and representations of DMC's senior management related thereto. With
respect to DMC's budgets and current estimates for fiscal 1999 through 2003
referred to in the previous paragraph, Stifel assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior management of DMC as to the expected performance of
DMC for fiscal 1999 through 2003. Stifel did not assume any responsibility for
the information or current estimates provided to it and relied upon the
assurances of the senior management of DMC that it was unaware of any facts that
would make the information provided to Stifel incomplete or misleading. In
arriving at its opinion, Stifel did not perform or obtain any independent
appraisal of the assets of DMC. Stifel's opinion was necessarily based on
economic, market and other conditions, and the information made available to it,
as of the date thereof.
In rendering its opinion, Stifel considered:
(i) DMC's recent financial performance, current financial condition and
(based on recent trends as well as the discussions with senior
management described above) future prospects;
(ii) the engagement with TWC regarding the attempted sale of DMC's
bonding business, the offers received in connection with the
engagement and the terminated transaction with Ametek;
(iii) that DMC could be considered to be in distress given the facts that
DMC is in default on its senior bank debt, DMC's auditors have
indicated the possibility of a "going concern" qualification and
DMC faced transfer from the Nasdaq National Market to the Nasdaq
SmallCap Market;
(iv) DMC's prospects for raising debt or equity in the public and private
capital markets; and
-33-
<PAGE>
(v) the various terms and conditions of the Transaction.
The following is a summary of the principal financial and valuation
analyses performed by Stifel to arrive at its opinion. Based on these financial
and valuation analyses and the other factors discussed herein, Stifel determined
that, as of the date of its opinion, the consideration to be received by DMC
pursuant to the Transaction is fair, from a financial point of view, to the
stockholders of DMC other than SNPE.
FINANCIAL AND OPERATING PERFORMANCE OF DMC. As part of its overall
analysis, Stifel examined the historical financial and operating performance of
DMC for its last three full fiscal years and the estimated financial and
operating performance of DMC for fiscal 1999 through 2003, furnished by senior
management and described above. This analysis considered DMC's reported
revenues, gross profit, earnings before interest and income taxes ("EBIT"),
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
net income.
Stifel noted that on a fiscal year 1999 management-estimated basis,
EBITDA, EBIT and net income were all negative and significantly below historical
and projected levels. Stifel also noted that because of the operating results
for DMC on a latest twelve month basis, it was not meaningful to conduct any
valuation analysis based on (i) total enterprise value to EBIT, (ii) total
enterprise value to EBITDA and (iii) price/earnings multiples.
STOCK MARKET TRADING ACTIVITY. As part of its review and analysis, Stifel
examined the historical trading performance of the common stock in light of the
recent financial and operating trends of DMC. In particular, Stifel reviewed the
range of closing prices of the common stock over the last 52 weeks, which ranged
from $6.4375 to $0.875 on average volume of 9,474 shares per day. Stifel also
reviewed the closing stock prices surrounding the June 23, 1999 announcement by
DMC of the Asset Purchase Agreement with Ametek to sell the bonding business and
the subsequent termination of that agreement on October 20, 1999, which saw the
stock price closing in a range from approximately $5.00 to $1.00 during the
period.
DISCOUNTED CASH FLOW ANALYSIS. A discounted cash flow analysis provides
insight into the intrinsic value of a business based on the projected earnings
and capital requirements and the net present value of the subsequent cash flows
anticipated to be generated by the assets of the business. Stifel performed a
discounted cash flow analysis for fiscal 2000 through 2003 to estimate the
present value of the stand-alone, unlevered free cash flows of DMC. For purposes
of this analysis unlevered free cash flows were defined as after-tax operating
earnings, plus depreciation and amortization, less projected capital
expenditures and investment in working capital. To derive a terminal value,
Stifel applied a range enterprise value to EBITDA multiples of 4.5x to 6.5x to
the projected EBITDA of DMC in fiscal 2003. The unlevered free cash flows and
terminal values were then discounted to the present using a range of discount
rates of 15.0% to 25.0%, representing an estimated range of the weighted average
cost of capital of DMC. From the derived present value of the unlevered free
cash flows, Stifel then subtracted the value of DMC's net debt (defined as
estimated total debt less cash at December 31, 1999) to obtain the implied
equity value. Based on management's projections of an enterprise value to EBITDA
-34-
<PAGE>
multiple of 5.5x and a discount rate of 20%, Stifel valued DMC's common stock at
$1.82 per share. The $2.75 share purchase price and $3.03 blended price
(reflecting the value of both the share purchase price and the convertible
subordinated note) which DMC will receive in the Transaction compare favorably
to this $1.82 share value.
Inherent in any discounted cash flow valuation is the use of a number of
assumptions and judgments, including the accuracy of projections, and the
subjective determination of an appropriate terminal value and discount rate to
apply to the projected cash flows of the entity under examination. Variations in
any of these assumptions or judgments could significantly alter the results of a
discounted cash flow analysis.
CONTROL PREMIUM ANALYSIS. Typically an acquirer will pay a premium over a
public company's market value to gain control of the public company. Stifel
reviewed premiums paid by buyers of a controlling interest (defined as 50% or
greater) in public companies valued at under $50.0 million from 1996 to 1999.
Stifel reviewed these transactions by year. For each transaction, Stifel looked
at the 5- and 30-day premiums paid. Stifel's analysis is summarized below:
Year Control Premiums
------------------------------------------
5 day 30 day
---------------------
1996 35.6% 43.7%
1997 29.4% 39.7%
1998 35.9% 42.2%
1999 35.9% 40.0%
------------------------------------------
Averages: 34.4% 41.4%
Average Premiums: 37.9%
Based upon this analysis, Stifel concluded that the average control
premium paid for public companies during that period was 37.9%. Stifel then
applied this premium to DMC's January 20, 2000 stock price and 30 day average.
This analysis concluded that an average price of $2.10 per share for DMC's
common stock would reflect the average control premium paid for public companies
of 37.9%. The $2.75 per share purchase price and $3.03 blended price which DMC
will receive in the Transaction represent control premiums of 77.4% and 95.5%,
respectively, to DMC's 30 day average closing share price, and premiums of 83.3%
and 102%, respectively, to DMC's Closing stock price on January 20, 2000. The
control premiums to be received by DMC in the Transaction are thus significantly
in excess of the 37.9% average control premium.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. This analysis is generally
used to determine the market value of a company by comparing it to a group of
comparable companies. Stifel used this analysis to determine if DMC traded at a
premium or a discount to the relevant group. Stifel compared certain operating
and financial information of DMC to certain publicly available operating,
financial, trading and valuation information of twelve publicly traded
-35-
<PAGE>
companies in the fabricated metals products and aerospace components industries
which, in Stifel's judgment, were reasonably comparable to DMC (collectively,
the "Comparable Companies") based on size, product line and margins. Although
these companies are all larger than DMC in terms of revenues, they trade at
similar discounts to their operating results as does a small-cap company like
DMC. Stifel's analysis of the Comparable Companies included reviewing their
enterprise values as a multiple of revenues, EBITDA, EBIT and book value and
their stock prices as a multiple of earnings per share. In reviewing the
valuation parameters of DMC, Stifel noted that DMC could only be analyzed based
on a multiple of revenues and a multiple of book value as a result of its recent
financial performance.
Stifel's analysis of the Comparable Companies indicated that the range of
enterprise value to revenues multiples was 0.2x to 1.0x with an arithmetic mean
(excluding the high and low values) of 0.6x. Stifel noted that enterprise value
to revenue multiple valuations are generally not regarded as a highly reliable
method of valuation. In addition, Stifel's analysis of the Comparable Companies
indicated that the range of enterprise value to book value multiples was 0.5x to
4.1x with an arithmetic mean (excluding the high and low values) of 1.4x. Stifel
noted that enterprise value to book value multiple valuations are generally not
regarded as a highly reliable method of valuation. By applying these multiples
to DMC's operating results for 1999, applying the 37.9% control premium to the
resulting value and subtracting DMC's net debt, Stifel valued DMC's common stock
at $1.74 per share. The $2.75 share purchase price and $3.03 blended price which
DMC will receive in the Transaction compare favorably to this valuation.
ANALYSIS OF SELECTED PRECEDENT MERGER AND ACQUISITION TRANSACTIONS. Stifel
reviewed and analyzed the publicly available financial terms of 23 recent merger
and acquisition transactions ("Precedent M&A Transactions") from 1996 through
January 20, 2000 involving companies which focus primarily on specialty metal
fabrication that, in Stifel's judgment, were reasonably comparable to DMC for
purposes of this analysis based on size and product line.
Stifel reviewed the prices paid in the Precedent M&A Transactions and
analyzed various operating and financial information and imputed valuation
multiples and ratios. Stifel noted that none of the Precedent M&A Transactions
were identical to the Transaction and that, accordingly, any analysis of the
Precedent M&A Transactions necessarily involved complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that would necessarily affect the value of DMC versus the
acquisition values of the companies to which DMC was being compared. In
addition, Stifel noted that the Precedent M&A Transactions could generally be
analyzed based on various valuation parameters such as enterprise value as a
multiple of revenues, EBIT, EBITDA and book value whereas DMC could only be
analyzed based on a multiple of revenues and book value as a result of its
recent financial performance.
Stifel's analysis of the Precedent M&A Transactions indicated that the
range of enterprise value to revenue multiples was 0.1x to 1.7x with an
arithmetic mean (excluding the high and low values) of 0.6x. One transaction was
excluded from this analysis because the available data did
-36-
<PAGE>
not provide a multiple. Stifel noted that enterprise value to revenue multiple
valuations are generally not regarded as a highly reliable method of valuation.
Stifel's analysis of eight of the Precedent M&A Transactions indicated that the
range of enterprise value to book value multiples was 0.1x to 1.7x with an
arithmetic mean (excluding the high and low values) of 2.9x. Fifteen of the M&A
Precedent Transactions were excluded from this analysis because the available
data did not provide a multiple. Stifel noted that enterprise value to book
value multiple valuations are generally not regarded as a highly reliable method
of valuation. By applying these multiples to DMC's operating results for 1999
and subtracting DMC's net debt, Stifel valued DMC's common stock at $2.43 per
share. The $2.75 share purchase price and $3.03 blended price which DMC will
receive in the Transaction compare favorably to this valuation.
THE CONVERTIBLE SUBORDINATED NOTE. As part of its overall analysis, Stifel
evaluated the terms of the convertible subordinated note, including the 5%
annual interest rate (payable quarterly) and the implied conversion premiums
associated with DMC's common stock price compared with the current market price.
In its review of the convertible subordinated note's interest rate, Stifel
considered the financial condition of DMC and DMC's current average borrowing
rate of 8.1% (before considering tax effects). In its review of the convertible
subordinated note's implied conversion premiums, Stifel noted that, based upon
the (i) $6.00 conversion price and (ii) the market price of the common stock of
$1.50 per share on January 20, 2000, the resulting 300.0% implied conversion
premium appeared fair to DMC's common stockholders with Stifel's knowledge of
market premiums and DMC's financial performance.
CONCLUSIONS. Stifel arrived at its opinion based on the foregoing analyses
and factors. However, the summary set forth above does not purport to be a
complete description of the analysis performed and factors considered by Stifel
in arriving at its opinion, although it does reflect all material factors
considered and analyses performed by Stifel. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a whole, could
create an incomplete view of the processes underlying Stifel's opinion. In
arriving at its opinion, Stifel considered the results of all such reviews,
calculations and analyses. The analyses were prepared solely for purposes of
providing its opinion as to the fairness of the consideration to be received by
DMC pursuant to the Transaction, from a financial point of view, to the
stockholders of DMC, other than SNPE, and do not purport to be appraisals or to
necessarily reflect the prices at which securities of DMC might actually be sold
to other parties. Analyses based upon future prospects are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. As described above, Stifel's opinion
and presentation to the board of directors was one of many factors taken into
consideration by the board of directors in making its determination to approve
the Transaction and recommend the Transaction to the stockholders of DMC.
DMC retained Stifel in connection with the Transaction based upon Stifel's
qualifications, expertise and reputation, including the fact that Stifel, as
part of its investment banking business, is continually engaged in the valuation
of businesses and their securities in
-37-
<PAGE>
connection with mergers and acquisitions, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, Stifel may actively trade securities of DMC for its own account and
for the accounts of its customers and, accordingly, may, at any time, hold a
long or short position in such securities.
Pursuant to the terms of an engagement letter dated January 10, 2000, DMC
has agreed to pay Stifel a total fee of $75,000, of which $25,000 was paid upon
execution of the engagement letter and an additional $50,000 is payable upon
distribution of this proxy statement. In addition, DMC has agreed to indemnify
Stifel against certain liabilities, including liabilities under federal
securities laws, in connection with such engagement.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendations of DMC's board of directors,
stockholders should be aware that certain members of management of DMC and of
such board of directors have certain interests in the Transaction that are in
addition to the interests of stockholders generally and that may create
potential conflicts of interest.
DIRECTORSHIPS. The Stock Purchase Agreement requires that the bylaws of
DMC will be amended to increase the size of DMC's board of directors to seven
members, four of whom will be nominated by SNPE. On the closing of the
Transaction, Messrs. Allwein and Franson will resign from the board of
directors. Messrs. Allen, Morgenthaler and Bartlett will complete their current
terms as directors and thereafter their successors will be nominated by the DMC
Board and elected at the annual stockholder meeting at which their terms expire.
One or more of Messrs. Allen, Morgenthaler and Bartlett will serve on a board of
directors committee, to be composed of equal numbers of representatives of SNPE
and DMC, created to consider granting of stock options to directors, officers,
employees or affiliates of DMC or SNPE. Such stock option grants may be approved
only by the unanimous vote of the committee members.
OFFICERS. SNPE has informed DMC that Mr. Allwein is expected to serve as
Chief Operating Officer following the closing of the Transaction. DMC expects
that Mr. Santa will continue to serve as Vice President and Chief Financial
Officer and that Mr. Jarman will continue to serve as Vice President of
Corporate Development following the closing of the Transaction.
EMPLOYMENT AGREEMENTS. Mr. Allwein had an employment agreement with DMC,
which expired on March 18, 2000, under which he would have been entitled to
receive his base salary for the longer of six months or the remaining term of
his employment agreement following involuntary termination of his employment
without cause. Under the Stock Purchase Agreement, the term of Mr. Allwein's
employment agreement may not be extended without the consent of SNPE.
-38-
<PAGE>
Mr. Santa has an employment agreement with DMC under which he is entitled
to receive severance equal to 26 weeks of salary if he is involuntarily
terminated without cause or as the result of a change of control of DMC.
CHANGE OF CONTROL AGREEMENTS. Messrs. Allwein, Jarman and Santa, have
entered into change of control agreements with DMC. Each agreement entitles the
executive to remain employed by DMC for up to one year after a change of
control, as defined in the Agreement, and to receive his base annual salary and
bonus and benefits at a rate equal to or greater than that in effect immediately
prior to the change of control. The Transaction does not constitute a change of
control as defined, which includes only transactions following four quarters
during which DMC has had operating profits.
SEVERANCE PLAN. DMC maintains a severance compensation plan under which
those employees selected for participation in the plan and who are involuntarily
terminated from employment may receive severance compensation and/or
continuation of certain other benefits after termination as determined by DMC.
There are currently no participants in the severance compensation plan, and any
action by DMC to select plan participants or to provide benefits would require
the approval of SNPE under the Stock Purchase Agreement.
INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS. Directors and
officers of DMC are, to the extent permitted by Delaware law, indemnified in
DMC's bylaws and in separate indemnification agreements with DMC. In addition,
under the Stock Purchase Agreement, SNPE is required to use reasonable efforts
to cause DMC to maintain, until July 1, 2002, directors' and officers' liability
insurance in amounts and coverages comparable to that currently maintained by
DMC at a cost not to exceed 125% of the annual premium currently paid by DMC.
STOCK OPTIONS. Under DMC's 1997 Equity Incentive Plan, either (i) SNPE or
DMC must maintain outstanding stock options or replace them with stock awards
which are economically comparable or (ii) DMC must accelerate the vesting of
stock options and provide a period within which such options may be exercised
prior to the closing date of the Transaction. DMC expects to maintain
outstanding stock options granted under the 1997 Equity Incentive Plan after the
closing of the Transaction.
EMPLOYEE STOCK PURCHASE PLAN. Grants made under DMC's employee stock
purchase plan provide employees, including DMC officers, with the right to
purchase DMC common stock at prices not less than the lesser of 85% of the fair
market value of the stock on the date of the grant or the date on which the
right may be exercised. The rights granted under the employee stock purchase
plan will continue in full force and effect following the closing of the
Transaction.
INVESTMENT BANKING FEES. Mr. Franson, a Director of DMC, is a principal in
TWC, the financial advisor to DMC in connection with the Transaction. DMC has
agreed to pay TWC a total fee of $300,000 in connection with its services
related to the Transaction. At the date of this
-39-
<PAGE>
proxy statement, TWC has been paid $95,000 at the rate of $7,500 per month for
the period commencing with TWC's engagement and ending on January 31, 2000. Fees
continue to accrue at the rate of $7,500 per month, but TWC has permitted DMC to
defer the payment of these fees. If the Transaction were to close on May 15,
2000, total additional fees of $26,250 will have been accrued. The remaining fee
owed to TWC, $190,000 as of the date of this proxy statement or $178,750 if the
Transaction were to close on May 15, 2000, is contingent upon the closing of the
Transaction. In addition, DMC has agreed to indemnify TWC against certain
liabilities, including liabilities under federal securities laws, in connection
with such engagement.
EFFECTS OF THE TRANSACTION ON THE RIGHTS OF STOCKHOLDERS
Assuming the issuance of the shares of common stock to SNPE under the
Stock Purchase Agreement as proposed in this proxy statement, the percentage of
DMC's voting securities owned of record and beneficially by existing holders of
common stock (other than SNPE) will be reduced significantly on a fully diluted
basis. If the Transaction is approved, the 2,109,091 shares of common stock
issued to SNPE pursuant to the Stock Purchase Agreement, combined with the
406,400 shares already owned by SNPE, would reduce to 49.20% the interest of
existing holders of common stock other than SNPE and increase SNPE's ownership
to 50.80% from 14.30% of the outstanding shares of common stock. If SNPE
converts the convertible subordinated note at the original conversion price of
$6 per share, it will receive an additional 200,000 shares, thus increasing its
total number of shares of common stock to 2,715,491 or 52.70% of DMC's
outstanding common stock, and reducing to 47.30% the interest of existing
stockholders other than SNPE. SNPE, as the holder of greater than 50% of the
outstanding shares of Common stock, will be able to elect all of the directors
of DMC standing for election at each meeting and to direct corporate policy.
MATERIAL TERMS OF THE TRANSACTION
The terms of the Transaction which stockholders are being asked to approve
are set forth in the Stock Purchase Agreement, the convertible subordinated note
and the registration rights agreement. The following is a summary of the
material provisions of the Stock Purchase Agreement, the convertible
subordinated note and the registration rights agreement, copies of which are
attached as appendices A, B and C to this proxy statement. This summary is
qualified in its entirety by reference to the full text of the Stock Purchase
Agreement, the convertible subordinated note and the registration rights
agreement.
STOCK PURCHASE AGREEMENT
The Stock Purchase Agreement provides for the purchase by SNPE of
2,109,091 shares of common stock at a purchase price of $2.75 per share, or $5.8
million in the aggregate, and for the purchase of the convertible subordinated
note.
CLOSING. The consummation of the purchase and sale of the shares (the
"closing") shall take place on the earlier of May 15, 2000 and the date on which
all of the closing conditions set
-40-
<PAGE>
forth in the Stock Purchase Agreement, including approval by the stockholders of
DMC, are satisfied (the "closing date"). At the closing, DMC will issue
2,109,091 shares of common stock to SNPE, and SNPE will pay $5.8 million to DMC.
Also at the closing, DMC will issue the convertible subordinated note to SNPE,
and SNPE will pay $1.2 million to DMC.
REPRESENTATIONS AND WARRANTIES. The Stock Purchase Agreement contains
representations and warranties of the parties concerning, among other things,
incorporation, authority of the parties to execute the Stock Purchase Agreement
and the absence of conflicts. DMC has made certain additional representations
and warranties regarding, among other things, its capital structure, assets,
liabilities, expenditures, employee compensation, labor relations, material
contracts, legal proceedings, taxes, inventory and environmental matters.
COVENANTS. Each of SNPE and DMC has agreed to seek all necessary consents
and approvals, to provide the other party with full access to information, and
to notify the other party of any material changes or developments. Pending the
closing, DMC has agreed to conduct its business consistent with past practices
and to use reasonable best efforts to preserve its business organization and
relationships intact, to amend its bylaws to effect changes in the composition
of the board of directors effective as of the closing date which are required by
the Stock Purchase Agreement, and to issue the convertible subordinated note and
enter into the registration rights agreement.
DMC has agreed that it will not, prior to the closing date, take or agree
to take any action that would have a Company Material Adverse Effect (as defined
in the Stock Purchase Agreement) on DMC. DMC also has agreed that it will not
take certain other actions including:
(i) amending its corporate documents, pay dividends or issue capital
stock other than under existing benefit plans;
(ii) increasing employee compensation or amend employee benefit plans
other than in the ordinary course of business;
(iii) materially amending or failing to perform under material contracts
or permits;
(iv) selling assets in excess of $50,000 or make capital expenditures,
other than with respect to the Mount Braddock facility, in excess of
$100,000;
(v) terminating certain officers or plant managers;
(vi) increasing indebtedness above agreed limits or issue additional
indebtedness with a maturity of more than one year; or
(vii) changing the composition of the board of directors.
-41-
<PAGE>
SNPE has agreed to use reasonable efforts to cause DMC to maintain until
July 1, 2002 directors' and officers' liability insurance in amounts and
coverages comparable to that currently maintained by DMC at a cost not to exceed
125% of the annual premium currently paid by DMC.
SOLICITATION. DMC has agreed that prior to the closing date it will not,
without the prior written consent of SNPE, directly or indirectly, solicit,
initiate or participate in negotiations or discussions, or provide any
information or assistance to or enter into an agreement with any other party
with regard to a possible acquisition, merger, consolidation, liquidation,
dissolution, disposition of assets or any other transaction that would result in
the transfer (other than in the ordinary course of business) of any part of the
business or assets of or equity interest in DMC, or assist or participate in,
facilitate or encourage any other party to attempt to do the foregoing. These
restrictions do not apply to transactions which would not result in the
disposition of a material amount of DMC's capital stock or assets. In addition,
if DMC receives an unsolicited acquisition proposal (as defined in the Stock
Purchase Agreement), or an unsolicited inquiry reasonably likely to result in
the making of an acquisition proposal, from a party reasonably believed by the
board of directors after consultation with its financial advisors to have the
financial resources to consummate an acquisition proposal, and the board of
directors believes in good faith, following consultation with outside counsel,
that it is necessary to do so in order to comply with fiduciary duties to
stockholders under applicable law, the board of directors may participate in
discussions regarding such acquisition proposal or furnish information regarding
DMC and its business to the party making such unsolicited acquisition proposal
or inquiry pursuant to an appropriate confidentiality agreement. If DMC
receives, directly or indirectly, from any party other than SNPE any acquisition
proposal, DMC must promptly notify SNPE.
CONDITIONS. The obligations of both parties under the Stock Purchase
Agreement are subject to certain conditions to closing including the
representations of the other party being true and correct at closing, receipt of
necessary consents and approvals, and expiration or termination of required
waiting periods under the Hart-Scott Rodino Antitrust Improvements Act of 1976
and the Defense Production Act of 1950 as amended (Exon-Florio). As of the date
of this proxy statement, the required waiting periods under Hart-Scott and
Exon-Florio have expired, and the U.S. Committee on Foreign Investment has
informed SNPE that the Transaction does not present issues of national security
sufficient to warrant an investigation under Exon-Florio. Other conditions
include the approval of DMC stockholders and the absence of litigation against
either party which could render the Transaction unlawful.
In addition the obligations of SNPE under the Stock Purchase Agreement are
subject to DMC's fulfilling certain conditions, including:
(i) amendment by DMC of its Shareholder Rights Plan to exempt from
the provisions triggering exercise of the share purchase rights
(a) the acquisition by SNPE of common stock to be issued in
connection with the Transaction and (b) any other purchase of
common stock deemed necessary by SNPE to maintain legal and
beneficial ownership of not less than 50.10% of the common stock
(excluding the
-42-
<PAGE>
number of shares which SNPE may acquire upon conversion of the
convertible subordinated note);
(ii) performance by DMC of additional subsurface environmental
investigations regarding Hazardous Materials (as defined in the
Stock Purchase Agreement) at DMC's Mount Braddock, Pennsylvania
property and completion of any required remediation;
(iii) purchase by DMC of environmental insurance on terms and covering
sites set forth in the Stock Purchase Agreement, and receipt by DMC
of any required transfers or renewals of, or applications for,
Environmental Permits as defined in the Stock Purchase Agreement;
(iv) absence of a Company Material Adverse Effect, defined in the Stock
Purchase Agreement as any change, event or effect, whether or not
foreseeable or known as of the date of the Stock Purchase Agreement,
that, individually or in the aggregate with any other changes,
events or effects, would be, or would reasonably be expected to be,
materially adverse to:
o DMC's business, condition (financial or otherwise) or
results of operations;
o the Transaction or the legality, validity or
enforceability of the Stock Purchase Agreement; or
o DMC's ability to promptly perform its obligations
under the Stock Purchase Agreement; and
(v) ownership by SNPE following the closing of the Transaction of not
less than 50.10% of the outstanding common stock (without regard to
the common stock which may be acquired by SNPE upon conversion of
the convertible subordinated note).
TERMINATION. The Stock Purchase Agreement may be terminated at any time
prior to the closing by the mutual written consent of DMC and SNPE, or by either
DMC or SNPE if:
(i) the closing does not occur on or before May 15, 2000, except that
this right is not available to a party that is in material breach of
the agreement or whose failure to fulfill an obligation under the
agreement is the cause of the effective time failing to occur on or
before May 15, 2000;
(ii) the transaction is prohibited by any governmental authority of
competent jurisdiction; or
-43-
<PAGE>
(iii) prior to closing either party is in material breach of any
representation, warranty or covenant in the agreement and the breach
is not cured within 10 days of notice of such breach, except that
this right is not available to any party that is in material breach
of the agreement or to SNPE if the aggregate effect of breach of DMC
would result in an adverse effect on DMC of less than $1.5 million.
The Stock Purchase Agreement may be terminated by DMC if its board of
directors exercises its fiduciary duties to stockholders in a manner consistent
with certain provisions of the Stock Purchase Agreement as described in the
following section, "Termination Fees and Expenses".
The Stock Purchase Agreement also may be terminated by SNPE if the board
of directors of DMC (a) withdraws, modifies or changes, in any manner adverse to
SNPE, its approval or recommendation of the Stock Purchase Agreement, (b)
recommends to the stockholders an acquisition proposal or (c) fails to recommend
against a tender offer for 20% or more of the outstanding common stock of DMC.
TERMINATION FEE AND EXPENSES. If DMC terminates the Stock Purchase
Agreement because its board of directors determines that its fiduciary duty to
its stockholders makes it necessary to accept an acquisition proposal (as
described above), DMC will pay to SNPE a $250,000 termination fee plus any
documented expenses incurred by SNPE.
SNPE may terminate the Stock Purchase Agreement if DMC's board of
directors (a) withdraws, modifies or changes, in any manner adverse to SNPE, its
approval or recommendation of the Stock Purchase Agreement, (b) recommends to
DMC's stockholders an acquisition proposal or (c) fails to recommend against a
tender offer for 20% or more of the outstanding common stock of DMC. If SNPE
terminates the Stock Purchase Agreement for any of those reasons, and DMC enters
into a definitive acquisition, merger or similar agreement to effect an
acquisition proposal within one year of the date of termination, then DMC must
pay to SNPE a $250,000 termination fee plus its documented expenses.
If DMC or SNPE terminates the Stock Purchase Agreement because the DMC
stockholders do not approve the Stock Purchase Agreement, and at the time of
such failure to approve, a third party has made a public announcement or
communicated to DMC or its stockholders concerning an acquisition proposal that
has neither been rejected by DMC nor withdrawn or terminated by the party making
it, and if DMC enters into a definitive agreement to effect an acquisition
proposal within one year of the date of the termination, then DMC has agreed to
pay SNPE a $250,000 termination fee plus its documented expenses.
CONVERTIBLE SUBORDINATED NOTE
In connection with the sale of common stock to SNPE, DMC will issue the
convertible subordinated note to SNPE. The convertible subordinated note is in
the principal amount of $1.2 million and bears interest at the rate of 5% per
annum payable quarterly in arrears on each March 30, June 30, September 30 and
December 30, with the principal and all accrued interest due and
-44-
<PAGE>
payable on the date which is five years from the closing date. The convertible
subordinated note is convertible by SNPE at any time prior to its maturity, in
whole or in part, into shares of common stock at a conversion price of $6.00 per
share of common stock, subject to adjustment from time to time to avoid
dilution.
Payment by DMC of principal and interest on the convertible subordinated
note is subordinated to the prior payment in full of all senior indebtedness of
DMC pursuant to its bank credit lines and its industrial development revenue
bonds, as described in the convertible subordinated note. SNPE is subrogated
equally and ratably to the rights of the holders of the senior indebtedness.
Should DMC engage in a reclassification, change, consolidation, merger, sale or
conveyance, DMC or its successor shall, as a precondition to such event, provide
SNPE with a new note evidencing rights in respect of the resulting entity
similar to those provided in the convertible subordinated note. DMC may prepay
the convertible subordinated note, in whole or in part, without premium or
penalty.
REGISTRATION RIGHTS AGREEMENT
Within five years following the date of the registration rights agreement,
any party holding or having the right to acquire at least 50% of the common
stock issued pursuant to the Stock Purchase Agreement and issuable upon
conversion of the convertible subordinated note may make a written request, or
demand, for registration under the Securities Act of 1933 of a specified number
of shares of such common stock, and other holders of such common stock shall
have the right to include all or a portion of such common stock owned by them in
such registration. DMC is not required to effect more than two demand
registrations.
If DMC is eligible to use a short-form registration statement for
registering securities for public sale, the party making a demand may request
that any registration statement effected pursuant to its demand be effected on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933.
In this event, DMC shall keep the registration statement effective until the
earlier of (i) the date on which all of that party's shares under the
registration statement have been disposed of or (ii) 180 days after the
registration statement is declared effective.
In addition, if DMC registers equity securities of DMC other than SNPE's
shares of common stock, then SNPE may require DMC to register its shares with
the same registration.
-45-
<PAGE>
CAPITALIZATION
(In thousands, except share and per share amounts)
The following table sets forth DMC's unaudited current liabilities and
capitalization as of December 31, 1999, and as adjusted on a pro forma basis
assuming (i) SNPE acquires 2,109,091 shares of the common stock at $2.75 per
share in exchange for a $5.8 million cash payment, (ii) DMC issues the $1.2
million convertible subordinated note to SNPE, and (iii) proceeds from the
issuance of the common stock and the convertible subordinated note are used to
repay line of credit borrowings.
<TABLE>
<CAPTION>
December 31, 1999
------------------------------------------------------------
As
adjusted
Proceeds from for common
Issuance of stock and
common stock Note
Actual and Note(5) Proceeds
-------- --------------- -------------
<S> <C> <C> <C>
Current maturities on long-term debt $ 16,785 (1) $ (7,000) (2) $ 9,785 (4)
Current portion of capital lease obligation 35 -- 35
Accrued and other current liabilities 3,101 3,101
-------- -------------- ------------
--
Total current liabilities $ 19,921 $ (7,000) $ 12,921
-------- -------------- -----------
Long-term debt $ -- $ 1,200 (3) $ 1,200
Capital lease obligations 3 -- 3
Stockholders' equity:
Convertible preferred stock, $.05 par value;
4,000,000 shares authorized: no shares
issued and outstanding -- -- --
Common stock, $.05 par value; 15,000,000
shares authorized; 2,828,577 shares issued
and outstanding and, as adjusted on a pro
forma basis, 4,937,668 shares outstanding 142 105 247
Additional paid-in capital 7,123 5,695 12,818
Deferred compensation (38) -- (38)
Retained earnings 2,803 2,803
--------- ------------ -----------
--
Total stockholders' equity 10,030 5,800 15,830
--------- ------------ -----------
Total capitalization $ 10,033 $ 7,000 $ 17,033
--------- ------------ ------------
</TABLE>
(1) Includes $10.1 million in borrowings under bank lines of credit and $6.685
million in outstanding industrial development revenue bonds. Since DMC had
violated certain financial covenants under both agreements, had failed to
make certain principal payments that were due on September 30, 1999 and
December 31, 1999 under the bank line of credit and had secured a deferral
and waiver agreement that extended only to March 30, 2000, all amounts
outstanding as of December 31, 1999 were classified as current on DMC's
December 31, 1999 balance sheet.
-46-
<PAGE>
(2) It is assumed that proceeds of $7.0 million from SNPE's equity and debt
investment are used to repay all outstanding borrowings under the "working
capital" and "accommodation line" components of DMC's revolving credit
facility and a portion of outstanding borrowings under the "acquisition
line" component, leaving $10.25 million of debt outstanding. The remaining
debt includes $6.85 million in industrial development revenue bonds and
$3.4 million of bank debt under the "acquisition line."
(3) The convertible subordinated note carries an interest rate of 5%, with
quarterly interest payments due in arrears. The principal is due in its
entirety five years from the closing date but may be prepaid without
penalty. Since the convertible subordinated note is convertible by SNPE
into DMC's common stock at a price of $6.00 per share, which represents a
significant premium to the current market price, the above pro forma
financial information assumes that the convertible subordinated note is
not converted.
(4) While it is not reflected in the pro forma capitalization table, Company
management believes that the $7.0 million equity and debt infusion by SNPE
will enable DMC to restructure its existing debt agreements or enter into
new agreements that will allow DMC to reclassify the industrial
development revenue bonds and the bank "acquisition line" (or its
replacement financing) from a current liability to long-term debt.
(5) Proceeds from the issuance of common stock have not been reduced for
certain transaction costs that are expected to approximate $400,000. The
portion of these transaction costs that relates directly to the SNPE
equity investment will be recorded as a reduction in additional paid-in
capital, thereby decreasing both the amount of debt reduction and the
increase in stockholders' equity reflected in the pro forma capitalization
table.
-47-
<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY
DMC is authorized by its certificate of incorporation to issue 15 million
shares of common stock, par value $.05 per share, and 4 million shares of
preferred stock, par value $.05 per share. As of March 13, 2000, there were
approximately 2,842,429 shares of common stock issued and outstanding. The board
of directors has authorized for issuance 200,000 shares of Series A Junior
Participating Preferred Stock in connection with approval of DMC's Shareholder
Rights Plan. No shares of preferred stock are issued and outstanding.
COMMON STOCK
The holders of common stock are entitled to receive dividends when, as and
if declared by the board of directors out of funds legally available therefor.
The holders of DMC's common stock are entitled to one vote for each share on all
matters voted on by stockholders, including the election of directors. The
holders of common stock do not have any conversion, redemption or preemptive
rights. In the event of the dissolution, liquidation or winding up of DMC,
holders of common stock are entitled to share ratably in any assets remaining
after the satisfaction in full of the prior rights of creditors and payment of
the aggregate liquidation preference of any shares of preferred stock
outstanding.
The transfer agent for the common stock is Harris Trust Company, 311 West
Monroe, Chicago, IL 60690.
PREFERRED STOCK
Shares of DMC's preferred stock may be issued from time to time in one or
more series. DMC's board of directors is authorized, without stockholder
approval, to fix the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions of any
wholly unissued series of preferred stock, and to establish from time to time
the number of shares constituting any such series or any of them, and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. The terms of such preferred stock may affect adversely
the voting power and other rights of the holders of common stock and may make it
more difficult for a third party to gain control of DMC.
PREFERRED SHARE PURCHASE RIGHTS
On January 8, 1999, the board of directors of DMC declared a dividend of
one preferred share purchase right (a "Right") for each outstanding share of
common stock. The dividend was paid on January 15, 1999, the rights record date,
to the stockholders of record on that date. Each Right entitles the registered
holder to purchase from DMC one onehundredth of a share of Series A Junior
Participating Preferred Stock, par value $.05 per share (the "junior preferred
shares") of DMC at a purchase price of $22.50, subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement dated as
of January 9, 1999 between DMC and Harris Trust & Savings Bank, as rights agent.
-48-
<PAGE>
The Rights Agreement provides that until the earlier to occur of (i) 10
business days after a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") have acquired beneficial ownership
of 15% or more of the outstanding shares of DMC's common stock, (ii) 10 business
days (or such later date as may be determined by action of the board of
directors prior to such time as any person becomes an Acquiring Person)
following the commencement of, or the first public announcement of an intention
to make a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of such
outstanding common stock or (iii) 10 business days after a change in the
composition of the board of directors over a period of 18 consecutive months or
less such that 50% or more of the members of the board of directors who were
directors at the beginning of such 18 month period cease to be directors during
such period, and are replaced by directors that have not been unanimously
elected or nominated by persons who were directors at the commencement of such
18 month period or other directors so elected or nominated (the earliest of such
dates being referred to as the "Distribution Date"), the Rights will be
evidenced by the common stock certificate registered in the names of the holders
thereof, and not by separate Rights certificates, and will be transferable only
in connection with the transfer of the associated common stock.
Until the Distribution Date (or the earlier redemption or expiration of
the Rights), common stock certificates issued after the rights record date will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or the earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for common stock outstanding as of
the rights record date, even without such notation, will also constitute the
transfer of the Rights associated with the common stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights will be mailed to holders of record of common
stock as of the close of business on the Distribution Date and such separate
right certificates alone will evidence the Rights. The Rights Agreement provides
that Rights may be issued subsequent to the Distribution Date under certain
circumstances as set forth in the Rights Agreement.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on January 8, 2009, the final expiration date, unless the final
expiration date is extended or unless the Rights are earlier redeemed or
exchanged by DMC, in each case, as described below.
The purchase price payable, and the number of junior preferred shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the junior
preferred shares, (ii) upon the grant to holders of junior preferred shares of
certain rights or warrants to subscribe for or purchase junior preferred shares
at a price, or securities convertible into junior preferred shares with a
conversion price, less than the then current market price of the junior
preferred shares or (iii) upon the distribution to holders of the junior
preferred shares of evidence of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in junior preferred shares) or of subscription rights or warrants (other
than those referred to above).
-49-
<PAGE>
The number of outstanding Rights and the number of one onehundredths of a
junior preferred share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the common stock or a stock dividend
on the common stock payable in common stock or subdivisions, consolidations or
combinations of common stock occurring, in any such case, prior to the
Distribution Date.
Junior preferred shares purchasable upon exercise of the Rights will not
be redeemable. Each junior preferred share will be entitled to a preferential
semi-annual dividend payment of the greater of $1.00 per share or 100 times the
dividend declared per share of common stock. In the event of liquidation, the
holders of the junior preferred shares will be entitled to a minimum
preferential liquidation payment of the greater of $1.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, or 100 times the payment made per
share of common stock. Each junior preferred share will have 100 votes, voting
together with common stock. Finally, in the event of any merger, consolidation
or other transaction in which shares of common stock are exchanged for or
changed into other stock or securities, cash and/or other property, each junior
preferred share will be entitled to receive 100 times the amount received per
DMC common stock. These rights are protected by customary antidilution
provisions.
Because of the nature of the junior preferred shares dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a junior
preferred shares purchasable upon exercise of each Right should approximate the
value of one share of common stock.
In the event that DMC is acquired in a merger or other business
combination transaction of 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
(other than Rights beneficially owned by Acquiring Person, which will thereafter
be void) will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right. In the event that any
person or group becomes an Acquiring Person, each holder of a Right, other than
Rights beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise that number of
shares of DMC common stock (or that number of one-hundredths of a junior
preferred shares or of a share of a class or series of DMC's preferred stock
having equivalent rights, preferences and privileges) having a market value of
two times the exercise price of the Right.
At any time prior to the time any person or group becomes an Acquiring
Person, the board of directors may redeem the Rights in whole, but not in part,
at the redemption price of $.001 per Right. The redemption of the Rights may be
made effective at such time on such basis and with such conditions as the board
of directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the redemption price.
Upon completion of the Transaction, SNPE, through its control of DMC's board of
directors, could
-50-
<PAGE>
cause the Rights to be redeemed to facilitate its acquisition of additional
shares of DMC's common stock.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding DMC
common stock and prior to the acquisition by such person or group of 50 % or
more of the outstanding DMC common stock, DMC board of directors may exchange
the Rights (other than Rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one share of DMC common
stock, or one onehundredth of a junior preferred shares (or of a share of a
class or series of DMC's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the purchase price for the
junior preferred shares will be required until cumulative adjustments require an
adjustment of at least 1% in the purchase price. No fractional junior preferred
shares will be issued (other than fractions that are integral multiples of one
onehundredth of a junior preferred shares, which may, at the election of DMC, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the junior preferred shares preferred
shares on the last trading day immediately prior to the date of exercise.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such Acquiring Person of 50% or more of the
outstanding common stock, the board of directors may exchange the Rights (other
than Rights owned by the Acquiring Person which will have become void), in whole
or in part, at an exchange ratio of 1 share of common stock, or one
one-hundredth of a junior preferred share (or of a share of a class or series of
DMC's preferred stock having equivalent rights, preferences and privileges), per
Right (subject to adjustment).
For so long as the Rights are redeemable, DMC may, except with respect to
redemption price, amend the Rights in any manner. After the Rights are no longer
redeemable, DMC may amend the Rights in any manner that does not adversely
affect the interests of the holders of the Rights or cause the Rights to again
become redeemable.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of DMC, including, without limitation, the right to vote
or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that acquires 15% or more of the
shares of DMC common stock without the prior approval of DMC board of directors.
The Rights should not interfere with any merger or other business combination
approved by DMC board of directors prior to the time that a person or group has
acquired beneficial ownership of 15% or more of DMC common stock since the
Rights may be redeemed by DMC at the Redemption Price until such time.
-51-
<PAGE>
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8A12B
dated January 21, 1999. A copy of the Rights Agreement is available free of
charge from DMC. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement
as amended, which is hereby incorporated herein by reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This proxy statement incorporates by reference documents which are not
presented in or delivered with this proxy statement. Documents incorporated by
reference, excluding exhibits unless specifically incorporated, are available
without charge upon request to Secretary, Dynamic Materials Corporation, 551
Aspen Ridge Drive, Lafayette, Colorado 80026. Telephone requests may be directed
to Mark Jarman at (303) 6655700. In order to ensure timely delivery of the
documents, any request should be made by April __, 2000.
The following portions of DMC's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, filed with the Commission on March __, 2000 are
incorporated in this proxy statement by reference:
o "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages __ to __
o "Financial Statements" on pages __ to __.
Any statement contained in this proxy statement or in a document
incorporated by reference shall be deemed to be modified or superseded to the
extent that a statement contained in this proxy statement or in any other
subsequently filed document that also is incorporated in this proxy statement by
reference modifies or supersedes the statement. Any statement so modified or
superseded shall not be deemed to constitute a part of this proxy statement,
except as so modified or superseded.
INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP has served as DMC's independent auditors
since 1994. It is expected that representatives of Arthur Andersen LLP will be
present at the special meeting, both to respond to appropriate questions of
stockholders of DMC and to make a statement if they so desire.
-52-
<PAGE>
STOCKHOLDER PROPOSALS
Proposals of stockholders to be presented at DMC's 2000 Annual Meeting of
Stockholders must have been received by DMC not later than December 23, 1999 in
order to be included in the proxy statement and proxy relating to that Annual
Meeting.
DIRECTORS TO BE DESIGNATED BY SNPE PRIOR TO THE NEXT ANNUAL
STOCKHOLDERS MEETING OF DMC.
On the closing date, the Bylaws of DMC will be amended to increase the
size of DMC's board to seven members, four of whom will be nominated by DMC.
SNPE, Inc. has informed DMC that it plans to nominate the following designees
for the four board seats provided pursuant to the Stock Purchase Agreement.
Mr. Bernard Hueber. Mr. Hueber, age 58, currently serves as the
Chairman of the Board and Chief Executive Officer of Nobel Explosifs France, a
position he has held since 1990.
Mr. Bernard Fontana. Mr. Fontana, age 39, has been Vice President
of GROUPE SNPE, North America since September 1999, and President of SNPE, Inc.
since November 1999. Mr. Fontana was Vice President of Strategy and Business
Development of the Chemicals division of GROUPE SNPE from June 1998 to September
1999, General Manager of SNPE CHIMIE from September 1996 to June 1998 and
General Manager of Bergerac N.C., a business unit of GROUPE SNPE, from 1992 to
1996.
Mr. Bernard Riviere. Mr. Riviere, age 50, has served as Senior
Vice President of GROUPE SNPE since September 1999. Mr. Riviere was Senior Vice
President of the Chemicals division of GROUPE SNPE from April 1996 to September
1999 and Senior Vice President of Business Development for GROUPE SNPE from
September 1994 to April 1996.
Mr. Michel Philippe. Mr. Philippe, age 56, is currently Corporate
Senior Vice President of Financial and Legal Affairs of GROUPE SNPE, a position
he has held since 1990.
None of the above designees is a party to any proceeding adverse to DMC,
has any material interest adverse to DMC, or has any business relationships or
dealings with DMC.
COMPENSATION OF DIRECTORS. The directors designated by SNPE shall be
compensated in the same manner as the other non-employee directors of DMC are
compensated. During 1999, each non-employee director of DMC received a quarterly
retainer of $2,000 and per meeting fees of $2,000 for attendance at
non-telephonic board meeting, $500 for attendance at telephonic board meetings
and $500 for attendance at committee meetings. The members of the board of
directors are also eligible for reimbursement for their expenses incurred in
connection with attendance at board meetings, in accordance with DMC policy.
-53-
<PAGE>
Each non-employee director also receives automatic grants of nonstatutory
stock option under DMC's Amended and Restated 1997 Equity Incentive Plan (the
"1997 Plan"). Upon the initial election or appointment of a non-employee
director to DMC's board, such director is automatically granted, without further
action by DMC, the board or stockholders of DMC, a nonstatutory option to
purchase 7,500 shares of common stock. On the date of each annual meeting of
DMC's stockholders, each person who is then a non-employee director is
automatically granted an option purchase that number of common stock of DMC
determined by multiplying 5,000 shares by a fraction the numerator of which is
the numbers of days the person continuously has been a non-employee director
since the date of the last annual meeting as of the date of grant and the
denominator of which is 365. The exercise price of such options may not be less
than 85% of the fair market value of common stock subject to the option
agreement which typically states that the option may not be exercised until the
date upon which the optionee has provided one year continuous service as a
non-employee director following the date of grant of the option. The term of
each option is 10 years. If the non-employee director's continuous status as a
director terminates, the option will terminate on the earlier of its expiration
date and three months following the date of such termination.
OTHER MATTERS
The board of directors does not know of any other matters to be presented
for action at the special meeting other than as set forth in this proxy
statement. If any other business should properly come before the special
meeting, the persons named in the enclosed proxy card intend to vote thereon in
accordance with their best judgment on the matter.
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this proxy statement, in connection
with the Transaction, and if given or made, such information or representations
may not be relied upon as having been authorized by DMC. The delivery of this
proxy statement shall not, under any circumstances, create any implication that
there has been no change in the information set forth herein or in the affairs
of DMC since the date hereof.
-54-
<PAGE>
APPENDIX D
[COMPANY LETTERHEAD]
January 20, 2000
The Board of Directors
Dynamic Materials Corporation
551 Aspen Ridge Drive
Lafayette, CO 80026
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the common stockholders of Dynamic Materials Corporation ( the
"Company" or "DMC") other than SNPE S.A. ("SNPE") of the value of a sale of a
controlling interest of common stock and the issuance of a convertible
subordinated note in the proposed transaction (the "Transaction") with SNPE,
pursuant to the Stock Purchase Agreement and the Convertible Debt Agreement
dated January 14, 2000 (the "Agreement"). Under the terms of the Agreement, the
Company will issue 2,109,091 shares of DMC common stock at $2.75 per share for a
total consideration of $5.8 million. In addition, the Company will issue a $1.2
million convertible subordinated note with a coupon of 5.0% that is convertible
into 200,000 shares of DMC common stock at the conversion price of $6.00 per
share.
In arriving at our opinion, we have, among other things:
i. reviewed DMC's nine months ended September 30, 1999 unaudited
financial statements, fourth quarter 1999 projected financial
statements, and audited consolidated financial statements for the
fiscal years 1995 to 1998;
ii. visited and toured the facilities of DMC;
iii. met with certain members of DMC's management and Board of Directors;
iv. reviewed certain terms of the contemplated transactions, including
but not limited to the equity price per share and terms of the
subordinated note;
v. evaluated and reviewed the possible alternative transactions
available to the Company;
Page 1 of 3
<PAGE>
vi. reviewed documentation related to the transaction including the Term
Sheet, Convertible Subordinated Note and the Purchase Agreement;
vii. reviewed publicly available data on companies deemed generally
comparable to the Company;
viii. compared the business profile, financial strength, financial
performance, potential growth, size and risk of the Company to that
of generally comparable companies;
ix. reviewed publicly available data on precedent merger transactions,
where the target was deemed to be generally comparable to the
Company by size or industry;
x. compared the business profile, financial strength, financial
performance, and potential growth and risk of the Company to that of
precedent merger transactions of generally comparable companies;
xi. reviewed certain financial projections, as provided by the Company,
in its forecasts of fiscal years 1999, 2000, 2001, 2002 and 2003;
xii. determined a discount rate applicable to an equity investment in the
Company;
xiii. performed discounted cash flow analysis of the Company's projections
under several scenarios;
xiv. reviewed data on size discounts and control premiums;
xv. considered aspects of the Company's financial condition, including
the facts that the Company is in default on its senior debt and has
been informed by its auditors that it may receive a going concern
opinion fiscal year ended December 31, 1999;
xvi. conducted a sales process of the Company over a period of four
months in 1999 in which both strategic and financial buyers were
contacted; and
xvii. performed such additional review as TWC deemed appropriate.
We have assumed without independent verification the accuracy and
completeness of the financial and other information regarding the Company that
was provided to us or obtained from publicly available sources. With respect to
business plans and forecasts, we
Page 2 of 3
<PAGE>
have assumed that they have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of the management of the
Company as to the future performance of the Company, its subsidiaries and
business units. Furthermore, we have assumed that the Transaction will be
consummated on a timely basis in accordance with its terms and pursuant to the
Agreement. We have also taken into account our assessment of general economic,
market and financial conditions as they exist, as well as our experience in
connection with similar transactions and securities valuations generally. Our
opinion necessarily is based upon conditions as they exist and can only be
evaluated as of the date of this opinion.
The Wallach Company is an investment banking firm engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
private placements, and valuations for corporate and other purposes. The Wallach
Company, as the Company's financial advisor, assisted with the marketing and
negotiations leading to the Agreement for which it has and will receive
compensation.
It is understood that this letter is for use only by the Company's Board
of Directors and may not be used for any other purpose without our prior written
consent, provided, however, that we hereby consent to the inclusion of this
opinion in any registration statement or proxy statement used in connection with
the Transaction so long as the opinion is included in its entirety in such
registration statement or proxy statement.
Based on our analysis of the foregoing, the assumptions described above
and upon such other factors we deem relevant, it is our opinion that, as of the
date hereof, the issuance of DCM common stock at $2.75 per share and the
issuance of $1.2 million convertible subordinated note is fair to the Company's
shareholders other than SNPE from a financial point of view.
The Wallach Company, Inc.
Page 3 of 3
