PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant [X]
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14a-6(e)(2))
[ ] Definitive Proxy Statement
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[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DYNAMIC MATERIALS CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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
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DYNAMIC MATERIALS CORPORATION
551 ASPEN RIDGE DRIVE
LAFAYETTE, COLORADO 80026
Dear Stockholder: February __, 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 __, March __, 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,
Joseph P. Allwein
President and Chief Executive Officer
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DYNAMIC MATERIALS CORPORATION
551 ASPEN RIDGE DRIVE
LAFAYETTE, COLORADO 80026
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH __, 2000
To the Stockholders of
DYNAMIC MATERIALS CORPORATION: February __, 2000
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of DYNAMIC
MATERIALS CORPORATION, a Delaware corporation ("DMC"), will be held on __, March
__, 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 February
__, 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
RICHARD A. SANTA
Vice President, Finance, Chief Financial
Officer and Secretary
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TABLE OF CONTENTS
PAGE
SPECIAL MEETING...............................................................1
Date, Time and Place....................................................1
Recommendation of the Board of Directors................................1
Record Date.............................................................1
Votes Required..........................................................1
Voting and Revocation of Proxies........................................2
Solicitation of Proxies.................................................2
SUMMARY.......................................................................3
The Proposal............................................................3
DMC.....................................................................3
SNPE....................................................................4
Relationship between DMC and SNPE.......................................4
Background of and Reasons for the Transaction...........................4
Material Terms of the Transaction.......................................5
Recommendation of the Board of Directors................................7
Opinions of Financial Advisors..........................................8
Interests of Certain Persons in the Transaction.........................8
Effects of the Proposal on Existing Holders of Common Stock.............9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................10
Section 16(a) Beneficial Ownership Reporting Compliance.................11
RELATIONSHIP WITH SNPE........................................................11
THE PROPOSAL..................................................................12
Background of the Transaction...........................................12
Reasons for the Transaction.............................................18
Opinion of TWC Regarding the Transaction................................20
Opinion of Stifel Regarding the Transaction.............................27
Interests of Certain Persons in the Transaction.........................32
Effects of the Transaction on the Rights of Stockholders................34
Material Terms of the Transaction.............................................34
Stock Purchase Agreement................................................34
Convertible Subordinated Note...........................................38
Registration Rights Agreement...........................................38
CAPITALIZATION................................................................40
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY...............................42
Common Stock............................................................42
Preferred Stock.........................................................42
Preferred Share Purchase Rights.........................................42
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.............................46
INDEPENDENT AUDITORS..........................................................47
STOCKHOLDER PROPOSALS.........................................................47
DIRECTORS TO BE DESIGNATED BY SNPE PRIOR TO THE NEXT ANNUAL STOCKHOLDERS
MEETING OF DMC................................................................47
OTHER MATTERS.................................................................48
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AVAILABLE INFORMATION.........................................................48
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
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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
February __, 2000, for use at the special meeting of stockholders of DMC to be
held on __, March __, 2000 and at any adjournments or postponements of the
special meeting.
This proxy statement is first being mailed to stockholders on or about
March __, 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 __, March __, 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.
RECORD DATE
The board of directors has fixed the close of business on February __,
2000 as the record date for the special meeting. Only stockholders of record as
of the close of business on February __, 2000 will be entitled to notice of and
to vote at the special meeting or any adjournment of the special meeting.
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 320 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
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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 February __, 2000, directors and officers of DMC owned beneficially
an aggregate of 313,614 shares of common stock (including shares which may be
acquired upon exercise of employee stock options) or approximately 10.43% 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.
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.
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SUMMARY
The following summary is not intended to be complete and is qualified in
all respects by the more detailed information included in this proxy statement,
the appendices hereto and the documents incorporated herein by reference.
Stockholders are urged to carefully read this proxy statement, including the
appendices hereto and the documents incorporated herein by reference in their
entirety.
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.
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.
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SNPE
SNPE, Inc. is a wholly owned subsidiary of SNPE S.A. SNPE S.A., also known
as GROUPE SNPE, is wholly owned by the French government. 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 1970s. 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 The Wallach Company ("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 million in cash and contribute its bonding assets to
DMC in exchange for common stock which, together with SNPE's existing holdings,
would total approximately 52% of the common stock outstanding after the
transaction.
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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. 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."
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 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
STOCKHOLDERS ARE URGED TO READ IN THEIR ENTIRETY 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."
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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.
The obligations of both parties under the Stock Purchase Agreement are
subject to certain conditions to closing including receipt of necessary consents
and approvals, 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) and approval of DMC stockholders.
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 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 breach of DMC
would result in an adverse effect on DMC of less than $1.5 million.
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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.
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 under the Securities Act of 1933 of
a specified number of shares of such common stock owned by them in such
registration. DMC is not required to effect more than two demand registrations.
In addition, if DMC registers securities of DMC other than SNPE shares of common
stock, 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 Proposal 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."
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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. 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."
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 Barlett 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.
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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.
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."
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."
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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 February __, 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.
Beneficial
OWNERSHIP (1)
----------------
Number Percent
NAME AND ADDRESS OF BENEFICIAL OWNER (2) OF SHARES OF TOTAL
------------------------------------ --------- --------
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)......................... 91,250 3.18%
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
(7 persons) (6)................................ 308,614 10.28%
------------------------
*Less than 1%
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(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 February __, 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 25,000 shares held
of record by Spin Forge, LLC and beneficially owned by Mr. Allwein at fair
market value if Mr. Allwein ceases to be employed by DMC before March 18,
2000, and 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, 5,625
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 2000, 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 December 31, 1999 as follows: Mr. Allwein, 28,750
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 158,667 shares subject to stock options
exercisable within 60 days of December 31, 1999.
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.
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.
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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
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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 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 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
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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 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.
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 to DMC
in exchange for common stock 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 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
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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. 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.
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. On September 29
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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.
During September and October 1999, DMC's management and representatives of
TWC contacted the potential strategic and financial buyers initially identified
in early 1999, as well as numerous 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.
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 through October 1999.
On January 3, 2000, DMC applied to change its listing to the Nasdaq SmallCap
Market.
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
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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.
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 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 generally unsuccessful in improving the terms of the transaction.
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.
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SNPE stated in its Form 13D filing on January 5, 2000 that it had recently
reentered 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. 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.
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 factors (not necessarily in
order of importance), among others.
(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 has deferred principal
payments and waived financial covenant compliance until March 30,
2000, but has indicated the importance of a significant and timely
cash infusion into DMC. There can be no assurance that the lender
will continue to defer payments and waive covenants.
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(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 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 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
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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) It is 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.
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,
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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 20, 2000 TWC rendered its 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.
A copy of TWC's 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:
(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;
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(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 the report of Arthur Andersen dated December 15, 1999 on
DMC's financial outlook and strategic options;
(viii)reviewed publicly available data on companies deemed comparable or
otherwise relevant to DMC;
(ix) compared business profile, financial strength, financial
performance, potential growth, size and risk of DMC to that of
comparable or otherwise relevant companies;
(x) 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;
(xi) compared business profile, financial strength, financial
performance, potential growth and risk of DMC to that of precedent
merger transaction target companies;
(xii) reviewed certain financial projections, as provided by DMC in its
forecasts of fiscal years 1999, 2000, 2001, 2002 and 2003;
(xiii)determined a discount rate applicable to an equity investment in
DMC;
(xiv) performed discounted cash flow analysis of DMC's projections under
several scenarios;
(xv) reviewed studies on size discounts and control premiums;
(xvi) conducted a lengthy sales process during 1999 in which potential
strategic and financial acquirers were contacted, bids were
solicited, and an agreement for the purchase of DMC's bonding
business and subsequently for an investment in DMC were negotiated
and signed; and
(xvii)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
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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 the 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.
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 has been notified it no longer qualifies for listing on
the Nasdaq National Market and is 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.
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------------------------------------------------------------
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
------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS. TWC compared financial information relating
to DMC to corresponding data from a group of five publicly traded companies
deemed comparable or otherwise relevant to DMC. The comparable companies include
Ducommun Inc., Fansteel Inc., Precision Cast Corp., RTI International Metals
Inc. and SPS Technologies, Inc. TWC noted that the comparable group of companies
was 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 for size discounts and control premiums.
---------------------------------------------------
Average
Ratios
--------------
Price to Earnings 9.9 x
Enterprise to Operating Income 8.0 x
Enterprise to EBITDA 5.4 x
Enterprise to Revenue 0.7 x
Price to Book Value 0.9 x
---------------------------------------------------
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.
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 similar lines
of business to DMC. This comparable group included only three companies,
including DMC's acquisition of Detaclad in 1996. The second
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group studied included a group of manufacturing companies that were more similar
in size and 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 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 14.7 x 13.1 x
Enterprise to Operating Income 9.0 x 8.8 x
Enterprise to EBITDA 6.8 x 6.0 x
Enterprise to Revenue 0.9 x 0.6 x
Price to Book Value 2.0 x 1.7 x
--------------------------------------------------------------
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.
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.
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.
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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 analyses 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 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, 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 of
TWC, and an additional $205,000 will be paid 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.
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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.
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 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, among other things:
(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;
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(iii) reviewed the Term Sheet, the Stock Purchase Agreement, the
convertible subordinated note and the registration rights agreement;
(iv) reviewed the report prepared by Arthur Andersen dated December 15,
1999 on DMC's financial outlook and options;
(v) 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;
(vi) reviewed the historical prices, trading activity and valuation
parameters of the shares of the common stock;
(vii) 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;
(viii)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;
(ix) reviewed a draft of this proxy statement in substantially the form
in which it is being distributed to stockholders; and
(x) 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, among other things:
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(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
faces 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
(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.
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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 of 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.
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.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Stifel compared certain
operating and financial information of DMC to certain publicly available
operating, financial, trading and valuation information of twelve publicly
traded companies which, in Stifel's judgment, were reasonably comparable to DMC
or otherwise relevant (collectively, the "Comparable Companies"). 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.
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") involving companies
that, in Stifel's judgment, were reasonably comparable to DMC or otherwise
relevant for purposes of this analysis based on size and product line.
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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. Stifel noted that enterprise value to revenue multiple valuations are
generally not regarded as a highly reliable method of valuation. Stifel's
analysis 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. Stifel noted that enterprise
value to book value multiple valuations are generally not regarded as a highly
reliable method of 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
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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 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 and elected
as provided in the bylaws. 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.
EMPLOYMENT AGREEMENTS. Mr. Allwein has an employment agreement with
DMC, which expires on March 18, 2000, under which he would be 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.
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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.
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, of which $95,000
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has been paid as of the date of this proxy statement, at the rate of $7,500 per
month since the engagement commenced, and $205,000 will be paid upon the closing
of the Transaction.
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 descriptions of the Stock
Purchase Agreement, the convertible subordinated note and the registration
rights agreement do not purport to be complete and are qualified in their
entirety by reference to 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 and incorporated
herein by reference. STOCKHOLDERS ARE URGED TO READ THE STOCK PURCHASE
AGREEMENT, THE CONVERTIBLE SUBORDINATED NOTE AND THE REGISTRATION RIGHTS
AGREEMENT IN THEIR ENTIRETY.
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 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.
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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.
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.
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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). 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 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;
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(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 (as defined in 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
(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
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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 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
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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.
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CAPITALIZATION
(In thousands, except share and per share amounts)
The following table sets forth DMC's unaudited current liabilities and
capitalization as of September 30, 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 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>
September 30, 1999
------------------------------------------------------------
As
adjusted
for common
Proceeds from stock and
Issuance of Note
common stock AND PROCEEDS
ACTUAL NOTE (5)
<S> <C> <C> <C>
Current maturities on long-term debt $ 17,250 (1) $ (7,000) (2) $ 10,250 (4)
Current portion of capital lease obligation 33 -- 33
Accrued and other current liabilities 3,152 3,152
--------- -------- ---------
--
Total current liabilities $ 20,435 $ (7,000) $ 13,435
--------- --------- ---------
Long-term debt $ -- $ 1,200 (3) $ 1,200
Capital lease obligations 11 -- 11
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 141 105 245
Additional paid-in capital 7,109 5,695 12,804
Deferred compensation (42) -- (42)
Retained earnings 3,810 3,810
---------- --------- --------
--
Total stockholders' equity 11,018 5,800 16,818
---------- --------- ---------
Total capitalization $ 11,029 $ 7,000 $ 18,029
---------- --------- ---------
</TABLE>
(1) Includes $10.4 million in borrowings under bank lines of credit and $6.85
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 under
the bank line of credit and had secured a deferral and waiver agreement
that extended only to December 30, 1999, all amounts outstanding as of
September 30, 1999 were classified as current on DMC's September 30, 1999
balance sheet.
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(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 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.
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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 February __, 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.
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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).
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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.
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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.
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
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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 not presented
herein or delivered herewith. Documents incorporated by reference herein,
excluding exhibits unless specifically incorporated herein, 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 February __, 2000.
The following portions of the following documents are incorporated herein
by reference:
(i) "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 12-20 and "Financial Statements" on
pages 21-47 of DMC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, filed with the Commission on March 31,
1999;
(ii) "Management's Discussion and Analysis or Plan of Operations" on
pages 13-21 and "Financial Statements" on pages 1-12 of DMC's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999, filed with the Commission on November 15, 1999;
(iii) "Management's Discussion and Analysis or Plan of Operations" on
pages 12-20 and "Financial Statements" on pages 1-11 of DMC's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999,
filed with the Commission on August 13, 1999; and
(iv) "Management's Discussion and Analysis or Plan of Operations" on
pages 11-17 and "Financial Statements" on pages 1-10 of DMC's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
filed with the Commission on May 17, 1999.
All documents filed by DMC pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934, as amended, subsequent to the date
hereof and prior to special meeting shall be deemed to be incorporated herein by
reference and to be a part hereof from the date of such filing. Any statement
contained herein or in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any other
subsequently filed document that also is, or is deemed to be, incorporated
herein by reference modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part hereof, except
as so modified or superseded.
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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.
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 which will be designated by SNPE. The
following are SNPE'S Board designees.
[MR. ____]. Mr. __, age __, is currently [describe current board positions
and employment.]
[MR. ____]. Mr. __, age __, is currently [describe current board positions
and employment.]
[MR. ____]. Mr. __, age __, is currently [describe current board positions
and employment.]
[MR. ____]. Mr. __, age __, is currently [describe current board positions
and employment.]
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.
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
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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.
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APPENDIX A
EXECUTION COPY
==============================================================================
STOCK PURCHASE AGREEMENT
DATED AS OF JANUARY 20, 2000
BETWEEN
DYNAMIC MATERIALS CORPORATION
AND
SNPE, INC.
==============================================================================
==============================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I THE ACQUISITION....................................................1
Section 1.1 Purchase and Sale of Shares..................................1
Section 1.2 Consideration for the Shares.................................2
Section 1.3 Closing Date Deliveries and Payments.........................2
ARTICLE II THE CLOSING.......................................................2
Section 2.1 Date of Closing..............................................2
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................2
Section 3.1 Corporate Organization.......................................2
Section 3.2 Authority; Absence of Conflicts..............................3
Section 3.3 Outstanding Capital Stock; Title to Shares...................4
Section 3.4 Absence of Undisclosed Liabilities; Indebtedness.............5
Section 3.5 Absence of Changes...........................................6
Section 3.6 Financial Statements.........................................9
Section 3.7 Real Property...............................................10
Section 3.8 Tangible Personal Property..................................12
Section 3.9 Computer Software...........................................13
Section 3.10 Year 2000 Compliance.......................................13
Section 3.11 Intellectual Property Rights...............................14
Section 3.12 Material Contracts.........................................16
Section 3.13 Permits and Licenses.......................................17
Section 3.14 Legal Proceedings..........................................17
Section 3.15 Employee Benefit Plans; ERISA..............................18
Section 3.16 Labor Matters..............................................20
Section 3.17 Environmental Matters......................................20
Section 3.18 Tax Matters................................................23
Section 3.19 Operating Insurance........................................25
Section 3.20 Regulatory Filings.........................................26
Section 3.21 Books and Records..........................................26
Section 3.22 Compliance with Laws.......................................27
Section 3.23 Certain Business Practices, Potential Conflicts of Interest27
Section 3.24 Brokers' or Finders' Fees..................................27
Section 3.25 SEC Documents..............................................28
Section 3.26 Disclosure.................................................28
Section 3.27 Inventory..................................................28
Section 3.28 Receivables................................................28
Section 3.29 Employment Agreements......................................29
Section 3.30 WARN29
Section 3.31 No Subsidiaries; Other Equity Investments..................29
Section 3.32 Ownership of Company Common Stock..........................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER..........................30
Section 4.1 Organization and Corporate Power............................30
Section 4.2 Authority; Absence of Conflicts.............................30
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Section 4.3 No Investigation............................................31
Section 4.4 Securities Laws Matters.....................................31
Section 4.5 Brokers' or Finders' Fees...................................31
ARTICLE V COVENANTS.........................................................32
Section 5.1 Full Access and Cooperation; Confidentiality................32
Section 5.2 Preservation of Business....................................32
Section 5.3 Negative Covenants..........................................33
Section 5.4 Governmental and Third Party Consents.......................33
Section 5.5 No Solicitation.............................................33
Section 5.6 Notice of Developments......................................34
Section 5.7 Notice of Breach............................................34
Section 5.8 Schedules...................................................35
Section 5.9 Reasonable Efforts..........................................35
Section 5.10 Delivery of Certificates....................................35
Section 5.11 Registration Rights Agreement...............................35
Section 5.12 Note 36
Section 5.13 Board Composition...........................................36
Section 5.14 Directors' and Officers' Liability Insurance...36
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY...........37
Section 6.1 Representations, Warranties and Covenants...................37
Section 6.2 Closing Certificate.........................................37
Section 6.3 No Adverse Proceedings......................................37
Section 6.4 Buyer Consents..............................................37
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER................38
Section 7.1 Representations, Warranties and Covenants...................38
Section 7.2 Closing Certificate.........................................38
Section 7.3 Legal Opinion...............................................39
Section 7.4 No Adverse Proceedings......................................39
Section 7.5 No Company Material Adverse Effect..........................39
Section 7.6 Company Consents............................................39
Section 7.7 Stockholder Approval........................................39
Section 7.8 Amendment to Shareholder Rights Plan........................39
Section 7.10 Note40
Section 7.11 Registration Rights Agreement..............................40
Section 7.13 Final Monthly Balance Sheet................................40
Section 7.14 Environmental Matters......................................40
Section 7.15 Environmental Permits and Releases.........................41
ARTICLE VIII TERMINATION....................................................41
Section 8.1 Termination.................................................41
Section 8.2 Liabilities Upon Termination................................43
ARTICLE IX MISCELLANEOUS....................................................44
Section 9.1 Definitions.................................................45
Section 9.2 Expenses....................................................46
Section 9.3 Attorneys' Fees.............................................46
Section 9.4 Notices.....................................................46
Section 9.5 Successors and Assigns......................................47
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Section 9.6 Entire Agreement and Modification...........................48
Section 9.7 Certain Interpretive Matters................................48
Section 9.8 GOVERNING LAW...............................................48
Section 9.9 Counterparts................................................49
Section 9.10 Further Assurances.........................................49
Section 9.11 Severability...............................................49
Section 9.12 Public Statements..........................................49
Section 9.13 Specific Performance.......................................49
Section 9.14 Schedules..................................................49
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "AGREEMENT" is made and entered
into as of the 20th day of January 2000, by and between Dynamic Materials
Corporation, a Delaware corporation (the "COMPANY"), and SNPE, Inc., a Delaware
corporation ("BUYER").
RECITALS:
WHEREAS, Buyer is presently the legal and beneficial owner of
approximately 14.4% of the outstanding common stock, par value $0.05 per share,
of the Company (the "COMPANY COMMON STOCK") and wishes to increase such interest
by an amount sufficient to achieve voting control of the Company;
WHEREAS, the Company desires to issue and sell to Buyer, and Buyer
desires to purchase from the Company, 2,109,091 additional shares (the "SHARES")
of Company Common Stock; and
WHEREAS, contemporaneously with the purchase of the shares
hereunder, Buyer will purchase from the Company a Convertible Subordinated Note
(the "NOTE") with an aggregate principal amount of $1,200,000, convertible into
additional shares of Company Common Stock and having such other terms as the
parties have agreed;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE ACQUISITION
SECTION 1.1. PURCHASE AND SALE OF SHARES. On the terms and subject to
the conditions of this Agreement, at the Closing (as defined in SECTION 2.1
hereof), the Company will sell and deliver to Buyer, and Buyer will purchase and
acquire from the Company, all right, title and interest in and to the Shares,
free and clear of all Encumbrances (as defined in SECTION 3.8 hereof.)
<PAGE>
SECTION 1.2. CONSIDERATION FOR THE SHARES. The aggregate consideration
(the "PURCHASE PRICE") payable by Buyer for the Shares shall be Five Million
Eight Hundred Thousand Dollars ($5,800,000).
SECTION 1.3. CLOSING DATE DELIVERIES AND PAYMENTS. At the Closing, the
Company shall deliver to Buyer the stock certificates evidencing the Shares. At
the Closing, Buyer shall pay to the Company the Purchase Price by wire transfer
of immediately available funds to a bank account that shall have been identified
to the Buyer by the Company not less than three business days prior to the
Closing Date.
ARTICLE II
THE CLOSING
SECTION 2.1. DATE OF CLOSING. The consummation of the purchase and
sale of the Shares contemplated hereby (the "CLOSING") shall take place on the
earlier of May 15, 2000 (or such other date as the parties may mutually agree
upon) or the fifth business day following the date upon which the last remaining
condition set forth in Articles VI and VII has been satisfied or waived by the
party entitled to waive that condition, at the offices of
______________________________________________ at ____________ local time, or on
such other date or at such other place designated by the parties in writing. The
date on which the Closing is effected is referred to in this Agreement as the
"CLOSING DATE." At the Closing, the parties shall execute and deliver the
documents referred to in Articles VI and VII.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company makes the following representations and warranties to
Buyer, each of which is true and correct as of the date hereof and shall be true
and correct as of the Closing Date as conditions to the Closing and shall be
unaffected by any investigation heretofore or hereafter made by Buyer.
SECTION 3.1. CORPORATE ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
has all requisite
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corporate power and authority to own, lease and operate the properties and
assets it now owns, leases or operates and to carry on its business as presently
conducted or proposed to be conducted pursuant to existing plans. The Company is
duly qualified or licensed to transact business in each of the jurisdictions
where such qualification or licensing is required by reason of the nature or
location of the properties and assets owned, leased or operated by it or the
business conducted by it, except where the lack of such qualification or license
would not have a Company Material Adverse Effect (as defined in Section 3.5
hereof). The Company has provided to Buyer complete and correct copies of (a)
its Certificate of Incorporation certified by the competent authority of the
jurisdiction of incorporation within 30 days of the date hereof and (b) its
Bylaws, certified as true and correct by the Secretary of the Company, each as
amended to the date hereof.
SECTION 3.2. AUTHORITY; ABSENCE OF CONFLICTS. The Company has full
corporate power and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly approved by the Board of Directors of the Company, and no other
corporate action (other than the stockholder approval referenced in Section 7.7
hereof) on the part of the Company is necessary to authorize and approve the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Company and, assuming this Agreement constitutes a valid and
binding obligation of Buyer, constitutes the valid and binding obligation of the
Company, enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws of general applicability relating to or affecting creditors' rights and by
general equitable principles (whether applied in a court of equity or a court of
law).
Except for the consents and approvals listed in SCHEDULE 3.2 hereto
(collectively, the "COMPANY CONSENTS"), neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby, nor
compliance with the terms hereof, will: (i) conflict with or violate any
provision of the Certificate of Incorporation or Bylaws of the Company; (ii)
violate, conflict with or result in a breach of or default (or constitute any
event which with the lapse of time or the giving of notice or both would
constitute a
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breach or default) under any of the terms, conditions or provisions of any
Material Contract (as defined in SECTION 3.12 hereof); (iii) accelerate or give
to others any interests or rights, including without limitation rights of
acceleration, termination, modification or cancellation, under any Material
Contract or in or with respect to the capital stock, business, assets or
properties of the Company; (iv) result in the creation of any Encumbrance on the
capital stock, business, assets or properties of the Company; (v) conflict with,
violate or result in a breach of or constitute a default under any law, statute,
rule, judgment, order, decree, injunction, ruling or regulation of any
government, governmental agency, authority or instrumentality, court or
arbitration tribunal (each, a "GOVERNMENTAL ENTITY") to which the Company or any
of its assets or properties are subject, except as would not have a Company
Material Adverse Effect; or (vi) require the Company to give notice to, or
obtain an authorization, approval, order, license, franchise, declaration or
consent of, or make a filing with, any third party, including, without
limitation, any Governmental Entity, except as would not have a Company Material
Adverse Effect.
SECTION 3.3. OUTSTANDING CAPITAL STOCK; TITLE TO SHARES. The
authorized capital stock of the Company consists of: 15,000,000 shares of
Company Common Stock, of which at the date hereof 2,828,577 shares are issued
and outstanding and 4,000,000 shares of Company Preferred Stock, of which none
are issued and outstanding. No other classes of capital stock of the Company are
authorized or outstanding. All of the issued and outstanding shares of capital
stock of the Company have been duly authorized and are validly issued, fully
paid and nonassessable, and none of such shares has been issued in violation of
any preemptive rights of any present or former shareholders.
The Shares have been duly authorized and reserved for issuance and,
when issued by the Company to Buyer in exchange for the Purchase Price pursuant
to the Agreement, will be validly issued, fully paid and non-assessable, and
Buyer shall have good title thereto, free and clear of any Encumbrance.
Except as provided in SCHEDULE 3.3 hereto, there is no outstanding
right, subscription, warrant, call, preemptive right, option or other agreement
of any kind to purchase or otherwise to receive from the Company any shares of
Company Common Stock or any other security of the Company, and there is
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no outstanding security of any kind convertible into or exchangeable for such
capital stock or other security.
SECTION 3.4 ABSENCE OF UNDISCLOSED LIABILITIES; INDEBTEDNESS. (a)
Except as set forth in SCHEDULE 3.4(A) hereto, the Company has no direct or
indirect indebtedness or other liability, whether fixed or contingent, known or
unknown, asserted or unasserted, choate or inchoate, liquidated or unliquidated,
secured or unsecured, whether due or to become due and whether arising out of
transactions entered into or any condition or state of facts existing on or
prior to the date hereof (collectively, "LIABILITIES"), other than: (i)
Liabilities set forth in the Financial Statements (as defined in SECTION 3.6
hereof); and (ii) Liabilities which have arisen after the date of the Financial
Statements in the ordinary course of business consistent with past practice, all
of which are accurately and fairly reflected in the books and records of the
Company and which would not, individually or in the aggregate, reasonably be
expected to result in a Company Material Adverse Effect.
(b) As of the date hereof, the Liabilities of the Company incurred or
identified in connection with the closing of the Louisville, Colorado, facility
(the "LOUISVILLE FACILITY") do not exceed by more than $200,000 the Liabilities
identified in Schedule 3.4(b) with respect to the closing of the Louisville
Facility.
(c) As of the date hereof, the Liabilities of the Company incurred or
identified in connection with the commencement of operations at the Dunbar and
Mount Braddock, Pennsylvania, facilities (collectively, the "PENNSYLVANIA
FACILITY") do not exceed by more than $300,000 the Liabilities identified in
Schedule 3.4(c) with respect to the commencement of operations at the
Pennsylvania Facility.
(d) Except as set forth in SCHEDULE 3.4(D) hereto and as set forth in
Section 3.5(Q), the Company has no outstanding: (i) short-term and long-term
indebtedness for borrowed money; (ii) Liabilities evidenced by bonds,
debentures, notes or other similar instruments (without duplication of any
amounts identified pursuant to clause (i)); (iii) Liabilities with respect to
rent or other amounts due under a lease to which the Company is a party that is
required to be classified and accounted for as a capitalized lease under
generally accepted accounting principles other than such leases for a term of
less than one year or involving total annual payments of less than
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<PAGE>
$25,000; (iv) Liabilities incurred or assumed as the deferred purchase price of
property, or pursuant to conditional sale obligations (excluding trade accounts
payable and purchase money Liabilities arising in the ordinary course of
business consistent with past practice and otherwise not in breach of any other
representation in this Section 3.4); (v) Liabilities relating to the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction; or (vi) Liabilities in respect of guarantees by the
Company of items referred to in clauses (i) through (v) above of other Persons
(collectively, "INDEBTEDNESS").
SECTION 3.5 ABSENCE OF CHANGES. Except as set forth in SCHEDULE 3.5
hereto, since December 31, 1998, the Company has been operated in all material
respects in the ordinary course of business consistent with past practice and
there has not been any change, event, development or state of facts with respect
to the business or condition of the Company, which, individually or together
with other such changes, events, developments, or states of facts, has had or
would reasonably be expected to have a Company Material Adverse Effect. For
purposes of this Agreement, "COMPANY MATERIAL ADVERSE EFFECT" means any change,
event or effect, whether or not foreseeable or known as of the date of this
Agreement, that, individually or in the aggregate with any such other changes,
events or effects, would be, or would reasonably be expected to be, materially
adverse to: (i) the (a) business, (b) condition (financial or otherwise), or (c)
results of operations of the Company; (ii) the transactions contemplated by this
Agreement; (iii) the legality, validity or enforceability of this Agreement or
the realization of the rights and remedies hereunder; or (iv) the ability of the
Company to promptly perform its obligations under this Agreement. In addition,
without limiting the foregoing, except as disclosed in SCHEDULE 3.5 hereto or
except in the ordinary course of business consistent with past practice or
except as otherwise contemplated by this Agreement, there has not occurred since
December 31, 1998:
(A) any amendment or change to the Certificate of Incorporation,
Bylaws or other organizational documents of the Company;
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(B) any declaration, setting aside, or payment of any dividend or
other distribution (whether in cash, stock or other property) in respect to the
capital stock of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of any equity securities of the Company;
(C) any authorization, issuance, sale or other disposition by the
Company of any shares of capital stock or other securities of the Company, or
any option, warrant, right or other security relating to such capital stock or
such other security, or any modification or amendment of any right of any holder
of any outstanding shares of capital stock or other securities of the Company
(other than pursuant to existing Plans (as defined in Section 3.15 hereof);
(D) (1) any increase (whether current or deferred) in the salary or
bonus of any director, officer, employee, agent, consultant or representative of
the Company, other than salary increases in the ordinary course of business
consistent with past practice, (2) any payment of consideration of any nature
whatsoever (i) to any officer, director, stockholder, employee other than
salary, bonus or dividend equivalent salary paid in the ordinary course of
business consistent with past practice, or (ii) to any agent consultant or
representative of the Company other than in the ordinary course of business
consistent with past practice, (3) any grant of any severance, continuation or
termination pay or similar rights to any director, officer, stockholder,
employee, agent consultant or representative of the Company, or (4) any
adoption, entering into, amendment, modification, or termination (partial or
complete) of any Plan or employment contract with respect to any officer,
director, stockholder, employee, agent consultant or representative of the
Company;
(E) any write-off or write-down of or any determination to write off
or write down any of the assets of the Company in an aggregate amount exceeding
$25,000;
(F) any sale, license or other disposition of, or incurrence of an
Encumbrance other than a Permitted Lien as defined in SECTION 3.7 hereof) on any
asset of the Company in an aggregate amount exceeding $50,000;
(G) any entering into, material amendment, modification, termination
(partial or complete) or granting of a waiver, or failure to perform under (i)
any Material Contract (as defined in SECTION 3.12(A) hereof) which is required
to be
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disclosed in SCHEDULE 3.12 hereto (or had it been in effect on the date hereof
would have been required to be listed on SCHEDULE 3.12(A) as a Material
Contract), or (ii) any material amendment, termination, waiver, disposal, or
lapse of, or failure to preserve, any material Permit (as defined in SECTION
3.13 hereof) or other form of authorization held by the Company or its
Subsidiaries;
(H) any revaluation of any of the assets or properties of the
Company;
(I) any capital expenditures or commitments for additions to
property, plant or equipment of the Company constituting capital assets, other
than expenditures or commitments made with respect to the Pennsylvania Facility
as set forth on Schedule 3.4(c), in an aggregate amount exceeding $100,000;
(J) any transaction by the Company with any officer, director,
stockholder, Affiliate or associate of the Company or any business or entity in
which any such individual has an interest, other than: (i) any transaction that
would not (x) be reportable by a reporting company pursuant to Regulation S-K
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and
as set forth on SCHEDULE 3.5 or (y) constitute a breach of subsection (D) above;
or (ii) pursuant to any Material Contract listed pursuant to SCHEDULE 3.12
hereto;
(K) any loan or advance by the Company to any Person, except for
advances in the ordinary course of business consistent with past practice to
employees for business travel and other business expenses;
(L) any material change in the accounting methods or procedures of
the Company, except to the extent required by GAAP (as defined in SECTION 3.6)
or any Governmental Entity;
(M) any work-stoppage, strike, labor difficulty, or union
organizational campaign (in process or, to the Company's knowledge after due
inquiry, threatened) at or affecting the Company;
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(N) any payment, prepayment, discharge, or satisfaction by the
Company of any lien or liability of or owing by the Company other than liens or
liabilities that were paid, discharged or satisfied in the ordinary course of
business and consistent with past practice;
(O) any cancellation of any liability or indebtedness owed to the
Company by any other Person in an aggregate amount exceeding $25,000;
(P) The Company will not terminate the officers or plant managers
identified on Schedule 3.5(P) without cause and, as of the date hereof, the
Company has received no notice of intent to resign from such officers or plant
managers. The Company will notify the Buyer promptly in the event of receipt of
such notice; or
(Q) any increase in the amount of outstanding of the (i) Fayette
County Industrial Development Authority Multi-Mode Variable Rate Industrial
Development Revenue Bonds, Series 1998 issued pursuant to the Trust Indenture
between Fayette County Industrial Development Authority and Star Bank, N.A., as
Trustee, dated as of September 1, 1998 ("IDRB INDEBTEDNESS") of the Company
above the amount of such IDRB Indebtedness as of the date of this Agreement of
approximately $6,850,000, (ii) the Acquisition Line Credit Limit (as that term
is defined in the First Amendment to the Amended and Restated Credit Facility
and Security Agreement between the Company and Keybank National Association,
N.A., the "CREDIT AGREEMENT")) Indebtedness of the Company above the amount of
such Acquisition Line Credit Limit Indebtedness as of the date of this Agreement
of approximately $5,000,000, (iii) the Accommodation Line (as that term is
defined in the Credit Agreement) Indebtedness above the amount of such
Accommodation Line Indebtedness as of the date of this Agreement of
approximately $2,300,000, and (iv) the Working Capital Line (as that term is
defined in the Credit Agreement) Indebtedness above the amount of such Working
Capital Line Indebtedness as of the date of this Agreement of approximately
$5,000,000 pursuant to which to date the Company has drawn down approximately
$2,100,000 and subject to the borrowing base requirements of such Indebtedness
prescribed by the lender thereof without modification, amendment or waiver
thereto.
SECTION 3.6 FINANCIAL STATEMENTS. The Company has delivered to Buyer
true and complete copies of: (a) the audited balance sheets of the Company at
December 31, 1996, 1997, and 1998 and the related statements of income, changes
in
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stockholders' equity, and cash flow for the fiscal years then ended, certified
by the Company's independent public accounting firm; and (b) the unaudited
balance sheets of the Company at March 31, June 30, and September 30, 1999 and
the related statements of income, changes in stockholders' equity, and cash flow
for the fiscal quarters then ended (collectively, the "Financial Statements").
Except as set forth on SCHEDULE 3.6 hereto, such Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved ("GAAP"), except for the
absense of notes and year end adjustments with regard to unaudited Financial
Statements, and such Financial Statements, including the related notes thereto,
if any, fairly present the financial position of the Company at the dates
indicated and such statements of income, changes in stockholders' equity and
cash flow fairly present the results of operations, changes in stockholders'
equity and cash flow of the Company for the periods indicated. No financial
statements of any Person other than the Company are required by GAAP to be
included in the Financial Statements. The Financial Statements were compiled
from and are in accordance with the books and records of the Company which are
in all material respects complete.
SECTION 3.7 REAL PROPERTY. (a) SCHEDULE 3.7(A) hereto sets forth a
complete list of: (a) the real property owned in fee by the Company (the "OWNED
REAL PROPERTY"); and (b) all real property leased by the Company, including any
options, including options to purchase, or rights of first offer relating
thereto (the "LEASED REAL PROPERTY") (the Owned Real Property, the Leased Real
Property and all other rights or interests of the Company in real property (the
"OTHER REAL PROPERTY INTERESTS") being collectively referred to herein as the
"REAL PROPERTY"). The Company has made available to Buyer true and correct
copies of all leases, subleases, abstracts of title, surveys, title opinions and
title insurance policies in the possession of the Company relating to all of the
Real Property. Except as set forth in SCHEDULE 3.7(a), none of the Real Property
reflected in the Financial Statements has been disposed of, and no Real Property
has been acquired by the Company since December 31, 1998.
(b) Except for: (i) liens and encumbrances disclosed on SCHEDULE
3.7(B) hereto; (ii) liens for current Taxes (as hereinafter defined) not yet
delinquent; (iii) covenants, conditions and restrictions of record, none of
which materially impairs the use of such property in the manner currently used
or
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impairs the ability of the Company to deliver good title and/or other real
property rights and interests in such Real Property; and (iv) any mechanic's,
workmen's, repairmen's, materialmen's, contractor's, warehousemen's, carrier's,
supplier's or vendor's lien, if payment is not yet due on the underlying
obligation (collectively, the "PERMITTED LIENS"), the Company has good title in
fee simple to all Owned Real Property, and a valid leasehold interest in all
Leased Real Property, free and clear of any mortgage, pledge, assessment,
security interest, lien, claim, charge, conditional sales contract, lease,
sublease, adverse claim, charge, restriction, reservation, option, right of
first refusal, other encumbrance of any nature whatsoever or other Contract to
give any of the foregoing (collectively, "ENCUMBRANCES"). Except as set forth on
SCHEDULE 3.7(B) hereto, the Company has good title to all structures, plants,
leasehold improvements, systems, fixtures and other property located on or about
any of the Leased Real Property and which are owned by the Company, as reflected
in the Financial Statements, free and clear of any Encumbrances except for
Permitted Liens, and none of such assets is subject to any contract, sublease or
other arrangement for its use by any Person other than the Company.
(c) Except as set forth on Schedule 3.7(c) hereto, each of the leases
and subleases relating to the Leased Real Property is in full force and effect,
there is no material default by the Company (or to the knowledge of the Company,
by the lessor) under any such lease or sublease, and, except as set forth on
SCHEDULE 3.7(C) hereto, each such lease and sublease will remain in full force
and effect following the Closing without any modification in the rights or
obligations of the parties under any such lease or sublease.
(d) The Company duly and timely delivered to E.I. du Pont de Nemours
(the "LANDLORD") a notice of extension of the lease between the Landlord and the
Company relating to the Pennsylvania Facility.
(e) Except as set forth on SCHEDULE 3.7(E) hereto, no work has been
performed on or with respect to or in connection with any of the Real Property
that would cause such Real Property to become subject to any additional
mechanic's, materialmen's, workmen's, repairmen's, carrier's or similar
Encumbrance aggregating in excess of $50,000.
(f) The Company has not received notice of and has no knowledge of
any law, ordinance or regulation (whether in effect, pending or proposed) which
would reasonably be expected
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to have a Company Material Adverse Effect on the Company's use of the Leased
Real Property.
(g) With respect to the option to extend the term of the Operating
Lease made as of March 18, 1998, by and among Spin Forge, LLC, the Company and
Joseph P. Allwein, affecting the property located at 1700 East Grand Avenue, El
Segundo, CA (the "SPIN FORGE LEASE"), for one additional term of 10 years, as
set forth in Section 1C of the Spin Forge Lease (the "EXTENSION Option"), the
Extension Option remains in full force and effect.
(h) The structures, plants, improvements, systems and fixtures
(including, without limitation, storage tanks or other impoundment vessels,
whether above or below ground) located on each parcel of Owned Real Property
and, to the Company's knowledge after due inquiry, each parcel of Leased Real
Property comply in all material respects with all applicable laws (including
Environmental Laws as defined in Section 3.17), ordinances, rules, regulations
and similar governmental and regulatory requirements. Each parcel of Owned Real
Property and Leased Real Property is in good operating condition and repair,
ordinary wear and tear excepted. Each parcel of Owned Real Property and, to the
Company's knowledge after due inquiry, each parcel of Leased Real Property (in
view of the purposes for which each parcel of Owned Real Property or Leased Real
Property is currently used) conforms in all material respects with all covenants
or restrictions of record and conforms with all applicable building codes and
zoning requirements and there is not, to the knowledge of the Company, any
proposed change in any such governmental or regulatory requirements or in any
such zoning requirements. All existing electrical, plumbing, fire sprinkler,
lighting, air conditioning, heating, ventilation, elevator and other mechanical
systems located in or about the Real Property are, to the knowledge of the
Company, in good operating condition and repair, ordinary wear and tear
excepted.
(i) The Other Real Property Interests include all material easements,
rights-of-way and similar rights necessary to conduct the business of the
Company as presently conducted and to use all of its Real Property as currently
used. No such material easement or right will be breached by, nor will any party
thereto be given a right of termination, as a result of, the transactions
contemplated by this Agreement.
SECTION 3.8 TANGIBLE PERSONAL PROPERTY. (a) The Company has good title
to all machinery and equipment, tools, spare and maintenance parts, furniture,
vehicles and all other
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tangible personal property (collectively, the "TANGIBLE PERSONAL PROPERTY")
owned by the Company, free and clear of any Encumbrance of any kind or nature
whatsoever, except for Permitted Liens. All material items of Tangible Personal
Property currently owned or used by the Company as of the date hereof are in
good operating condition and repair, ordinary wear and tear excepted, are
physically located at or about the places of business of the Company and are
owned outright by the Company or validly leased. Except as set forth on SCHEDULE
3.8(A) hereto, the owned and leased Tangible Personal Property consists of all
tangible personal property necessary for the operation of the business of the
Company as currently conducted or as currently contemplated to be conducted.
(b) SCHEDULE 3.8(B) hereto sets forth a complete and correct list of
all Tangible Personal Property leases to which the Company is a party involving
total annual payments in excess of $25,000 or for a term of more than one year,
together with a brief description of the property leased. The Company has made
available to Buyer complete and correct copies of each lease (and any amendments
thereto) listed on SCHEDULE 3.8(B) hereto. Except as set forth on SCHEDULE
3.8(B): (i) each such lease is in full force and effect; (ii) all lease payments
due to date on any such lease have been paid, and neither the Company nor (to
the knowledge of the Company) any other party is in material default under any
such lease, and no event has occurred which constitutes, or with the lapse of
time or the giving of notice or both would constitute, a material default by the
Company or (to the knowledge of the Company) any other party under such lease;
and (iii) to the knowledge of the Company, there are no material defaults
alleged against the Company or by any other party with respect to any such
lease.
SECTION 3.9 COMPUTER SOFTWARE. All computer software programs
(excluding noncustomized computer software available to the Company on an
over-the-counter basis through normal commercial channels) used by the Company
in the conduct of its business are owned or licensed by the Company free and
clear of Encumbrances, except for Permitted Liens, and, to the Company's
knowledge, do not infringe any patent, copyright, trade secret or trademark of
any other Person. SCHEDULE 3.9 hereto sets forth a list of all such computer
software programs and identifies whether such programs are owned by the Company
or used by license.
SECTION 3.10 YEAR 2000 COMPLIANCE. All Date-Sensitive Systems of the
Company are Year 2000 Compliant. The Company has
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made inquiries of its vendors, suppliers and other business partners, and has
not been advised that they and/or their products, as applicable, are not Year
2000 Compliant. The Company has prepared and will implement promptly manual
workarounds in the event of Year 2000 malfunctions of the Company or any
business partner of the Company. "DATE-SENSITIVE SYSTEM" means any software,
microcode or hardware system or component, including any electronic or
electronically controlled system or component, that processes any Date Data and
that is installed, in development or on order by the Company for its internal
use, or which the Company sells, leases, licenses, assigns or otherwise
provides, or the benefit of which the Company provides, to its customers,
vendors, suppliers, affiliates or any other third party. "DATE DATA" means any
data of any type that includes date information or which is otherwise derived
from, dependent on or related to date information. "YEAR 2000 COMPLIANT" means,
with respect to Date-Sensitive Systems, that each such system accurately
processes all Date Data, including for the twentieth and twenty-first centuries,
without loss of any functionality or performance, including, but not limited to,
calculating, comparing, sequencing, storing and displaying such Date Data
(including all leap year considerations), when used as a stand-alone system or
in combination with other software or hardware. The Company has prepared,
adopted, implemented and completed a Year 2000 Compliance and has provided Buyer
a complete and accurate copy thereof.
SECTION 3.11 INTELLECTUAL PROPERTY RIGHTS. (a) As used herein, the
term "RECORDED INTELLECTUAL PROPERTY" shall mean domestic and foreign letters
patent, patents, patent applications, patent licenses, software licenses and
know-how licenses, trade names, trademarks, trademark registrations and
applications, service mark registrations and applications and copyright
registrations and applications. SCHEDULE 3.11(A) hereto sets forth a true and
complete list of all of the Recorded Intellectual Property owned or used by the
Company in the operation of its business. Such Recorded Intellectual Property,
together with copyrights, service marks, trademarks, trade secrets, trade names,
technical knowledge, know-how, and other confidential proprietary information
and related ownership, use and other rights, shall be collectively referred to
hereinafter as the "INTELLECTUAL PROPERTY." Except as set forth on SCHEDULE
3.11(B) hereto, the Company has the right to use, free and clear of any claims
or rights of others, all Intellectual Property owned or used by it in the
operation of its business that is material to the business, and such use does
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not, to the knowledge of the Company, infringe on any patent, trademark,
copyright, service mark or trade name, or misappropriate, any other Intellectual
Property or right, of others.
(b) The Company owns or has the right to use all Intellectual
Property necessary for the operation of its business as presently conducted and
as presently proposed to be conducted. Each material item of Intellectual
Property owned or used by the Company immediately prior to the Closing hereunder
will be owned or available for use by the Company, immediately subsequent to the
Closing hereunder. The Company has taken all necessary or reasonable action to
protect and preserve the confidentiality of all trade secrets, processes,
know-how, technical knowledge and other Intellectual Property not otherwise
protected by patents, patent applications or copyright that are material to the
business of the Company. Except as set forth on Schedule 3.11(b), each employee
of the Company has executed a confidentiality agreement, which includes an
agreement to assign to the Company all rights to Intellectual Property
originated or invented by such employee relating to the business of the Company
and to maintain the confidentiality of all confidential information of Company,
including, without limitation, all trade secrets, technical knowledge and
know-how. To the knowledge of the Company, no breach of any such confidentiality
agreements has occurred.
(c) Except as set forth on SCHEDULE 3.11(C) hereto, to the knowledge
of the Company, the Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, the Company has not received any charge, complaint,
claim or notice alleging any such interference, infringement, misappropriation,
or violation. No third party has, to the knowledge of the Company, interfered
with, infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(d) SCHEDULE 3.11(D) hereto identifies each material item of
Intellectual Property that any third party owns and that the Company uses
pursuant to any contract. To the knowledge of the Company, with respect to each
such item of used Intellectual Property:
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(i) the contract covering the item is legal, valid, binding, enforceable
and in full force and effect;
(ii) the contract will continue to be legal, valid, binding, enforceable and
in full force and effect on identical terms after giving effect to the
transactions contemplated hereby; and
(iii) no party to the contract is in breach or default thereof.
(e) Except as set forth on SCHEDULE 3.11(E) hereto, the Company has
not granted to any third party any license of or other right to use any of the
material Intellectual Property of the Company.
SECTION 3.12 MATERIAL CONTRACTS. (a) SCHEDULE 3.12(A) lists each
contract, agreement, license, lease, sublease, arrangement or understanding,
whether oral or written, or series of related contracts (excluding purchase
orders and customer orders in the ordinary course of business), (A) which
involves annual expenditures or receipts by the Company of more than $100,000,
or (B) which provides for performance, regardless of amount, over a period in
excess of one year after the date of such contract, arrangement or commitment
(each, a "MATERIAL CONTRACT").
(b) Except as set forth on SCHEDULE 3.12(B) hereto, to the knowledge
of the Company, neither any officer, director or employee of the Company or any
Affiliate, nor any member of any such Person's immediate family, is presently a
party to or directly interested in any material transaction with the Company,
including any contract or other binding arrangement (i) providing for the
furnishing of material services by such Person (except in such Person's capacity
as an officer, director, employee or consultant), (ii) providing for the rental
of material real or personal property from such Person, or (iii) otherwise
requiring material payments to such Person (other than for services as an
officer, director, employee or consultant of the Company). For the purpose of
this Agreement "PERSON" shall mean any natural person, corporation, joint stock
corporation, general partnership, limited partnership, limited liability company
or partnership, other entity, enterprise or business organization, trust, union,
association or Governmental Entity (as defined in SECTION 3.2 hereof).
The Company has made available to Buyer complete and correct copies of
each written Material Contract (and any
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amendments thereto), and SCHEDULE 3.12(A) hereto contains a reasonably detailed
description of all oral Material Contracts. Except as set forth on SCHEDULE
3.12(A) hereto: (i) each Material Contract is in full force and effect; (ii)
neither the Company nor, to the knowledge of the Company, any other party is in
default under any such Material Contract; and (iii) to the knowledge of the
Company, there are no defaults alleged against the Company by any other party
with respect to any such Material Contract.
SECTION 3.13 PERMITS AND LICENSES. Except as set forth on SCHEDULE
3.13 hereto or where failure to hold any Permit would not individually or in the
aggregate, have a Company Material Adverse Effect, the Company holds all
permits, licenses, approvals, franchises, notices, authorizations, exemptions,
classifications, certificates, registrations, and similar documents or
instruments issued by any Governmental Entity to the Company (collectively, the
"PERMITS") necessary for the ownership and conduct of the business of the
Company in each of the jurisdictions in which the Company conducts or operates
its respective business in the manner now conducted. All Permits are valid and
in full force and effect. The Company is in compliance in all material respects
with all terms required for the continued effectiveness of each such Permit, and
there is not pending, or to the knowledge of the Company, threatened, any
non-renewal, suspension, termination or revocation of any such Permit. Except as
set forth in Schedule 3.13, all such Permits are renewable by their terms or in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees.
None of such Permits will be adversely affected by consummation of the
transactions contemplated hereby. No present or former officer, director,
shareholder or employee, or any other Person, owns or has any proprietary,
financial or other interest (direct or indirect) in any Permits which the
Company owns, possesses or uses in the conduct of its business as now or
previously conducted.
SECTION 3.14 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE 3.14
hereto, there are no suits, actions, proceedings (including, without limitation,
arbitral and administrative proceedings), claims or governmental investigations
or audits (collectively, "LEGAL PROCEEDINGS") pending or, to the knowledge of
the Company, threatened, against the Company or its properties, assets,
business, employees or agents in connection with the business of the Company
which individually or together with similar Legal Proceedings involves
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a claim in excess of $50,000, or it is reasonably likely that such claims will
be prosecuted successfully (in the reasonable judgment of the Buyer) and upon
such successful prosecution, such claims would reasonably be expected to have a
Company Material Adverse Effect. There are no such Legal Proceedings pending or,
to the knowledge of the Company, threatened, challenging the validity or
propriety of, or otherwise relating to or involving, this Agreement or the
transactions contemplated hereby. Except as set forth on SCHEDULE 3.14 hereto,
there is no judgment, order, writ injunction, decree or award (whether issued by
a Governmental Entity or otherwise) to which the Company is a party, or
involving the property, assets or business of the Company, which is unsatisfied
or which requires continuing compliance therewith by the Company.
SECTION 3.15 EMPLOYEE BENEFIT PLANS; ERISA. (a) Each "employee benefit
plan" (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")), bonus, deferred compensation, equity-based,
severance or other plan or written agreement relating to employment,
compensation or fringe benefits for employees, maintained or contributed to by
the Company at any time during the 7-calendar year period immediately preceding
the date hereof and/or with respect to which the Company could incur or could
have incurred any direct or indirect, fixed or contingent liability
(collectively, the "PLANS") is listed on SCHEDULE 3.15 attached hereto, and,
except as set forth on Schedule 3.15, such Plans are in substantial compliance
with all applicable laws and have been administered and operated in all material
respects in accordance with their terms.
(b) Except as set forth on Schedule 3.15, each Plan which is intended
to be "qualified" within the meaning of Section 401(a) of the Code, has received
a favorable determination letter from the IRS and, to the knowledge of the
Company, no event has occurred and no condition exists which would reasonably be
expected to result in the revocation of any such determination. No event which
constitutes a "reportable event" (as defined in Section 4043(c) of ERISA) for
which the 30-day notice requirement has not been waived by the Pension Benefit
Guaranty Corporation (the "PBGC") has occurred with respect to any Plan. No Plan
subject to Title IV of ERISA has been terminated or is or has been the subject
of termination proceedings pursuant to Title IV of ERISA. Full payment has been
made of all amounts which the Company was required under the terms of the Plans
to have paid as contributions to such Plans on or prior to the date hereof
(excluding any amounts not
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yet due) and no Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA has incurred any "accumulated funding deficiency" (within the meaning of
Section 302 of ERISA or Section 412 of the Code), whether or not waived.
(c) Neither the Company nor, to the knowledge of the Company, any
other "disqualified person" or "party in interest" (as defined in Section
4975(e)(2) of the Code and Section 3(14) of ERISA, respectively), has engaged in
any transaction in connection with any Plan that would reasonably be expected to
result in the imposition of a material penalty pursuant to Section 502(i) of
ERISA, damages pursuant to Section 409 of ERISA or a tax pursuant to Section
4975(a) of the Code. The Company has not maintained any Plan (other than a Plan
which is intended to be "qualified" within the meaning of Section 401(a) of the
Code) which provides benefits with respect to Employees or former employees
following their termination of service with the Company (other than as required
pursuant to Section 601 of ERISA). Each Plan subject to the requirements of
Section 601 of ERISA has been operated in substantial compliance therewith.
(d) No individual shall accrue or receive additional benefits,
service or accelerated rights to payment of benefits as a direct result of the
transactions contemplated by this Agreement. No material liability, claim,
investigation, audit, action or litigation has been incurred, made, commenced
or, to the knowledge of the Company, threatened, by or against any Plan or the
Company with respect to any Plan (other than for benefits payable in the
ordinary course and PBGC insurance premiums). No Plan or related trust owns any
securities in violation of Section 407 of ERISA. With respect to each Plan which
is subject to Title IV of ERISA, as of the most recent actuarial valuation
report prepared for each such Plan, the aggregate present value of the accrued
liabilities thereof did not exceed the aggregate fair market value of the assets
allocable thereto.
(e) No Plan is a "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA) and the Company has not been obligated to contribute to any
multiemployer plan. No material liability has been, or could reasonably be
expected to be, incurred under Title IV of ERISA (other than for benefits
payable in the ordinary course or PBGC insurance premiums) or Section 412(f) or
(n) of the Code by any entity required to be aggregated with the Company,
pursuant to Section 4001(b) of ERISA and/or Section 414(b) or (c) of the Code
(and the regulations promulgated thereunder) with respect to any
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"employee pension benefit plan" (as defined in Section 3(2) of ERISA).
(f) With respect to each Plan, the Company has delivered or caused to
be delivered to Buyer and its counsel true and complete copies of the following
documents, as applicable, to each respective Plan - (i) all Plan documents, with
all amendments thereto; (ii) the current summary plan description with any
applicable summaries of material modifications thereto as well as any other
material employee communications; (iii) all current trust agreements and/or
other documents establishing Plan funding arrangements; (iv) the most recent IRS
determination letter and, if a request for such a letter has been filed and is
currently pending with the IRS, a copy of such filing; (v) the three most
recently prepared IRS Forms 5500; (vi) the three most recently prepared
actuarial valuation reports; (vii) the most recently prepared financial
statements; and (viii) all material related contracts, including without
limitation, insurance contracts, service provider agreements and investment
management and investment advisory agreements.
SECTION 3.16 LABOR MATTERS. No union or other labor organization is
certified or recognized as collective bargaining agent to represent any
employees of the Company and the Company has no knowledge of any campaign
currently in progress to seek representation with respect to any employees of
the Company. The Company is not a party to, the subject of, involved in or, to
the knowledge of the Company, threatened by any labor dispute, unfair labor
practice charge, strike, work stoppage, work slowdown, picketing, boycott,
handbilling or other concerted action by or on behalf of any employees of the
Company.
SECTION 3.17 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE
3.17 hereto:
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(a) The Company and its operations and properties are in compliance
with all Environmental Laws, the Company has not received any communication from
any person or Governmental Entity that alleges that the Company, its operations
or properties are not in material compliance with Environmental Laws. There are
no unreserved or unbudgeted capital expenditures required to bring the Real
Property, the facilities, business or operations of the Company into compliance
with Environmental Laws, whether currently applicable or reasonably expected to
be required in the future.
(b) The Company and its operations have obtained or applied for all
Environmental Permits and are in material compliance with all terms and
conditions of the Environmental Permits. All such Environmental Permits are in
full force and effect or, where applicable, an application has been timely filed
and is pending agency approval and will not prohibit or impair the Company from
continuing to operate all of its facilities and conduct its operations as
conducted prior to Closing or as contemplated pursuant to this transaction.
(c) There is no material Environmental Claim pending or threatened:
(i) against the Company; (ii) against any real or personal property or operation
currently or formerly owned, leased or managed, in whole or in part, by the
Company; or (iii) against any Person whose liability for any Environmental Claim
the Company has or may have retained or assumed either contractually or by
operation of law.
(d) There has been no Release of any Hazardous Materials that would
be reasonably likely to: (i) form the basis of any Environmental Claim against
the Company or its operations or properties; or (ii) cause any real property or
operation currently or formerly owned, leased or managed, in whole or in part,
by the Company to be subject to any restrictions on ownership, operation,
occupancy, use or transfer. The Company is not currently required or obligated
to perform any investigation, removal, remediation, response action or
corrective action with respect to the presence of any Release of Hazardous
Materials at any of the facilities, properties or operations where the Company
conducts its business, as set forth in SCHEDULE 3.7 (A), or at any other
location.
(e) The Company has provided to Buyer: (i) copies of all
Environmental Permits as well as material environmental inspections, audits,
studies, plans or reports conducted or prepared by or on behalf of the Company
or its operations or
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properties; (ii) a list of all Hazardous Materials used, stored, generated,
recycled or disposed of by the Company and all such available information
concerning its joint ventures; (iii) a list of all off-site Hazardous Materials
treatment, storage or disposal facilities used by the Company; and (iv) the cost
of: (A) all material pollution control equipment (including, without limitation,
upgrades and other modifications to existing equipment); and (B) all
remediation, in each case of (A) and (B) that are currently required, or
reasonably contemplated to be required in the future.
(f) There is not now, nor, to the knowledge of the Company, has there
been in the past, on, in or under any Real Property at the time owned, leased or
operated by the Company any underground storage tanks, above-ground storage
tanks, dikes or impoundments containing Hazardous Material.
For purposes of this Agreement, the following terms have the following
definitions:
"ENVIRONMENTAL CLAIM" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims, causes of
action, notices, liens, investigations, proceedings or notices of noncompliance
or violation by any Person (including any Governmental Entity) alleging
potential liability (including, without limitation, potential responsibility or
liability for enforcement costs, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural-resources
damages, property damages, personal injuries, fines or penalties) arising out
of, based on or resulting from: (A) the presence, or Release into the
environment, of any Hazardous Materials at any location, whether or not owned,
operated, leased or managed by the Company; or (B) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Laws or
Environmental Permits.
"ENVIRONMENTAL LAWS" means all applicable federal, state, local laws
(including common laws), rules, ordinances, regulations, orders, directives and
binding administrative or judicial interpretations thereof relating to:
pollution, the environment (including, without limitation, indoor and outdoor
air, surface water, groundwater, land surface or subsurface strata); noise and
vibration, the protection and use of land or natural resources; the protection
of human health and safety; or the Release, manufacture, processing,
distribution, use,
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generation, treatment, storage, disposal, transport or handling of Hazardous
Materials.
"ENVIRONMENTAL PERMITS" means all applicable permits, consents,
licenses, approvals or authorizations issued by Governmental Entities under
Environmental Laws.
"HAZARDOUS MATERIALS" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, and transformers or other equipment that
contain dielectric fluid containing polychlorinated biphenyls ("PCBS") in
regulated concentrations; (b) any chemicals, materials or substances which are
now defined as, or included in the definition of, "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants,"
"hazardous constituents" or words of similar import, under any Environmental
Laws; (c) any chemicals, materials or substances which exhibit the
characteristics of ignitability; reactivity; toxicity; and corrosivity; and (d)
any other chemical, material, substance or waste (including without limitation,
fertilizers, pesticides, herbicides and fungicides), the use, handling or
exposure to which is now prohibited, limited or regulated under any
Environmental Laws.
"RELEASE" means any actual or threatened release, spill, emission,
leaking, injection, deposit, disposal, discharge, dispersal, leaching or
migration into the atmosphere, soil, surface water, groundwater or property.
SECTION 3.18 TAX MATTERS. (a) Except as disclosed on SCHEDULE 3.18(A)
hereto: (i) All Tax Returns (as defined below) required to be filed by or with
respect to the Company have been timely filed; (ii) all Taxes shown on such Tax
Returns or otherwise due have been timely paid; (iii) all such Tax Returns are
true, correct and complete in all material respects; (iv) no adjustment relating
to such Tax Returns has been proposed formally or informally by any Tax
authority and, to the best knowledge of the Company, no basis exists for any
such adjustment; (v) with respect to any period for which Taxes are not yet due,
the Company has made sufficient current accruals for all such Taxes in its
Financial Statements; (vi) the Company has made all required estimated Tax
payments sufficient to avoid any underpayment penalties; (vii) the Company has
withheld and paid all Taxes required by all applicable laws to be withheld or
paid in connection with any amounts paid or owing to any
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employee, creditor, independent contractor or other third party; (viii) no
consent under Section 341(f) of the Internal Revenue Code of 1986, as amended
(the "CODE"), has been filed with respect to the Company; (ix) there are no
Encumbrances as a result of any unpaid Taxes, other than Taxes not yet due and
payable, upon any of the assets of the Company; (x) the Company is not a party
to any agreement or arrangement that would result in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code; (xi) no
acceleration of the vesting schedule for any property that is substantially
unvested within the meaning of the Treasury regulations under Section 83 of the
Code will occur in connection with the transactions contemplated by this
Agreement; (xii) the Company has not been a member of any consolidated,
combined, unitary or affiliated group of corporations for any Tax purposes;
(xiii) the Company has not been at any time a member of any partnership or joint
venture or the holder of a beneficial interest in any trust for any period for
which the statute of limitations for any Tax has not expired; (xiv) the Company
is not a party to, is not bound by, and has no obligation under, any Tax sharing
agreement, Tax allocation agreement, Tax indemnity agreement, or any other
similar Contract; (xv) the Company has no income reportable for a period ending
after the Closing Date but attributable to a transaction (E.G., an installment
sale) occurring in or a change in accounting method made for a period ending on
or prior to the Closing Date which resulted in a deferred reporting of income
from such transaction or from such change in accounting method; (xvi) the
Company has not been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code; (xvii) the Company is not
subject to any accumulated earnings tax penalty or personal holding company tax
and (xviii) the Company is not obligated under any agreement with respect to
industrial development bonds or similar obligations under which the ability of
the holder of such bonds to exclude from gross income the interest thereon for
U.S. federal income tax purposes could be adversely affected by the transactions
contemplated hereby.
(b) Except as disclosed on Schedule 3.18(b) hereto:
(i) There are no pending or, to the knowledge of the Company,
threatened actions or proceedings for the assessment or collection of Taxes
against the Company; (ii) there are no outstanding waivers or agreements
extending the statutory period of limitations for any period with respect to any
Tax to which the Company may be subject; (iii) no power of attorney that is
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currently in force has been granted with respect to any matter relating to Taxes
that could affect the Company; (iv) no closing agreement has been entered into
by or with respect to the Company; (v) there are no requests for information
currently outstanding that could affect the Taxes of the Company; (vi) since
January 1, 1995, no claim has been made in writing addressed to the Company by a
taxing authority in a jurisdiction where the Company does not file Tax Returns
asserting that the Company is or may be subject to taxation in that
jurisdiction; and (vii) there are no proposed reassessments of any property
owned by the Company or other proposals that would be reasonably likely to
increase the amount of any Tax to which the Company would be subject.
(c) The Company has made available to Buyer complete copies of: (i)
all filed Tax Returns of the Company relating to the taxable periods since
January 1, 1995; (ii) any audit report issued since January 1, 1995 relating to
Taxes due from or with respect to the Company, its income, assets or operations;
and (iii) any extensions of the statute of limitations with respect to any Taxes
due from or with respect to the Company, its income, assets or operations. All
income and franchise Tax Returns filed by or on behalf of the Company for the
taxable years ended on the respective dates set forth on SCHEDULE 3.18(C) hereto
have been examined by the relevant Tax authority or the statute of limitations
with respect to such Tax Returns has expired.
"TAXES" shall mean any federal, state, county, local or foreign taxes,
charges, fees, levies, or other assessments, including all net income, gross
income, sales and use, ad valorem, transfer, gains, profits, excise, franchise,
real and personal property, gross receipt, capital stock, production, business
and occupation, disability, employment, payroll, license, estimated, stamp,
custom duties, severance or withholding taxes or charges imposed by any
governmental entity, and includes any interest and penalties (civil or criminal)
on or additions to any such taxes and any expenses incurred in connection with
the determination, settlement or litigation of any Tax liability.
"TAX RETURNS" shall mean reports, returns and statements required to
be supplied to a Tax authority in connection with Taxes.
SECTION 3.19 OPERATING INSURANCE. SCHEDULE 3.19 hereto sets forth a
complete and correct list and brief summary
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description of all insurance policies carried by, or covering, the Company with
respect to its businesses. Complete and correct copies of each such policy have
been made available to Buyer. All such policies are in full force and effect for
such amounts, types of coverage and risks as are customarily obtained by Persons
engaged in similar businesses. After giving effect to the transactions
contemplated hereby, all such insurance in effect prior to the Closing will
remain in full force and effect. No notice of cancellation has been received
with respect to any such policy. All premiums due thereon have been paid in a
timely manner and no event has occurred, including, without limitation, the
failure of the Company to give any notice or information or the Company giving
inaccurate or erroneous notice or information, which would reasonably be
expected to have a Company Material Adverse Effect upon the rights of the
Company under any such insurance policies. Except as set forth on SCHEDULE 3.19
hereto, there are no pending claims or, to the knowledge of the Company,
threatened claims, under the insurance policies of the Company with respect to
their property or assets.
SECTION 3.20 REGULATORY FILINGS. Except as would not reasonably be
likely to result, individually or in the aggregate, in a Company Material
Adverse Effect, the Company has filed all reports, data, registrations, filings,
other information and applications required to be filed with or otherwise
provided to Governmental Entities having jurisdiction over it, its business or
its assets, and all required regulatory approvals in respect thereof are in full
force and effect. All such regulatory filings were in compliance in all material
respects with applicable laws, and no deficiencies have been asserted by any
Governmental Entity with respect to such regulatory filings.
SECTION 3.21 BOOKS AND RECORDS. True and correct copies of the minute
books and stock record books of the Company have been provided to Buyer. Such
minute books contain true and complete originals or copies of all minutes of
meetings of and actions by the shareholders and Board of Directors of the
Company and accurately reflect in all material respects all corporate actions of
the Company which are required by law to be passed upon by the Board of
Directors or the shareholders of the Company. The stock record books accurately
reflect all transactions in shares of the capital stock of the Company. All
accounting, financial, reporting, business, tax, corporate and other similar
books and records of the Company accurately reflect the business and financial
condition of the Company.
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Except as set forth on SCHEDULE 3.21 hereto, all of the records, data,
information, databases, systems and controls maintained, operated or used by the
Company in connection with the conduct or administration of its business
(including all means of access thereto and therefrom) are located on the
premises of the Company and are under the exclusive ownership or direct control
of the Company.
SECTION 3.22 COMPLIANCE WITH LAWS. The Company: (i) is in compliance
and has complied with all laws, statutes, rules, regulations, codes and
ordinances applicable to its business, properties and operations; and (ii) is
not in violation of any writ, judgment, decree, injunction, or similar order
applicable to such entity, except where such failure to comply or violation
would not or would not reasonably be expected to have a Company Material Adverse
Effect. There have been no claims made or, to the Company's knowledge,
threatened thereunder against the Company arising out of, relating to or
alleging any violation of any of the foregoing, and no event has occurred that
(with or without the giving of notice or the lapse of time or both) constitutes
or results, directly or indirectly, in a violation by the Company or failure to
comply with any law, except for claims which are no longer pending or which
claims or events are set forth on SCHEDULE 3.22 hereto or would not reasonably
be expected to have a Company Material Adverse Effect.
SECTION 3.23 CERTAIN BUSINESS PRACTICES, POTENTIAL CONFLICTS OF
Interest. Neither the Company nor any director, officer, agent or employee of
the Company has: (i) used any of the Company's funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to political activity;
(ii) made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from the
funds of the Company; or (iii) made any other unlawful payment from the funds of
the Company.
SECTION 3.24 BROKERS' OR FINDERS' FEES. Except as set forth on
SCHEDULE 3.24 hereto, which fees or other compensation shall be the sole
responsibility of the Company, no agent, broker, investment banker, or other
person or firm acting on behalf of the Company is or will be entitled to any
broker's or finder's fee or any other commission or similar fee directly or
indirectly from the Company in connection with any of the transactions
contemplated by this Agreement.
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SECTION 3.25 SEC DOCUMENTS. The Company has provided to the Buyer a
list of each effective registration statement, report, proxy statement or
information statement filed by it with the Securities and Exchange Commission
(the "SEC") since January 1, 1995 (the "SEC DOCUMENTS"). As of their respective
dates, the SEC Documents complied as to form in all material respects with the
applicable requirements of the Securities Act of 1933 (the "Securities Act") and
the Exchange Act, as the case may be. None of the SEC Documents contained any
untrue statement of material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
SECTION 3.26 DISCLOSURE. No representation or warranty by the Company
contained in this Agreement, and no statement contained in the Financial
Statements, the Schedules hereto or any certificate furnished or to be furnished
by or on behalf of the Company to the Buyer pursuant to this Agreement or any of
its representatives in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading or necessary in order fully and
fairly to provide the information required to be provided in any such document,
certificate or other instrument.
SECTION 3.27 INVENTORY. Except as set forth in SCHEDULE 3.27 hereto,
the inventories of the Company (including raw materials, supplies and other
materials) are of a quality of usable or salable in the ordinary course of
business, net of any applicable reserves for obsolete, damaged or defective
inventory, which reserves are reasonable and appropriate under the circumstances
and are in accordance with GAAP. The value at which the inventory is carried on
the books and records of the Company reflects the normal inventory valuation
policy utilized by the Company and is in accordance with GAAP, consistently
applied.
SECTION 3.28 RECEIVABLES. Except as set forth in SCHEDULE 3.28 hereto,
all of the accounts receivable reflected in the Financial Statements were
generated from bona fide transactions by the Company in the ordinary course of
business consistent with past practice and, except for reserves and trade
provisions reflected in the Financial Statements, which reserves are reasonable
and appropriate under the circumstances and are
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in accordance with GAAP, constitute valid, undisputed claims of the Company in
the amounts reflected therein, and are not subject to valid defenses for a
material amount, or material claims of set-off, recoupment or counterclaim.
SECTION 3.29 EMPLOYMENT AGREEMENTS. Attached as SCHEDULE 3.29 is a
list of all of the Company's employment agreements. The Company has furnished to
Buyer complete copies of each such agreement, together with all amendments or
modification thereto. The Company has also furnished to Buyer copies of all
consulting contracts or similar agreements in effect on the date hereof relating
to any consultant employed or retained by the Company in its conduct of its
businesses.
SECTION 3.30 WARN. Except as set forth on SCHEDULE 3.30, the Company
has not been required by the Worker Adjustment and Retraining Notification Act
(the "WARN ACT"), at any time through the date of this Agreement, to provide any
type of notice in respect of terminations of employees, reductions in the work
force, temporary shutdowns of work sites or as may otherwise be required under
the WARN Act.
SECTION 3.31 NO SUBSIDIARIES; OTHER EQUITY INVESTMENTS.
(a) The Company has no Subsidiaries.
(b) The Company does not own any shares of the capital stock of any
corporation or have any equity or partnership interest or limited liability
company interest in any other entity.
"SUBSIDIARY" means any corporation, association or other entity of
which more than fifty percent (50%) of the total voting power of shares of stock
or other equity interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is, at the time as of which any determination is made, owned or controlled,
directly or indirectly, by the Company.
SECTION 3.32 OWNERSHIP OF COMPANY COMMON STOCK. As of the date hereof,
after giving prospective effect to the transactions contemplated by this
Agreement, Buyer will be the owner, legally and beneficially, of not less than
50.8% of the outstanding Company Common Stock (excluding for purposes of such
calculation the number of shares of Company Common Stock which Buyer shall be
entitled to receive upon conversion of the Note).
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer makes the following representations and warranties to the
Company, each of which is true and correct as of the date hereof and shall be
true and correct as of the Closing Date and shall be unaffected by any
investigation heretofore or hereafter made by the Company:
SECTION 4.1 ORGANIZATION AND CORPORATE POWER. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. Buyer has full corporate power and authority to own, lease and operate
the properties and assets which it currently owns, leases or operates and to
carry on its business as presently conducted or proposed to be conducted
pursuant to existing plans.
SECTION 4.2 AUTHORITY; ABSENCE OF CONFLICTS. Buyer has full corporate
power and authority to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly approved by the Board of Directors of Buyer, and no other corporate
actions on the part of Buyer are necessary to authorize and approve the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Buyer and, assuming this Agreement constitutes a valid and binding
obligation of the Company, constitutes the valid and binding obligation of
Buyer, enforceable against it in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws of general applicability relating to or affecting creditors' rights and by
general equitable principles.
Except for the consents and approvals listed on SCHEDULE 4.2(A) hereto
(collectively, the "BUYER CONSENTS"), neither the execution and delivery of this
Agreement the consummation of the transactions contemplated hereby nor
compliance with the terms hereof will: (i) conflict with or violate any
provision of the Articles of Incorporation or Bylaws (or comparable constituent
documents) of the Buyer; (ii) violate, conflict with or result in a breach of or
default (or
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constitute any event which with the lapse of time or the giving of notice or
both would constitute a breach or default) under any of the terms, conditions or
provisions of any material contract to which Buyer is a party or by which
Buyer's assets are bound; (iii) conflict with, violate or result in a breach of
or constitute a default under any law, statute, rule, judgment, order, decree,
injunction, ruling or regulation of any Governmental Entity to which the Buyer
or any of its assets or properties are subject; or (iv) except as set forth on
SCHEDULE 4.2(B) hereto, require the Buyer to give notice to, obtain an
authorization, approval, order, license, franchise, declaration or consent of,
or make a filing with, any third party, including, without limitation, any
Governmental Entity.
SECTION 4.3 NO INVESTIGATION. There are no suits, actions, proceedings
(including, without limitation, arbitral and administrative proceedings), claims
or governmental investigations or audits pending or, to the knowledge of the
Buyer, threatened, challenging the validity or propriety of, or otherwise
relating to or involving, this Agreement or the transactions contemplated
hereby.
SECTION 4.4 SECURITIES LAWS MATTERS. The Buyer is acquiring the Shares
for its own account, for investment purposes and not with a view toward, or for
the purpose of, the resale or distribution thereof. The Buyer will not, directly
or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any of the Shares, or any securities issued or issuable with respect
to any of the Shares by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise which the holders thereof are entitled to receive,
in each case except pursuant to a registration under the Securities Act pursuant
to an exemption therefrom or in a transaction not subject thereto, and, in any
event, in compliance with all applicable state securities or blue sky laws.
SECTION 4.5 BROKERS' OR FINDERS' FEES. Except as disclosed on SCHEDULE
4.5 hereto, no agent, broker, investment banker, or other person or firm acting
on behalf of Buyer is or will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly from Buyer or the Company
in connection with any of the transactions contemplated by this Agreement, other
than customary fees and expenses of attorneys, accountants and similar
professionals.
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ARTICLE V
COVENANTS
SECTION 5.1 FULL ACCESS AND COOPERATION; CONFIDENTIALITY. From the
date hereof through the Closing Date, the Company shall afford to Buyer and its
counsel, accountants and other advisors and representatives, including but not
limited to environmental professionals, reasonable access, during normal
business hours, and the Company shall disclose and make reasonably available to
them (with the right to make copies), all of the books and records of the
Company relating to the ownership of the properties, operations, financial
condition, assets, obligations and Liabilities of the Company, and the Company
shall afford Buyer and its financing counsel, accountants and other advisors and
representatives, including but not limited to environmental professionals, with
reasonable access to the facilities and properties of the Company and to the
officers and directors of the Company. Buyer agrees that it will hold, and will
cause its Affiliates and each of their respective directors, officers,
employees, agents (including counsel and accountants) and other representatives
to hold, any information so obtained in confidence to the extent required by and
in accordance with the provisions of the confidentiality agreement dated
November 16, 1999 between the Company and Buyer. Within 30 days of the end of
each month through the Closing Date, the Company will deliver to Buyer an
unaudited balance sheet and income statement of the Company for the month then
ended (the "MONTHLY BALANCE SHEET"), which financial statements shall be
prepared in accordance with GAAP in a manner consistent with past accounting
practices of the Company.
SECTION 5.2 PRESERVATION OF BUSINESS. From the date hereof through the
Closing Date, the Company shall conduct its business consistent with past
business practices, and the Company shall use its reasonable best efforts to
preserve the business organization of the Company intact, maintain in good
repair all of the Tangible Personal Property of the Company, keep available the
services of, and maintain present relationships with, key officers, directors,
employees, consultants, and agents, the Company's material suppliers, customers,
and others having material business relationships with them and preserve their
goodwill, except that the Company shall not renew the Personal Services
Agreement with Joseph P. Allwein upon its expiration on March 18, 2000 without
the approval the Buyer.
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SECTION 5.3 NEGATIVE COVENANTS. From and after the date hereof through
the Closing Date, the Company shall not, except with the prior written consent
of Buyer, or except as expressly permitted by this Agreement (i) take or agree
to take, whether in writing or otherwise, any of the actions described in
Section 3.5, (ii) issue additional Indebtedness with a maturity date of more
than one year from the date hereof or (iii) change the composition of the board
of directors of the Company.
SECTION 5.4 GOVERNMENTAL AND THIRD PARTY CONSENTS. Each of Buyer, on
the one hand, and the Company, on the other hand, shall use their respective
commercially reasonable efforts to obtain, and to cooperate with the other party
in obtaining, as promptly as practicable, all authorizations, consents, orders
and approvals of any Governmental Entity or other third party (including,
without limitation, the Company Consents and the Buyer Consents and all
regulatory filings) that may be or become necessary in connection with the
consummation of the transactions contemplated by this Agreement.
SECTION 5.5 NO SOLICITATION. From the date hereof until the Closing
Date, neither the Company nor any Affiliate of the Company, nor any of the
officers, directors, employees, representatives or agents of the Company or any
of its Affiliates shall, without the prior written consent of Buyer, directly or
indirectly, solicit, initiate or participate in any way in discussions or
negotiations with, or provide any information or assistance to, or enter into an
agreement with any Person or group of Persons (other than Buyer) concerning any
acquisition, merger, consolidation, liquidation, dissolution, disposition of
assets of such party or any of its subsidiaries or other transaction that would
result in the transfer to any such Person or Persons (other than in the ordinary
course of business) of any part of the business or assets thereof or any equity
interest therein (other than as contemplated by this Agreement), or assist or
participate in, facilitate or encourage any effort or attempt by any other
Person to do or seek to do any of the foregoing; PROVIDED, HOWEVER, that the
restrictions of this paragraph shall not apply to any transaction or series of
transactions which would not result in the disposition of a material amount of a
party's capital stock or assets; PROVIDED, that if the Company receives an
unsolicited Acquisition Proposal (as defined below) from any Person or an
unsolidated inquiry that would reasonably be likely to result in the making of
an Acquisition Proposal from a Person reasonably believed by the Board of
Directors (after consultation with its financial
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advisors) to have the financial resources to consummate an Acquisition Proposal
and the Board of Directors of the Company determines in good faith, following
consultation with outside counsel, that it is necessary to do so in order to
comply with its fiduciary duties to stockholders under applicable law, the Board
of Directors may participate in discussions regarding such Acquisition Proposal
or furnish information regarding the Company and its business to the Person
making such unsolidated Acquisition Proposal or such unsolicited inquiry
pursuant to an appropriate confidentiality agreement. For purposes of this
Agreement, "ACQUISITION PROPOSAL" means any proposal or offer for a merger,
consolidation or other business combination involving the Company or any
Affiliate or any proposal or offer to acquire or cause to be acquired or that
would result in the acquisition in any manner, directly or indirectly, of all or
any substantial portion of the business, assets or capital stock of the Company
or any Affiliate, other than the transactions contemplated by this Agreement. If
the Company or any representative thereof receives, directly or indirectly, from
any Person (other than Buyer) any Acquisition Proposal, the Company or the
relevant representative (as appropriate) shall promptly deliver a copy of such
notice to the Buyer.
SECTION 5.6 NOTICE OF DEVELOPMENTS. From the date hereof to the
Closing, the Company shall notify Buyer of any changes or developments with
respect to the business, operations or prospects of the Company which would have
or would reasonably be expected to have a Company Material Adverse Effect.
SECTION 5.7 NOTICE OF BREACH. From the date hereof to the Closing,
each party hereto shall, immediately upon becoming aware thereof, give detailed
written notice to the other party hereto of the occurrence of, or the impending
or threatened occurrence of, any event which would cause or constitute a breach,
or would have caused or constituted a breach had such event occurred or been
known to such party prior to the date of this Agreement, of any of such party's
covenants, agreements, representations or warranties contained or referred to
herein or in any document delivered in accordance with the terms hereof;
PROVIDED, HOWEVER, that such notice shall not be deemed to modify, amend or
supplement the representations and warranties of the Buyer or the Company or the
Schedules hereto for any purpose of this Agreement or shall not relieve the
notifying party for any liability that such party may otherwise have in respect
of such breach.
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SECTION 5.8 SCHEDULES. From the date hereof until the Closing Date,
the Buyer, on the one hand, and the Company, on the other hand, shall supplement
or amend the Schedules delivered in connection herewith with respect to any
matter which exists or occurs after the date of this Agreement and which, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in such Schedules or which is necessary to
correct any information in such Schedules which has been rendered inaccurate
thereby; PROVIDED, HOWEVER, that none of such supplements or amendments shall be
deemed to modify, amend or supplement the representations and warranties of the
Buyer or the Company or the Schedules hereto for any purposes of this Agreement.
Such amendments and supplements shall be provided every thirty days beginning
February 1, 2000 or, in the event of any amendment or supplement regarding a
matter that has resulted or would reasonably be expected to result in a Company
Material Adverse Effect, promptly following the Company's obtaining knowledge
thereof
SECTION 5.9 REASONABLE EFFORTS. Subject to the terms and conditions of
this Agreement, between the date hereof and the earlier of the Closing Date or
the Termination Date, Buyer, on the one hand, and the Company, on the other
hand, will use their respective reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable to consummate the transactions contemplated by this Agreement and to
maintain the accuracy of its representations and warranties hereunder. Neither
the Buyer nor the Company will take, agree to take or knowingly authorize to be
taken any action or do or knowingly authorize to be done anything in the conduct
of the business of the Buyer or the Company or otherwise, which would be
contrary to or in breach of any of the terms or provisions of this Agreement.
SECTION 5.10 DELIVERY OF CERTIFICATES. At the Closing, each party
shall deliver to the other such good standing certificates, officers'
certificates and similar documents and incumbency certificates as counsel for
the requesting party shall have reasonably requested prior to the Closing Date.
Section 5.11 REGISTRATION RIGHTS AGREEMENT. The Company and the Buyer
shall have entered a registration rights agreement substantially in form
attached hereto as Exhibit A granting to the Buyer for a period of five years
demand and "piggyback" registration rights with respect to the Shares and
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the shares of Company Common Stock issuable upon a conversion of the Note (the
"REGISTRATION RIGHTS AGREEMENT").
Section 5.12 NOTE. The Company shall issue and deliver to Buyer and
the Buyer shall purchase the Note (as defined in the recitals hereto),
substantially in the form attached hereto as Exhibit B.
Section 5.13 BOARD COMPOSITION AND OPTIONS COMMITTEE. The Bylaws of
the Company shall be amended so provide for the following to become effective
on the Closing Date:
(a) the size of the board of the directors of the Company shall be
expanded to seven members of whom four directors shall be nominated by the
Buyer. On the Closing Date, Messrs. Allwein and Franson shall resign from the
board of directors and Messrs. Morgenthaler, Allen and Bartlett shall be
permitted to complete their current terms in office (subject to their removal
for "cause" as that term is generally understood under the Delaware General
Corporation Law) but shall not have the authority to designate their successors
and, thereafter, the board members elected to fill such three board seats (the
"REMAINING BOARD MEMBERS") shall be nominated and elected as provided by the
Bylaws of the Company, and
(b) a committee of the board of directors of the Company shall be
created to consider the granting of stock options to directors, officers,
employees or affiliates of the Company or the Buyer. Any such grant of stock
options will require unanimous approval of the members of such committee. Until
the completion by each of Messrs. Morgenthaler, Allen and Bartlett of their
respective current terms in office (or their earlier resignation, removal or
death), the committee shall be comprised of an equal number of Buyer-nominated
board members and Remaining Board Members.
SECTION 5.14 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. Buyer shall
use reasonable efforts to cause the Company to maintain until July 1, 2002,
directors' and officers' liability insurance in amounts and coverages comparable
to that maintained by the Company on the date hereof; provided, however, that if
the aggregate annual premiums for such insurance at any time during such period
shall exceed 125% of the per annum rate of premium paid by the Company for such
insurance on the date of this Agreement, then the Buyer shall use reasonable
efforts to cause the Company to provide the maximum coverage that shall
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then be available at an annual premium equal to 125% of such rate.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE COMPANY
The obligations of the Company hereunder are subject to the
fulfillment on or before the Closing Date of each of the following conditions,
any one or more of which may be waived in writing by the Company:
SECTION 6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of Buyer contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date (except for any
representation or warranty that expressly relates to an earlier date, in which
case it shall have been true and correct as of such earlier date). Buyer shall
have performed and complied in all material respects with all covenants and
agreements contained herein and required to be performed or complied with by it
on or prior to the Closing Date.
SECTION 6.2 CLOSING CERTIFICATE. Buyer shall have delivered to the
Company a certificate signed by a duly authorized officer of Buyer, dated as of
the Closing Date, to the effect set forth in SECTION 6.1 hereof.
SECTION 6.3 NO ADVERSE PROCEEDINGS. No suit, action, claim, or
governmental proceeding shall be pending against, and no order, decree, or
judgment of any court, agency or other Governmental Entity shall have been
rendered against, any party hereto which would render it unlawful, as of the
Closing Date, to effect the transactions contemplated by this Agreement in
accordance with its terms.
SECTION 6.4 BUYER CONSENTS. The Buyer Consents shall have been duly
and validly obtained and all statutory waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"), the
Defense Production Act of 1950, as amended (the "EXON-FLORIO AMENDMENT") or
otherwise shall have expired or terminated. The Buyer Consents shall be in full
force and effect as of the Closing Date, and they shall not have required as a
condition thereto the payment of any consent fee
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or other financial consideration or the material modification or amendment of
any contract or Permit or any agreement to materially modify the future conduct
of the business of the Company from the manner in which such business is
currently conducted, except for the payment of filing and other customary fees
to any Governmental Entity or such payments or such material modifications or
amendments as were previously approved in writing by the Company.
SECTION 6.5 PAYMENT. Buyer shall pay to the Company all amounts due to
the Company under Section 1.2 and the Buyer shall have purchased the Note
substantially in the form attached as Exhibit B.
SECTION 6.6 STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by the requisite affirmative vote
of the stockholders of the Company in accordance with the Company Certificate of
Incorporation, Bylaws, the Securities Act, the Delaware General Corporation Law
and all other applicable laws.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are subject to the fulfillment on
or before the Closing Date of each of the following conditions, any one or more
of which may be waived in writing by Buyer.
SECTION 7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations and warranties of the Company contained herein shall be true and
correct in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date (except for any
representation or warranty that expressly relates to an earlier date, in which
case it shall have been true and correct as of such earlier date). The Company
shall have performed and complied in all material respects with all covenants
and agreements contained herein and required to be performed or complied with by
it on or prior to the Closing Date.
SECTION 7.2 CLOSING CERTIFICATE. Buyer shall have received
certificates to the effect set forth in SECTION 7.1 and SECTION 7.5 hereof
signed by a duly authorized Officer of the Company, and dated as of the Closing
Date.
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Section 7.3 LEGAL OPINION. Buyer shall have received the opinion of
Davis, Graham, Stubbs LLP, counsel to the Company, dated as of the Closing Date
in substantially the form attached hereto as Exhibit C.
SECTION 7.4 NO ADVERSE PROCEEDINGS. No suit, action, claim, or
governmental proceeding shall be pending against, and no order, decree, or
judgment of any court, agency, or other Governmental Entity shall have been
rendered against, any party hereto which would render it unlawful, as of the
Closing Date, to effect the transactions contemplated by this Agreement in
accordance with its terms.
SECTION 7.5 NO COMPANY MATERIAL ADVERSE EFFECT. Since the date hereof,
there shall not have occurred a Company Material Adverse Effect, including
without limitation as a result of a change in the laws or regulations that
govern the business of the Company.
SECTION 7.6 COMPANY CONSENTS. The Company Consents shall have been
duly and validly obtained, and all statutory waiting periods under the HSR Act
and the Exon-Florio Amendment or otherwise shall have expired or been
terminated. The Company Consents shall be in full force and effect as of the
Closing Date, and they shall not have required as a condition thereto the
payment of any consent fee or other financial consideration or the modification
or amendment to any Material Contract or Permit, or any agreement to materially
modify the future conduct of the business of the Company from the manner in
which such business is currently conducted (all as determined by Buyer in the
reasonable exercise of its discretion), except for the payment of filing and
other customary fees to any Governmental Entity or such payments or such
material modifications or amendments as were previously approved in writing by
the Buyer.
SECTION 7.7 STOCKHOLDER APPROVAL. This Agreement and the transactions
contemplated hereby shall have been approved by the requisite affirmative vote
of the stockholders of the Company in accordance with the Company's Certificate
of Incorporation, Bylaws, the Securities Act, the Delaware General Corporation
Law and all other applicable laws.
SECTION 7.8 AMENDMENT TO SHAREHOLDER RIGHTS PLAN. The Rights Agreement
dated as of January 8, 1999 between the Company and Harris Trust and Savings
Bank, as Rights Agent, shall have been amended to exempt (i) the transactions
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contemplated by this Agreement, and (ii) any purchase of any number of shares of
Company Common Stock by Buyer that the Buyer deems necessary to maintain Buyer's
legal and beneficial ownership of not less than 50.1% of Company Common Stock
(excluding for the purposes of such calculation the number of shares of Company
Common Stock which Buyer shall be entitled to receive upon Conversion of the
Note) from the triggering provisions thereof with respect to exercise of the
Rights (as defined therein).
SECTION 7.9 CLEAN-UP MT. BRADDOCK FACILITY. The Company shall, after
consultation with Buyer, undertake such additional subsurface environmental
investigations as may be reasonably necessary to ascertain the presence or
Release, if any, of Hazardous Materials at the Mount Braddock Facility. To the
extent indicated by the results of such environmental investigation, the Company
shall promptly perform such remediation as may be required by or pursuant to
applicable Environmental Laws, including without limitation, the Pennsylvania
Land Recycling and Environmental Standards Act (Act 2), where appropriate.
SECTION 7.10 NOTE. The Company shall have issued and delivered to
Buyer the Note, substantially in the form attached hereto as Exhibit B.
SECTION 7.11 REGISTRATION RIGHTS AGREEMENT. The Company and the Buyer
shall have entered into the Registration Rights Agreement.
Section 7.12 BANKING AUTHORITY. The Company shall have prepared all
necessary documentation required by each bank at which the Company holds
accounts to change the signatory authority on each account as specified by the
Buyer.
Section 7.13 FINAL MONTHLY BALANCE SHEET. The Buyer shall have
received the Monthly Balance Sheet of the Company for the month immediately
preceding the month in which the stockholders of the Company shall be required
to vote to approve the transactions contemplated hereby, and such Monthly
Balance Sheet shall reflect Indebtedness not in excess of that described in
Section 3.5(Q) hereof.
Section 7.14 ENVIRONMENTAL MATTERS. The Company (a) shall have
obtained, at the Company's sole cost and expense, for the benefit of Buyer and
the Company, an environmental insurance policy in scope and coverage
substantially similar to that set
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forth on Exhibit D for a term of not less than ten (10) years with an aggregate
policy limit of not less than $10 million inclusive of those sites and
facilities as set forth in Exhibit D; and (b) is maintaining all its operations
and Real Property in compliance with all Environmental Laws and Environmental
Permits to the reasonable satisfaction of the Buyer.
Section 7.15 ENVIRONMENTAL PERMITS AND RELEASES . The Company shall
have obtained any required transfer, renewal, assignment or application of any
Environmental Permits pursuant to an Environmental Law.
Section 7.16 PERCENTAGE OF OWNERSHIP OF COMPANY COMMON STOCK. As of
the Closing Date, and after giving effect to the transactions contemplated by
this Agreement, Buyer will be the owner, legally and beneficially, of not less
than 50.1% of the outstanding Company Common Stock (excluding for purposes of
such calculation the number of shares of Company Common Stock which Buyer shall
be entitled to receive upon conversion of the Note).
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. Notwithstanding anything contained in this
Agreement to the contrary, this Agreement may be terminated at any time prior to
the Closing:
(a) By the mutual written consent of Buyer and the Company;
(b) By either Buyer or the Company, if the Closing shall not have
occurred on or before May 15, 2000 or such other date as the parties may
mutually agree upon, (the "TERMINATION DATE") or any closing condition set forth
in Articles VI or VII has not been satisfied by the date required for such
satisfaction by the party of whom performance is required; PROVIDED, HOWEVER,
that the right to terminate this Agreement pursuant to this SECTION 8.1(B) shall
not be available to any party that is in material breach of this Agreement at
the time the notice of termination is delivered or whose delay or failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Closing to occur on or before such date nor to Buyer if
not available to Buyer under Section 8.1(d)(ii);
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(c) By either Buyer or the Company, if there shall have been entered
a final, nonappealable order or injunction of any Governmental Entity
restraining or prohibiting the consummation of the transactions contemplated
hereby or any material part hereof;
(d) By either Buyer or the Company, if, prior to the Closing Date,
the other party is in material breach of any representation, warranty, covenant
or agreement herein contained and such breach shall not be cured within 10 days
of the date of notice of default served by the party claiming such material
default; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant
to this SECTION 8.1(D) (i) shall not be available to any party who is in
material breach of this Agreement at the time notice of termination is
delivered, and (ii) shall not be available to the Buyer if the aggregate effect
of (x) breaches by the Company of this Agreement and (y) the nonfulfillment by
the Company (whether or not such nonfulfillment constitutes such a breach) of
any unwaived condition set forth in Article VII hereof results in or is
reasonably likely to result in a Company Material Adverse Effect of less than
$1,500,000, PROVIDED FURTHER, that the limitations on Buyer's right to terminate
set forth in this Section 8.1(d) shall not apply to the condition precedent to
Buyer's Obligations at Closing set forth in Section 7.16;
(e) By the Company, if it receives an unsolicited Acquisition
Proposal and the Board of Directors of the Company determines in good faith,
following consultation with outside counsel, in order to comply with its
fiduciary duties to stockholders under applicable law, to approve or recommend
such Acquisition Proposal, to cause the Company to enter into an agreement with
respect to such Acquisition Proposal and to terminate this Agreement. In the
event this Agreement is terminated by the Company pursuant to this Section
8.1(e) as a result of the consideration of an Acquisition Proposal, within 30
days after such termination, the Company will pay to the Buyer, in immediately
available funds, as liquidated damages and not as a penalty, an amount equal to
all out-of-pocket fees and expenses (including fees and disbursements of
counsel) incurred or paid by or on behalf of the Buyer in connection with the
transactions contemplated by this Agreement ("EXPENSES"); or
(f) By Buyer, if (i) the Board of Directors of the Company withdraws,
modifies or changes its approval or recommendation of this Agreement in a manner
adverse to Buyer or
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shall have resolved to do so, (ii) the Board of Directors of the Company shall
have recommended to the stockholders of the Company an Acquisition Proposal or
shall have resolved to do so, or (iii) a tender offer or exchange offer for 20%
or more of the outstanding shares of capital stock or other Acquisition Proposal
is tendered to the stockholders of the Company and the Board of Directors of the
Company fails to recommend against acceptance of such tender offer, exchange
offer or Acquisition Proposal by its stockholder (including by taking no
position with respect to the acceptance of such tender offer, exchange offer or
Acquisition Proposal by its stockholders).
If either Buyer or the Company terminates this Agreement pursuant to
the foregoing provisions of this SECTION 8.1, such termination shall be effected
by written notice by the terminating party to the other party specifying the
provision pursuant to which such termination is made.
SECTION 8.2 LIABILITIES UPON TERMINATION. Except for this SECTION 8.2,
SECTION 9.2, SECTION 9.12 and the confidentiality provisions of SECTION 5.1
hereof, which shall survive any termination of this Agreement, upon the
termination of this Agreement, this Agreement shall forthwith become null and
void, and no party hereto or any of its officers, directors, partners,
employees, agents, consultants, stockholders, principals or other affiliates
shall have any rights, obligations or liabilities hereunder or with respect
hereto; PROVIDED, HOWEVER, that nothing contained in SECTION 8.1 or this SECTION
8.2 shall relieve any party from liability for any breach of any representation
or warranty or failure to comply with any covenant or agreement contained
herein.
SECTION 8.3 TERMINATION FEE. (a) The Company agrees that, if (i) the
Company shall terminate this Agreement pursuant to SECTION 8.1(E), (ii) Buyer
shall terminate this Agreement pursuant to SECTION 8.1(F), or (iii) Buyer or the
Company shall terminate this Agreement pursuant to Section 8.1(b) due to the
failure to obtain the approval of the Company's stockholders and at the time of
such failure, any Person shall have made a public announcement or otherwise
communicated to the Company or its stockholders an Acquisition Proposal with
respect to the Company which has not been rejected by the Company or terminated
or withdrawn by the party making the Acquisition Proposal, then in accordance
with SECTION 8.3(C), immediately prior to such termination in the case of clause
(i), or in the case of clause (ii) or (iii) if, within one year following the
date of termination, the Company enters into a definitive acquisition,
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merger or similar agreement to effect an Acquisition Proposal upon execution of
such agreement, the Company shall pay to Buyer a termination fee in an amount
equal to $250,000 (the "TERMINATION FEE") and, in addition, the Company shall
pay to the Buyer Expenses (as defined in Section 8.1(e) hereof), in the case of
clause (i), according to the terms of Section 8.1(e), and in the case of clause
(ii) or (iii), within 30 days after the Company enters into a definitive
acquisition, merger or similar agreement to effect an Acquisition Proposal.
(b) Each of Buyer and the Company agrees that the payments provided
for in SECTION 8.3(A) and 8.1(E) shall be the sole and exclusive remedy of the
parties upon a termination of this Agreement pursuant to SECTION 8.1, (E) or
(F), as the case may be, and such remedy shall be limited to the payment
stipulated in SECTION 8.3(A); PROVIDED, HOWEVER, that nothing in this Agreement
shall relieve any party from liability for the willful breach of any of its
representations and warranties or the willful breach of any of its covenants or
agreements set forth in this Agreement.
(c) Any payment of a Termination Fee required to be made pursuant to
SECTION 8.3(A) shall be made to Buyer by the Company within 30 days after the
Company enters into a definitive acquisition, merger or similar agreement to
effect an Acquisition Proposal and shall be paid by wire transfer of immediately
available funds to an account designated by Buyer.
(d) The parties agree that the agreements contained in this SECTION
8.3 are an integral part of the transactions contemplated by the Agreement and
constitute liquidated damages and not a penalty. If the Company fails to
promptly pay to Buyer any fee due hereunder, the Company shall pay the costs and
expenses (including reasonable legal fees and expenses) in connection with any
action, including the filing of any lawsuit or other legal action, taken by
Buyer to collect payment, together with interest on the amount of such unpaid
fee at the publicly announced prime rate of Citibank, N.A. from the date such
fee was required to be paid.
ARTICLE IX
MISCELLANEOUS
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SECTION 9.1 DEFINITIONS. For purposes of this Agreement, the following
terms have the meanings set forth in the sections indicated:
TERM SECTION
---- -------
Acquisition Proposal 5.5
Affiliate 9.7
Agreement Recitals
Buyer Recitals
Buyer Consents 4.2
Closing 2.1
Closing Date 2.1
Code 3.18(a)
Company Recitals
Company Common Stock Recitals
Company Consents 3.2
Company Material Adverse Effect 3.5
Credit Agreement 3.5(Q)
Date Data 3.10
Date-Sensitive System 3.10
Encumbrances 3.7
Environmental Claim 3.17
Environmental Laws 3.17
Environmental Permits 3.17
ERISA 3.15(a)
Exchange Act 3.5(J)
Exon-Florio Amendment 6.4
Expenses 8.1(e)
Extension Option 3.7(g)
Financial Statements 3.6
GAAP 3.6
Governmental Entity 3.2
Hazardous Materials 3.17
HSR Act 6.4
IDRB Indebtedness 3.5(Q)
Indebtedness 3.4
Intellectual Property 3.11
Landlord 3.7(d)
Leased Real Property 3.7
Legal Proceedings 3.14
Liability/Liabilities 3.4
Louisville Facility 3.4(b)
Material Contracts 3.12(a)
Monthly Balance Sheet 5.1
Note Recitals
Notice 9.4
Other Real Property Interests 3.7
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TERM SECTION
---- -------
Owned Real Property 3.7
PBGC 3.15
Pennsylvania Facility 3.4(c)
Permits 3.13
Permitted Liens 3.7
Person 3.12(b)
Plans 3.15
Purchase Price 1.2
Real Property 3.7
Recorded Intellectual Property 3.11
Registration Rights Agreement 5.11
Release 3.17
SEC 3.25
SEC Documents 3.25
Securities Act 3.25
Shares Recitals
Spin Forge Lease 3.7(g)
Subsidiaries/Subsidiary 3.31
Tangible Personal Property 3.8
Taxes 3.18
Tax Returns 3.18
Termination Date 8.1
Termination Fee 8.1
WARN Act 3.30
Year 2000 Compliant 3.10
SECTION 9.2 EXPENSES. The parties agree to share equally the filing
fees for filing the notice required by the HSR Act. Each party shall be
responsible for its own expenses incurred in connection with the transactions
provided for herein or contemplated hereby.
SECTION 9.3 ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the party for
whom judgment is finally granted by a court in connection with such action shall
be entitled to recover in such action its reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which it may be
entitled.
SECTION 9.4 NOTICES. Any notice, request, demand or other
communication given by any party under this Agreement (each a "NOTICE") shall be
in writing, may be given by a party or its legal counsel, and shall be deemed to
be duly given: (i) when personally delivered; or (ii) upon delivery by an
overnight courier service which provides evidence of delivery,
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or (iii) when five days have elapsed after its transmittal by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party to whom directed at that party's address as it appears below or another
address of which that party has given written notice to the other parties
hereto; or (iv) when transmitted by telex (or equivalent service), the sender
having received the answer back of the addressee; or (v) when delivered by
facsimile transmission, the sender having received machine confirmation thereof.
Notice to the Company shall be directed to:
Dynamic Materials Corporation
551 Aspen Ridge Drive
Lafayette, Colorado 80026
Attention: Joseph P. Allwein and Richard A. Santa
with a copy to:
Davis, Graham & Stubbs LLP
4410 Arapahoe Avenue, Suite 200
Viewpoint on the Parkway
Boulder, Colorado 80303
Attention: John McCabe, Esq.
Notice to Buyer shall be directed to:
SNPE, Inc.
5 Vaughn Drive, Suite III
Princeton, New Jersey 08540
Attention: Mr. Bernard Fontana
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attention: Pierre F. de Ravel d'Esclapon, Esq.
SECTION 9.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns. This Agreement or any part hereof may not be assigned by any party
without the
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prior written consent of the other party hereto; PROVIDED, however, that Buyer
may assign its rights and obligations hereunder to an Affiliate. Any assignment
in violation of the foregoing shall be null and void.
SECTION 9.6 ENTIRE AGREEMENT AND MODIFICATION. This Agreement, the
Schedules and Exhibits hereto and agreements executed concurrently herewith (all
of which are hereby incorporated by reference into and considered part of this
Agreement) supersede all prior agreements and understandings among the parties
or any of its respective affiliates (written or oral) relating to the subject
matter of this Agreement, and are intended to be the entire and complete
statement of the terms of the agreement among the parties, and may be amended or
modified only by a written instrument executed by all of the parties. The waiver
by one party of any breach of this Agreement by any other party shall not be
considered to be a waiver of any succeeding breach (whether of a similar or a
dissimilar nature) of any such provision or other provision or a waiver of any
such provision itself. No representation, inducement, promise, understanding,
condition or warranty not set forth herein has been made or relied upon by any
of the parties.
SECTION 9.7 CERTAIN INTERPRETIVE MATTERS. Unless the context otherwise
requires: (i) all references to Sections, Articles, Schedules or Exhibits are to
Sections, Articles, Schedules or Exhibits of or to this Agreement; (ii) each
term defined in this Agreement has the meaning assigned to it; (iii) "or" is
disjunctive but not necessarily exclusive; (iv) words in the singular include
the plural and VICE VERSA; and (v) the term "AFFILIATE" means any Person
controlling, controlled by or under common control with the applicable
referenced Person. No provision of this Agreement will be interpreted in favor
of, or against, either of the parties hereto by reason of the extent to which
either such party or its counsel participated in the drafting thereof or by
reason of the extent to which any such provision is inconsistent with any prior
draft hereof or thereof.
SECTION 9.8 GOVERNING LAW. THIS AGREEMENT, AND THE RESPECTIVE RIGHTS,
DUTIES AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF DELAWARE, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
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SECTION 9.9 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, and such
counterparts shall together constitute one and the same instrument.
SECTION 9.10 FURTHER ASSURANCES. Each of the parties shall, at any
time and from time to time after the Closing Date, and at the expense of the
other parties but without further consideration, execute and deliver such
further instruments, assignments or documents and other papers and take such
further actions as may be reasonably required to carry out the provisions hereof
and the transactions contemplated hereby. Each party shall use its reasonable
efforts to fulfill or obtain the fulfillment of the conditions to the Closing.
SECTION 9.11 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 9.12 PUBLIC STATEMENTS. The Buyer, on the one hand, and the
Company, on the other hand, will consult with the other before issuing, and will
provide the other with a reasonable opportunity to review and comment upon, any
press release or other public statements with respect to the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statements prior to such consultation except as may be
required by applicable law or judicial process.
SECTION 9.13 SPECIFIC PERFORMANCE. In the event of a breach or
threatened breach by any party hereto of any of his, her or its obligations
hereunder to consummate the transactions provided for herein any other party
hereto shall be entitled to specific performance with respect to said
obligation. Nothing herein shall be construed as prohibiting any party hereto
from pursuing any other remedies available for such breach or threatened breach,
including the recovery of damages.
SECTION 9.14 SCHEDULES. Except to the extent specifically provided
herein to the contrary, inclusion of, or reference to, matters in a schedule to
this Agreement does not
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constitute an admission of what is material or the materiality of such matter.
Section 9.15 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by the Company and the Buyer shall not
survive the Closing Date.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DYNAMIC MATERIALS CORPORATION
By: /S/JOSEPH P. ALLWEIN
------------------------------
Name: Joseph P. Allwein
Title: President
Witness:
SNPE S.A. SNPE, INC.
By: /S/JEAN FAURE By: /S/BERNARD FONTANA
------------------ -----------------------------
Name: Jean Faure Name: Bernard Fontana
Title: Chairman Title: President
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APPENDIX B
CONVERTIBLE SUBORDINATED NOTE
US $1,200,000 _______________________ DATE OF ISSUANCE
_______________________ LOCATION OF ISSUANCE
FOR VALUE RECEIVED, the undersigned, DYNAMIC MATERIALS CORPORATION,
a Delaware corporation (the "COMPANY"), promises to pay to the order of SNPE,
INC., a Delaware corporation (the "HOLDER"), at the office of the Holder located
at 5 Vaughn Drive, Suite 111, Princeton, New Jersey 08540, on [--], 2005, (the
"MATURITY DATE") the principal amount of ONE MILLION TWO-HUNDRED THOUSAND U.S.
DOLLARS (U.S. $1,200,000).
1. INTEREST. The Company promises to pay interest on the unpaid principal
amount hereof at a rate of five percent (5%) per annum. The Company will pay
interest quarterly in arrears on each March 30, June 30, September 30, and
December 30 commencing June 30, 2000 and on the Maturity Date (whether as
stated, by acceleration or otherwise). Interest on this Note will accrue from
and including the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of original issuance of this
Note through but excluding the date on which interest is paid. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. Upon the
occurrence and during the continuation of an Event of Default (as defined in
Section 5 hereof) and after the Maturity Date (whether as stated, by
acceleration or otherwise) this Note shall bear interest on the unpaid principal
amount hereof from time to time outstanding, payable on demand by the Holder and
upon payment in full hereof, at a rate equal to 2% above the rate otherwise
applicable pursuant to this Section 1.
2. METHOD OF PAYMENT. The Company will pay principal and interest in money
of the United States of America that at the time of payment is legal tender for
payment of public and private debts. The Company may, however, pay principal and
interest by its check payable in such money by mail to the Holder's registered
address.
3. SUBORDINATION.
(a) NOTE SUBORDINATED TO SENIOR INDEBTEDNESS. The Company agrees, and
the Holder by acceptance hereof likewise agrees, that the payment of the
principal of and interest on this Note is subordinated, to the extent and in the
manner provided in
<PAGE>
(b) this Section 3, to the prior payment in full of all Senior
Indebtedness.
This Section 3 shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions.
As used in this Note, "SENIOR INDEBTEDNESS" means the principal of
and interest on the outstanding Indebtedness of the Company under (a) the
Amended and Restated Credit Facility and Security Agreement dated as of July 19,
1996 between the Company and Keybank National Association (as amended to the
date hereof and as it may be further amended on and after the date hereof) and
(b) the Loan Agreement between Fayette County Industrial Development Authority
and the Company dated as of September 1, 1998 (as amended to the date hereof and
as it may be further amended on and after the date hereof) entered into in
connection with the Fayette County Industrial Authority Multi-Mode Variable Rate
Industrial Development Revenue Bonds, Series 1998 (Dynamic Materials Corporation
Project).
As used in this Note, "INDEBTEDNESS" of any person means any
indebtedness, contingent or otherwise, in respect of borrowed money, whether
short-term or long-term and whether recourse or non-recourse, all obligations
with respect to letters of credit and bankers' acceptances or evidenced by
bonds, notes, debentures or similar instruments, and all obligations to pay the
deferred purchase price of any property (except trade payables), and shall also
include, to the extent not otherwise included, any capitalized lease
obligations, indebtedness (recourse or nonrecourse) secured by a lien to which
the property or assets owned or held by such person are subject, whether or not
the obligations secured thereby shall have been assumed, guarantees of items
that would be included within this definition, and obligations in respect of
currency agreements, interest swap obligations, obligations to reimburse the
issuer of any letters of credit and obligations with respect to royalty or other
similar arrangements for purchase in exchange of assets and any and all
deferrals, renewals, extensions or modifications of same.
(c) Company Not to Make Payments with Respect to Note in Certain
Circumstances.
(i) Upon the maturity of any Senior Indebtedness by lapse of
time, acceleration (unless waived) or otherwise, all principal thereof and
interest thereon shall first be paid in full, or such payment duly provided
for in cash or in a manner satisfactory to the holders of such Senior
Indebtedness, before any payment is made on account of the principal of or
interest on this Note.
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<PAGE>
(ii) In the event that notwithstanding the provisions of this
Section 3(b), the Company shall make any payment on account of the
principal of or interest on this Note, after the happening of a default in
payment of the principal of or interest on Senior Indebtedness, then,
unless and until such default shall have been cured or waived or shall have
ceased to exist, such payment shall be held by the recipient thereof for
the benefit of, and shall be paid forthwith over and delivered to, the
holders of Senior Indebtedness (PRO RATA as to each of such holders on the
basis of --- ---- the respective amounts of Senior Indebtedness held by
them) or their representative or the trustee under the indenture or other
agreement (if any) pursuant to which Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness.
The Company shall give prompt written notice to the Holder of any default
in the payment of principal of or interest on any Senior Indebtedness.
(d) NOTE SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR INDEBTEDNESS ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE COMPANY. Upon any distribution
of assets of the Company in any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or otherwise):
(i) the holders of all Senior Indebtedness shall first be
entitled to receive payments in full of the principal thereof, premium, if
any, and interest due thereon before the Holder is entitled to receive any
payment on account of the principal of or interest on this Note;
(ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to which the
Holder would be entitled except for the provisions of this Section 3,
including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the
Company being subordinated to the payment of this Note, shall be paid by
the liquidating trustee or agent or other person making such payment or
distribution directly to the holders of the Senior Indebtedness or their
representative, or to the trustee under any indenture under which Senior
Indebtedness may have been issued (PRO RATA as to each
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<PAGE>
such holder, representative or trustee on the basis of the
respective amounts of unpaid Senior Indebtedness held or represented by
each), to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution or provision therefor to the holders of such Senior
Indebtedness; and
(iii) in the event that notwithstanding the foregoing provisions
of this Section 3(c), any payment or distribution of assets of the Company
of any kind or character, whether in cash, property or securities,
including any such payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of the
Company being subordinated to the payment of this Note, shall be received
by the Holder on account of principal of or interest on this Note before
all Senior Indebtedness is paid in full, or effective provision made for
its payment, such payment or distribution (subject to the provisions of
Section 3(f) and 3(g)) shall be received and held for and shall be paid
over to the holders of the Senior Indebtedness remaining unpaid or
unprovided for or their representative, or to the trustee under any
indenture under which such Senior Indebtedness may have been issued (PRO
RATA as provided in subsection (b) above), for application to the
payment of such Senior Indebtedness until all such Senior Indebtedness
shall have been paid in full, after giving effect to any concurrent payment
or distribution or provision therefor to the holders of such Senior
Indebtedness.
The Company shall give prompt written notice to the Holder of any dissolution,
winding up, liquidation or reorganization of the Company.
(e) HOLDER TO BE SUBROGATED TO RIGHTS OF HOLDERS OF SENIOR
INDEBTEDNESS. Subject to the payment in full of all Senior Indebtedness, the
Holder shall be subrogated equally and ratably to the rights of the holders of
the Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on this
Note shall be paid in full, and for the purpose of such subrogation no payments
or distributions to the holders of the Senior Indebtedness by or on behalf of
the Company or by or on behalf of the Holder by virtue of this Section 3 which
otherwise would have been made to the Holder shall, as between the Company, its
creditors other than holders of the Senior Indebtedness and the Holder be deemed
to be payment by the Company to or on account of the Senior Indebtedness, it
being understood that the provisions of this Section 3 are intended solely for
the purpose of defining the relative rights of the Holder, on the one hand, and
the holders of the Senior Indebtedness, on the other hand.
4
<PAGE>
(f) OBLIGATION OF THE COMPANY UNCONDITIONAL. Nothing contained in this
Section 3 or elsewhere in this Note is intended to or shall impair, as between
the Company, its creditors other than holders of Senior Indebtedness and the
Holder, the obligation of the Company, which is absolute and unconditional, to
pay to the Holder the principal of and interest on this Note as and when the
same shall become due and payable in accordance with its terms, or is intended
to or shall affect the relative rights of the Holder and creditors of the
Company other than the holders of the Senior Indebtedness, nor shall anything
herein prevent the Holder from exercising all remedies otherwise permitted by
applicable law upon default under this Note, subject to the rights, if any,
under this Section 3 of the holders of Senior Indebtedness in respect of cash,
property or securities of the Company received upon the exercise of any such
remedy. Upon any distribution of assets of the Company referred to in this
Section 3, the Holder shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to the
Holder, for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Section 3.
Nothing contained in this Section 3 or elsewhere in this Note is
intended to or shall affect the obligation of the Company to make, or prevent
the Company from making, at any time except during the pendency of any
dissolution, winding up, liquidation or reorganization proceeding, and except
during the continuance of any default specified in Section 3(b) (not cured or
waived), payments at any time of the principal of or interest on this Note.
(g) SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF COMPANY
OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future holders of
any Senior Indebtedness to enforce subordination as provided herein shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or by any act or failure to act, in good faith, by any such
holder, or by any noncompliance by the Company with the terms of this Note,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with. The holders of Senior Indebtedness may extend, renew,
modify or amend the terms of the Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely with the
Company, all without affecting the liabilities and obligations of the parties to
this Note.
(h) SECTION 3 NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a
payment on account of principal or interest by reason of any provision in this
Section 3 shall not be
5
<PAGE>
construed as preventing the occurrence of an Event of Default under Section 5.
4. CONVERSION OF NOTE.
(a) CONVERSION PRIVILEGE. Subject to and upon compliance with the
provisions of this Section 4, at the option of the Holder, this Note may, at any
time until and including Maturity, be converted, in whole or in part, at 100% of
the principal amount hereof (or portion hereof), into fully paid and
non-assessable shares of common stock, par value $0.05 per share, of the Company
(the "COMPANY COMMON STOCK"), at the conversion price in effect at the Date of
Conversion (as hereinafter defined).
(b) EXERCISE OF CONVERSION PRIVILEGE. In order to exercise the
conversion privilege, the Holder shall surrender this Note to the Company at any
time during usual business hours at its office accompanied by written notice
that the Holder elects to convert this Note or a stated portion thereof. Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Company Common Stock shall be issued.
As promptly as practicable after the receipt of such notice and the surrender of
this Note as aforesaid, the Company shall, subject to the provisions of Section
4(h), issue and deliver at such office or agency to the Holder, or on its
written order, a certificate or certificates for the number of full shares of
Company Common Stock issuable on such conversion in accordance with the
provisions of this Section 4 and cash, as provided in Section 4(c), in respect
of any fraction of a share of Company Common Stock otherwise issuable upon such
conversion. Such conversion shall be deemed to have been effected immediately
prior to the close of business on the date (herein called the "DATE OF
CONVERSION") on which such notice shall have been received by the Company and
this Note shall have been surrendered as aforesaid, and the person or persons in
whose name or names any certificate or certificates for shares of Company Common
Stock shall be issuable upon such conversion shall be deemed to have become on
the Date of Conversion the holder or holders of record of the shares represented
thereby; PROVIDED, HOWEVER, that any such surrender on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for such shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open but such conversion shall nevertheless be at the conversion price
in effect at the close of business on the date when this Note shall have been so
surrendered with the conversion notice. In the case of conversion of a portion,
but less than all, of this Note, the Company shall execute and deliver to the
Holder, at the expense of the Company, a Note in the form hereof in the
aggregate principal amount of the unconverted portion of this Note. Except as
otherwise expressly provided in this Note, no payment or
6
<PAGE>
adjustment shall be made for interest accrued on this Note (or portion thereof)
converted or for dividends or distributions on any Company Common Stock issued
upon conversion of this Note.
(c) FRACTIONAL INTERESTS. No fractions of shares or scrip representing
fractions of shares shall be issued upon any conversion of this Note. If any
fraction of a share of Company Common Stock would, except for the provisions of
this Section 4(c) be issuable on the conversion of this Note, the Company shall
make payment in lieu thereof in an amount of cash equal to the value of such
fraction computed on the basis of the current market price of the Company Common
Stock on the last business day prior to the Date of Conversion.
(d) CONVERSION PRICE. The conversion price per share of Company Common
Stock issuable upon conversion of this Note shall initially be $6 (the
"CONVERSION PRICE").
(e) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall be
subject to adjustment from time to time as follows:
(i) In case the Company shall (1) pay a dividend or make a
distribution in shares of Company Common Stock, (2) subdivide its
outstanding shares of Company Common Stock into a greater number of shares
or (3) combine its outstanding shares of Company Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior
to such action shall be adjusted so that the Holder, as holder of the Note
thereafter surrendered for conversion, shall be entitled to receive the
number of shares of Company Common Stock which it would have owned
immediately following such action had the Note been converted immediately
prior thereto. An adjustment made pursuant to this subsection (i) shall
become effective immediately after the record date in the case of a
dividend and shall become effective immediately after the effective date in
the case of a subdivision or combination.
(ii) In case the Company shall issue rights or warrants to all
holders of Company Common Stock entitling them to subscribe for or purchase
shares of Company Common Stock at a price per share less than the current
market price per share (as determined pursuant to subsection (iv) below) of
the Company Common Stock on the record date mentioned below, the Conversion
Price shall be adjusted so that the same shall equal the price determined
by multiplying the Conversion Price in effect immediately prior to the date
of issuance of such rights or warrants by a fraction of which the numerator
shall be the number of shares of Company Common Stock outstanding on the
date of issuance of such rights or warrants, immediately prior
7
<PAGE>
to such issuance, plus the number of shares which the aggregate offering
price of the total number of shares so offered for subscription or purchase
would purchase at such current market price, and of which the denominator
shall be the number of shares of Company Common Stock outstanding on the
date of issuance of such rights or warrants, immediately prior to such
issuance, plus the number of additional shares of Company Common Stock
which are so offered for subscription or purchase. Such adjustment shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants.
(iii) In case the Company shall distribute to substantially all
holders of Company Common Stock evidences of indebtedness or other assets
(other than cash dividends), or shall distribute to substantially all
holders of Company Common Stock rights or warrants to subscribe for
securities (other than those referred to in subsection (ii) above), then in
each such case the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of such distribution by a fraction of
which the numerator shall be the current market price per share (determined
as provided in subsection (iv) below) of the Company Common Stock on the
record date mentioned below less the then fair market value (as determined
by the Board of Directors, whose determination shall be conclusive evidence
of such fair market value) of the portion of the assets so distributed or
of such subscription rights or warrants applicable to one share of Company
Common Stock, and of which the denominator shall be such current market
price per share of the Company Common Stock. Such adjustment shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
(iv) For the purpose of any computation under subsections (ii)
and (iii) above, the current market price per share of Company Common Stock
on any date shall be deemed to be the average of the current market prices
on the NASDAQ [National Association of Securities Dealers Automated
Quotation System] for the 30 consecutive trading days commencing 45 trading
days before the date in question.
(v) In any case in which this Section 4(e) shall require that an
adjustment be made immediately following a record date, the Company may
elect to defer the effectiveness of such adjustment (but in no event until
a date later than the effective time of the event giving rise to such
adjustment), in which case the
8
<PAGE>
Company shall, with respect to any conversion of this Note or any portion
thereof after such record date and before such adjustment shall have become
effective (A) defer paying any cash payment pursuant to Section 4(c) or
issuing to the Holder the number of shares of Company Common Stock issuable
upon such conversion in excess of the number of shares of Company Common
Stock issuable thereupon only on the basis of the Conversion Price prior to
adjustment, and (B) not later than five business days after such adjustment
shall have become effective, pay to the Holder the appropriate cash payment
pursuant to Section 4(c) and issue to the Holder the additional shares of
Company Common Stock issuable on such conversion.
(vi) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least
$.10 per share of Company Common Stock; provided, that any adjustments
which by reason of this subsection (vi) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 4 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in this
Section 4(e) to the contrary notwithstanding, the Company shall be entitled
to make such reductions in the Conversion Price, in addition to those
required by this Section 4(e), as it in its discretion shall determine to
be advisable in order that any stock dividend, subdivision of shares,
distribution of rights or warrants to purchase stock or securities, or
distribution of other assets (other than cash dividends) hereafter made by
the Company to its stockholders shall not be taxable.
(vii) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly mail to the Holder an Officers'
Certificate setting forth (A) the Conversion Price after such adjustment,
(B) a calculation of the adjustment and (C) a brief statement of the facts
requiring such adjustment.
(f) CONTINUATION OF CONVERSION PRIVILEGE IN CASE OF RECLASSIFICATION,
CHANGE, MERGER, CONSOLIDATION OR SALE OF ASSETS. If any of the following shall
occur, namely: (a) any reclassification or change of outstanding shares of
Company Common Stock issuable upon conversion of this Note (other than a change
in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), (b) any consolidation or
merger to which the Company is a party other than a merger in which the Company
is the continuing corporation and which does not result in any reclassification
of, or change (other than a change in name, or par value, or from par value to
no par value, or from no par
9
<PAGE>
value to par value, or as a result of a subdivision or combination) in,
outstanding shares of the Company Common Stock or (c) any sale or conveyance of
all or substantially all of the property or business of the Company as an
entirety, then the Company, or such successor or purchasing corporation, as the
case may be, shall, as a condition precedent to such reclassification, change,
consolidation, merger, sale or conveyance, execute and deliver to the Holder, a
note in substantially the form hereof providing that such Holder shall have the
right to convert such note into the kind and amount of shares of stock and other
securities or property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by the holder of the number of shares
of Company Common Stock issuable upon conversion of this Note immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance.
Such newly issued note shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. If, in the case of any such consolidation, merger, sale or conveyance, the
stock or other securities and property receivable thereupon by a holder of
shares of Company Common Stock includes shares of stock or other securities and
property of a corporation other than the successor or purchasing corporation, as
the case may be, in such consolidation, merger, sale or conveyance, then such
newly issued note shall also be executed by such other corporation and shall
contain such additional provisions to protect the interests of the holder of
this Note as the Board of Directors shall reasonably consider necessary, in good
faith, by reason of the foregoing. The provisions of this Section 4 shall
similarly apply to successive consolidations, mergers, sales or conveyances.
Notice of the execution of each such newly issued note shall be
mailed to the Holder.
(g) NOTICE OF CERTAIN EVENTS. In case:
(i) the Company shall declare a dividend (or any other
distribution) payable to the holders of Company Common Stock otherwise than
in cash; or
(ii) the Company shall authorize the granting to the holders of
Company Common Stock of rights to subscribe for or purchase any shares of
stock of any class or of any other rights; or
(iii) the Company shall authorize any reclassification or change
of the Company Common Stock (other than a subdivision or combination of its
outstanding shares of Company Common Stock), or any consolidation or merger
to which the Company is a party and for which approval of any stockholders
of the Company is required, or the sale or conveyance of all or
substantially all the property or business of the Company; or
10
<PAGE>
(iv) there shall be proposed any voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, the Company shall cause to be mailed to the Holder, at least 20 days
before the date hereinafter specified (or the earliest of the dates hereinafter
specified, in the event that more than one date is specified), a notice stating
the date on which (1) a record is expected to be taken for the purpose of such
dividend, distribution or rights, or if a record is not to be taken, the date as
of which the holders of Company Common Stock of record to be entitled to such
dividend, distribution or rights are to be determined, or (2) such
reclassification, change, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding-up is expected to become effective and the date, if any
is to be fixed, as of which it is expected that holders of Company Common Stock
of record shall be entitled to exchange their shares of Company Common Stock for
securities or other property deliverable upon such reclassification, change,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding-up.
(h) TAXES ON CONVERSION. The Company will pay any and all documentary,
stamp or similar taxes payable to the United States of America or any political
subdivision or taxing authority thereof or therein in respect of the issue or
delivery of shares of Company Common Stock on conversion of this Note pursuant
hereto; PROVIDED, HOWEVER, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue or
delivery of shares of Company Common Stock in a name other than that of the
Holder and no such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of any such
tax or has established, to the satisfaction of the Company, that such tax has
been paid. The Company extends no protection with respect to any other taxes
imposed in connection with conversion of this Note.
(i) COMPANY TO PROVIDE STOCK. The Company shall reserve, free from
pre-emptive rights, out of its authorized but unissued shares, sufficient shares
to provide for the conversion of this Note, provided, that nothing contained
herein shall be construed to preclude the Company from satisfying its
obligations in respect of the conversion of this Note by delivery of repurchased
shares of Company Common Stock which are held in the treasury of the Company.
If any shares of Company Common Stock to be reserved for the purpose of
conversion of the Note hereunder require registration with or approval of any
governmental authority under any Federal or State law before such shares may be
validly issued or delivered upon conversion, then the Company covenants that it
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be, PROVIDED, HOWEVER, that nothing in
this Section 4(i) shall be
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<PAGE>
deemed to affect in any way the obligations of the
Company to convert this Note into Company Common Stock as provided in this
Section 4.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the Company Common Stock,
the Company will take all corporate action which may, in the opinion of counsel,
be necessary in order that the Company may validly and legally issue fully paid
and non-assessable shares of Company Common Stock at such adjusted Conversion
Price.
The Company covenants that all shares of Company Common Stock which may be
issued upon conversion of this Note will upon issuance be fully paid and
non-assessable by the Company.
5. DEFAULTS AND REMEDIES.
In the case of the happening of any of the following events (each such
event an, "EVENT OF DEFAULT"):
(a) the payment of the principal of, or interest on, this Note is not
paid within five business days of the date the same shall become due and
payable, whether on the Maturity Date, at a date fixed for prepayment thereof or
by acceleration thereof or otherwise;
(b) default shall be made with respect to any evidence of
Indebtedness or liability for borrowed money of the Company (other than this
Note) if the effect of such default is to accelerate the maturity of such
Indebtedness or liability or to permit the holder or obligee thereof to cause
any Indebtedness to become due prior to its stated maturity, or any such
Indebtedness shall not be paid as and when due and payable;
(c) (i) the Company shall commence a voluntary case under Title 11 of
the United States Code entitled "Bankruptcy," as now or hereafter in effect, or
any successor thereto or any similar state law for the relief of debtors (each,
a "Bankruptcy Law"); (ii) any case, proceeding or other action against the
Company or any guarantor of the Company's obligations hereunder shall be
commenced seeking to have an order for relief entered against it as debtor or to
adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
Bankruptcy Law or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, and
such case, proceeding or other action (A) results in the entry of an order for
relief against it which is not controverted within 10 days after the entry
thereof or (B) shall remain undismissed for a period of 60 days; (iii) the
Company shall be adjudicated a bankrupt or insolvent by, or any order for relief
under any Bankruptcy Law shall be granted by, a court of competent jurisdiction;
(iv) the Company shall make a general assignment for the benefit of creditors;
or (v) any corporate action shall be taken by the Company to effect any of the
foregoing;
(d) one or more judgments or decrees is entered against the Company
(involving a liability of $50,000 or more) or any attachment, levy or
restraining notice against its property for an amount of $50,000 or more (in
either case, in excess of the amount covered by insurance as to which the
insurance company has acknowledged coverage) which remains unpaid, unstayed on
appeal, undischarged, unbonded or undismissed for a period of 30 days;
then, and in any such Event of Default, and at any time thereafter during the
continuation of such Event of Default, the Holder by written notice to the
Company may declare this Note to be forthwith due and payable, whereupon this
Note shall become forthwith due and payable, both as to principal and interest,
without presentment, demand, protest or any other notice of any kind, all of
which are hereby expressly waived. Notwithstanding the foregoing, payment of
principal of and interest on this Note to the Holder upon such declaration shall
remain subject to the subordination provisions herein contained.
6. PREPAYMENT.
The Company reserves the right to repay in whole or in part the principal
of and accrued interest on this Note without premium or penalty at any time
beginning on or after the date hereof and prior to the maturity hereof.
7. ASSIGNMENT.
Whenever used in this Note, the term "the Holder" shall be deemed to
include the respective successors and assignees of the Holder. Except as set
forth below, each of the Company and the Holder agrees that it will not assign
or negotiate its obligations or rights hereunder without the prior written
consent of the other party hereto and any assignment or negotiation shall be
void unless so consented to. Subject to the foregoing, this Note shall be
binding upon and shall enure to the benefit of the parties hereto and their
respective successors and permitted assigns. Notwithstanding the foregoing, the
Holder may assign this Note without the consent of the Company to an affiliate
of Holder. For purposes of the foregoing, the term "affiliate" means any person
controlling, controlled by or under common control with Holder.
8. SEVERABILITY.
In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Note, but this Note shall be construed as if such invalid,
13
<PAGE>
illegal or unenforceable provision had never been contained herein.
9. AMENDMENT.
This Note may not be changed, amended or modified except by agreement in
writing signed by each of the Company and Holder.
10. GOVERNING LAW.
THE PROVISIONS OF THIS NOTE SHALL BE CONSTRUED AND INTERPRETED AND ALL
RIGHTS AND OBLIGATIONS HEREUNDER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
11. HEADINGS.
The section headings in this Note are for convenience only and are not
intended to effect the construction of the provisions of this Note.
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<PAGE>
APPENDIX C
REGISTRATION RIGHTS AGREEMENT
Dated as of ____________, 2000
between
DYNAMIC MATERIALS CORPORATION
and
SNPE, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS........................................................1
ARTICLE II REGISTRATION RIGHTS...............................................4
SECTION 2.1. Registration on Demand.....................................4
2.1.1. Demand.........................................................4
2.1.2. Shelf Registration.............................................4
2.1.3. Registration Statement Form....................................4
2.1.4. Effective Registration Statement...............................5
2.1.5. Limitations on Registration on Demand, Shelf Registrations.....5
2.1.6. Holder's Ability to Withdraw Registration Statement............5
2.1.7. Selection of Underwriter.......................................6
2.1.8. Registration of Other Securities...............................6
2.1.9. Suspension.....................................................6
SECTION 2.2. Incidental Registration....................................6
SECTION 2.3. Registration Procedures....................................7
SECTION 2.4. Expenses..................................................12
SECTION 2.5. Marketing Restrictions....................................12
SECTION 2.6. Termination of Rights.....................................13
SECTION 2.7. Rule 144..................................................14
SECTION 2.8. Indemnification...........................................14
ARTICLE III CHANGES IN COMPANY COMMON STOCK.................................19
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................19
ARTICLE V BENEFITS OF AGREEMENT.............................................20
ARTICLE VI MISCELLANEOUS....................................................20
SECTION 6.1. Notices...................................................20
SECTION 6.2. Waivers; Amendments.......................................21
SECTION 6.3. Governing Law.............................................21
SECTION 6.4. Survival of Agreements; Representations and Warranties, etc.
21
SECTION 6.5. Covenants to Bind Successors and Assigns..................21
SECTION 6.6. Severability..............................................21
SECTION 6.7. Section Headings..........................................22
SECTION 6.8. Counterparts..............................................22
SECTION 6.9. Termination...............................................22
SECTION 6.10. Complete Agreement........................................22
SECTION 6.11. No Inconsistent Agreements................................22
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), dated as of
[March ___,] 2000, is made and entered into by and between Dynamic Materials
Corporation, a Delaware corporation (the "COMPANY"), and SNPE Inc., a Delaware
corporation (the "HOLDER").
WHEREAS, the Company is issuing to the Holder, on the date hereof,
2,109,091 shares (the "SHARES") of Common Company stock of the Company, par
value .05 per Share (the "COMPANY COMMON STOCK" (as defined in the Stock
Purchase Agreement) pursuant to a Stock Purchase Agreement dated as of January
__, 2000 between the Company and the Holder; and
WHEREAS, concurrently with the issuance of the Shares, the Company
is entering into this Agreement to define the rights that exist among the Holder
on the one hand, and the Company, on the other, with respect to the registration
of the Registrable Securities (as defined herein);
WHEREAS, contemporaneously with the purchase of the Shares under the
Stock Purchase Agreement, the Holder will purchase from the Company a
Convertible Subordinated Note (the "NOTE") in the aggregate principal amount of
$1,200,000, convertible into additional shares of Company Common Stock
("ADDITIONAL SHARES") (collectively, the Shares and Additional Shares are the
"COMPANY SHARES") and having such other terms as the parties have agreed
(collectively, the 2,109,091 Shares of Company Common Stock and the Additional
Shares are referred to herein as the "Shares");
NOW, THEREFORE, in consideration of the mutual premises, agreements
and covenants hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following respective meanings (each such meaning to be equally applicable to the
singular and plural forms thereof):
"ADDITIONAL SHARES" has the meaning set forth in the third
"WHEREAS" clause of this Agreement.
"AGREEMENT" means this Registration Rights Agreement.
<PAGE>
"COMMISSION" shall mean the Securities and Exchange Commission, and
any other similar or successor agency of the United States federal government at
the time administering the Securities Act or the Securities Exchange Act.
"COMPANY" has the meaning assigned such term in the preamble
hereto.
"COMPANY COMMON STOCK" has the meaning set forth in the first
"WHEREAS" Clause.
"COMPANY SHARES" has the meaning set forth in the third "WHEREAS"
clause.
"DEMAND" has the meaning assigned such term in Section 2.1.1.
"DEMAND HOLDER" has the meaning assigned such term in Section
2.1.1.
"HOLDER" has the meaning assigned such term in the preamble to
this Agreement.
"HOLDER OF REGISTRABLE SECURITIES" shall mean a person who owns
Registrable Securities or has the present right to acquire such Registrable
Securities, whether or not such acquisition has actually been effected and
disregarding any legal restrictions upon the exercise of such right.
"NASD" means the National Association of Securities Dealers, Inc.
"NOTICE HOLDER" has the meaning assigned such term in Section
2.1.1.
"PROSPECTUS" means the prospectus (including any preliminary
prospectus) included in any Registration Statement, as amended or supplemented
by any prospectus supplement with respect to the terms of the offering,
registering for sale any of the Registrable Securities and all other amendments
and supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"REGISTRABLE SECURITIES" means the Shares and the Additional Shares
received upon exercise of the option to convert any equity securities into which
such Shares and the Additional Shares may be exchanged after giving effect to
the terms of any reorganization, recapitalization, merger, consolidation or
otherwise by any successor corporation to the Company, and which
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common stock or other equity securities have ordinary voting power for the
election of directors (or equivalent); PROVIDED, that any security's status as a
Registrable Security shall cease when the registration rights with respect to
such security shall have terminated pursuant to Section 2.6.
"REGISTRATION STATEMENT" means any registration statement of the
Company which registers for sale under the Securities Act any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus, all amendments and supplements to such Registration Statement,
including post-effective amendments, all exhibits and all documents and
information incorporated by reference in such Registration Statement.
"REQUISITE HOLDER" means the holder, at anytime, of the outstanding
Company Shares representing more than 50% of the aggregate number of Registrable
Securities at the time outstanding.
"RULE 144" means Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
or any similar United States federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"SHARES" has the meaning set forth in the Third "Whereas" clause
of this Agreement.
"SHELF DEMAND" has the meaning set forth in Section 2.1.2.
"SHELF REGISTRATION" has the meaning set forth in Section 2.1.2.
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<PAGE>
ARTICLE II
REGISTRATION RIGHTS
SECTION 2.1. Registration on Demand.
2.1.1. DEMAND. For a period of five years following the date of this
Agreement, upon the written request (a "DEMAND") of any Holder of Registrable
Securities representing, in the aggregate, at least 50% of the Company Share or
the right to acquire 50% of the Company Share on a fully-diluted basis (the
"NOTICE HOLDER") that the Company effect the registration under the Securities
Act of the number or the percentage of Registrable Securities specified by the
Demand Holder, the Company shall deliver notice thereof to all Holders of
Registrable Securities requesting that they specify, by written notice to the
Company delivered within five (5) business days following receipt of such notice
from the Company, the number of Registrable Securities they desire to include in
such registration (each such holder providing such notice a "DEMAND HOLDER") and
the Company shall, subject to the provisions hereof, use its best efforts to
effect, as soon as practicable and in any event within 120 days after a Demand
is received from the Notice Holder, the registration under the Securities Act of
the Registrable Securities which the Company has been so requested to register
by the Demand Holder; Thereafter, the Company's obligation hereunder shall be to
use its best efforts to effect the registration of the Registrable Securities;
PROVIDED, that the Company shall not have to effect more than two Demands under
this Section 2.1.1.
2.1.2. SHELF REGISTRATION. At any time that the Company is eligible to
use a short-form registration statement for registering securities for sale to
the public at large, the Demand Holders may, at their option, request (the
"SHELF DEMAND") that any registration statement effected pursuant to a Demand be
effected on a delayed or continuous basis, pursuant to Rule 415 under the
Securities Act (the "SHELF REGISTRATION"). The Company agrees to keep effective
such registration statement (the "SHELF REGISTRATION STATEMENT") until the
earlier of (i) such date as of which all the Registrable Securities under the
Shelf Registration Statement have been disposed of in the manner described in
such registration statement, and (ii) 180 days after the date on which such
Shelf Registration Statement is declared effective.
2.1.3. REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission as shall be
selected by the Company. The Company shall include in any such registration
statement all information which, in the opinion of counsel to the Company, is
required to be included.
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<PAGE>
2.1.4. EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, (ii)
if after it has become effective, such registration is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Holder and
has not thereafter become effective, or (iii) if the conditions to closing
specified in the underwriting agreement, if any, entered into in connection with
such registration are not satisfied or waived, other than by reason of a failure
on the part of the Holder or (iv) if a Shelf Registration Statement, if such
registration statement has not been kept effective until the earlier of (A) such
date as of which all of the Registrable Securities under such Shelf Registration
Statement have been disposed of in the manner described in such registration
statement and (B) 180 days after the date on which such Shelf Registration
Statement is declared effective.
2.1.5. LIMITATIONS ON REGISTRATION ON DEMAND, SHELF REGISTRATIONS. The
Company shall not be required to prepare and file a registration statement
pursuant to this Section 2.1 which would become effective within 180 days
following the effective date of a registration statement (other than pursuant to
registrations on Form S-4 or Form S-8 or any successor form or other forms not
available for registering securities for sale to the public at large) filed by
the Company with the Commission pertaining to an underwritten public offering of
convertible debt securities or equity securities for cash and, unless such
registration is solely for the account of the Company, the Holders are afforded
the opportunity to include Registrable Securities in such registration pursuant
to Section 2.2. Notwithstanding anything in this Section 2.1 to the contrary, in
no event shall the Company be required to effect in the aggregate, more than two
long-form demand registrations pursuant to this Section 2.1.
2.1.6. HOLDER'S ABILITY TO WITHDRAW REGISTRATION STATEMENT. The Holder
of a majority of the Registrable Securities to be included in such registration
shall have the right to request that the Company not have a registration
statement filed pursuant to a Demand declared effective. If the Demand Holder
elects to pay or reimburse the Company for the Company's out-of-pocket expenses
incurred in connection with such registration, such withdrawn registration
statement shall not be counted for purposes of the requests for registration to
which such Demanding Holder is entitled pursuant to Section 2.1.5 hereof.
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<PAGE>
2.1.7. SELECTION OF UNDERWRITER. If a registration under this Section
2.1 is effected in connection with an underwritten offering, the Holder of a
majority of the Registrable Securities to be included in such registration shall
select a managing underwriter or underwriters of recognized national standing
reasonably acceptable to the Company to administer the offering.
2.1.8. REGISTRATION OF OTHER SECURITIES. A registration statement
filed pursuant to the request of the Demand Holder may, subject to the
provisions of Section 2.5 hereof, include (i) Registrable Securities of Holder
not making a demand pursuant to this Section 2.1 and (ii) other securities of
the Company with respect to which registration rights have been granted and may
include securities of the Company being sold for the account of the Company.
2.1.9. SUSPENSION. The Company may delay, suspend or withdraw the
registration of the Registrable Securities required pursuant to this Section 2.1
or the preparation or furnishing of a supplemental or amended prospectus
pursuant to Section 2.3(i) for a period not exceeding 120 days if the Company
shall in good faith determine that any such registration would interfere with
any pending financing transaction of the Company or would require the Company to
include disclosure that would reasonably be expected to have a detrimental
effect on any proposal, negotiations or plan by the Company to engage in any
acquisition or disposition of assets or any merger, consolidation, tender offer,
reorganization or similar transaction, or any other material corporate event
contemplated by the Company. In addition, the Company shall not be required to
register Registrable Securities on a date on which, under the general rules and
regulations of the Commission as advised by counsel, the inclusion therein, by
incorporation or by reference, of financial statements of the Company contained
in the annual or quarterly report of the Company most recently filed with the
Commission would not be permitted, provided that this exception shall not permit
delay or suspension of registration beyond the filing of the next required
annual or quarterly filing under the Securities Exchange Act.
SECTION 2.2. INCIDENTAL REGISTRATION. If the Company, at any time
or on any one or more occasions after the date of this Agreement, proposes to
register (other than pursuant to Section 2.1) any of its equity securities under
the Securities Act for sale to the public, whether for its own account or for
the account of other security holders or both (other than pursuant to
registrations on Form S-4 or Form S-8 or any successor form or other forms not
available for registering securities for sale to the public at large), the
Company shall give not less than 30 days' nor more than 90 days' prior written
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<PAGE>
notice to each Holder of Registrable Securities of its intention to do so. Upon
the written request of any Holder of Registrable Securities given within 20 days
after receipt of such notice from the Company, the Company will use its best
efforts to cause the Registrable Securities requested to be registered to be so
registered under the Securities Act. A request pursuant to this Section 2.2
shall state the number of Registrable Securities requested to be registered and
the intended method of distribution thereof. In connection with any registration
subject to this Section 2.2, the Holder shall enter into such underwriting,
lock-up and other agreements, and shall execute and complete such questionnaires
and other documents, as are customary in a secondary offering. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.2 prior to the effectiveness of such registration whether or not
any Holder has elected to include any securities in such registration.
Notwithstanding any other provision of this Agreement, if the representative of
the underwriters advises the Company in writing that marketing factors require a
limitation on the number of shares to be underwritten, the number of shares to
be included in the underwriting or registration shall be allocated as set forth
in Section 2.5 hereof.
No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect the registration required under Section 2.1.
SECTION 2.3. REGISTRATION PROCEDURES. In connection with the
registration of any Registrable Securities, the Company shall effect such
registrations to permit the sale of such Registrable Securities in accordance
with the intended method or methods of disposition thereof, and pursuant thereto
the Company shall as expeditiously as possible:
(a) prepare and file with the Commission within the time limits
prescribed herein a Registration Statement with respect to such securities
and use its best efforts to cause such Registration Statement to become
effective and remain effective as provided herein;
(b) prepare and file with the Commission such amendments and
post-effective amendments to each Registration Statement as may be
necessary and use its best efforts to keep such Registration Statement
continuously effective; cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the Securities Act, the
Securities Exchange Act and the rules and regulations of the
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<PAGE>
Commission promulgated thereunder applicable to it with respect to the
disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented; the Company shall not be
deemed to have used its best efforts to keep a registration statement
effective during a period if it voluntarily takes any action that results
in a participating Holder's not being able to sell such Registrable
Securities during such period, unless such action (i) is required under
applicable law or (ii) is determined in good faith by the Board of
Directors of the Company to be in the Company's best interest;
(c) notify the Holders of Registrable Securities and underwriters,
if any, promptly (but in any event within two business days), and confirm
such notice in writing, (i) when a Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to a
Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of the issuance (or, to the Company's best
knowledge, the threat or contemplation) by the Commission of any stop order
suspending the effectiveness of such Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, and (iii) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement
or any of the Registrable Securities for offer or sale in any jurisdiction,
or the initiation or threatening of any proceeding for such purpose;
(d) use every reasonable effort to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, and, if any such order is issued,
to obtain the withdrawal of any such order at the earliest possible moment;
(e) furnish to each seller and to each duly authorized broker or
underwriter of each seller such number of authorized copies of a
Prospectus, including copies of a preliminary Prospectus, in conformity
with the requirements of the Securities Act, and such other customary
documents as such seller, broker or underwriter may reasonably request in
order to facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(f) use its best efforts to register or qualify (and to keep
each such registration and qualification effective,
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<PAGE>
including through new filings, renewals or amendments, during the period
such registration statement is required to be kept effective) the
securities covered by such Registration Statement under such securities or
blue sky laws of such jurisdictions as each seller shall reasonably
request, and do any and all other reasonable acts and things which may be
necessary under such securities or blue sky laws to enable such seller to
consummate the public sale or other disposition in such jurisdictions of
the Registrable Securities to be sold by such seller, except that the
Company shall not for any such purpose be required to qualify to do
business as a foreign corporation, or to consent to the jurisdiction of any
court or subject itself to suit in any jurisdiction wherein it is not
qualified;
(g) before filing the Registration Statement or Prospectus or
amendments or supplements thereto, furnish to counsel for each Holder of
Registrable Securities included in such Registration Statement copies of
all such documents proposed to be filed, all of which shall be subject to
the review and comment of such counsel in the exercise of its reasonable
judgment;
(h) use its best efforts to cause such Registrable Securities
covered by such Registration Statement to be registered with or approved by
such other governmental agencies or authorities exercising jurisdiction
over the Company as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(i) notify each seller of any such Registrable Securities covered
by such Registration Statement, at any time when a Prospectus relating
thereto is required to be delivered under the Securities Act, of the
Company's becoming aware that the Prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and, at the written request of
any such seller, promptly prepare and furnish to such seller and each
underwriter a reasonable number of copies of a Prospectus supplemented or
amended (whereupon all previous versions of the Prospectus shall not be
used by such seller or underwriter and shall be promptly returned to the
Company or destroyed) so that, as thereafter delivered to the purchasers of
such Registrable Securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the
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<PAGE>
statements therein, in the light of the circumstances under which they were
made, not misleading;
(j) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders, as soon
as reasonably practicable, an earnings statement covering the period of at
least twelve consecutive months beginning with the first day of the
Company's first calendar quarter after the effective date of the
Registration Statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) use its best efforts to cause all such Registrable Securities
covered by such Registration Statement to be listed or quoted on the
principal securities exchange (including NASDAQ) on which similar
securities issued by the Company are then listed or quoted, if the listing
or quoting of such Registrable Securities is then permitted under the rules
of such exchange;
(l) provide a transfer agent and registrar for all such Registrable
Securities covered by such Registration Statement not later than the
effective date of such Registration Statement;
(m) cooperate with the selling Holders of Registrable Securities
and the underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold,
which certificates shall not bear any restrictive legends; and enable such
Registrable Securities to be issued in such denominations and registered in
such names as the underwriters, if any, or holders may reasonably request
at least two business days prior to any sale of Registrable Securities in a
firm commitment underwritten public offering, or at least ten business days
prior to any other such sale;
(n) enter into such reasonable and customary agreements (including
an underwriting agreement containing, among other things, indemnification
arrangements in customary form) and take such other reasonable and
customary actions as the Requisite Holder shall reasonably request in order
to expedite or facilitate the registration and disposition of such
Registrable Securities;
(o) obtain an opinion from the Company's counsel and a "cold comfort"
letter from the Company's independent public accountants in customary form
and covering such matters as are customarily covered by such opinions and
"cold comfort" letters;
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(p) upon execution and delivery of such confidentiality agreements
as the Company shall reasonably request (which agreements shall not
restrict any such person's obligations under applicable securities laws),
make available for inspection by any seller of such Registrable Securities
covered by such Registration Statement, by any underwriter participating in
any disposition to be effected pursuant to such Registration Statement and
by any attorney, accountant or other agent retained by any such seller or
any such underwriter, pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement, all as necessary to conduct a
reasonable investigation within the meaning of Section 11 of the Securities
Act; and
(q) permit any Holder of Registrable Securities which Holder, in
the sole reasonable judgment of such Holder, exercised in good faith, might
be deemed to be a controlling person of the Company to participate through
counsel in the preparation of such Registration Statement and, if
specifically requested by such counsel, in discussions between the Company
and the Commission or its staff with respect to such Registration
Statement, to require the insertion therein of material, furnished in
writing, which in the written opinion of such counsel is necessary to
include in order to avoid a likelihood of potential liability for any such
Holder of Registrable Securities or such counsel.
If any such Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the insertion therein of language, in form and
substance satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such Holder by name or otherwise is not in the judgment of the
Company, as advised by counsel, required by the Securities Act or any similar
federal statute or any state "blue sky" or securities law then in force, the
deletion of the reference to such Holder.
SECTION 2.4. EXPENSES. All expenses incurred in effecting the
registrations (whether or not such registrations are consummated) provided for
in this Article II, including without limitation all registration and filing
fees, printing
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expenses, fees and disbursements of counsel for the Company, expenses of any
audits incident to or required by any such registration (including the costs of
any comfort letter) and expenses of complying with the securities or blue sky
laws of any jurisdictions pursuant to Subsection 2.3(f) hereof, the costs and
expenses associated with the filing required to be made by the NASD (including,
if applicable, the fees and expenses of any "qualified independent underwriter"
and its counsel as may be required by the rules and regulations of the NASD,
provided such fees and expenses are not paid by the underwriter), transfer
taxes, fees of transfer agents and registrars, costs of insurance (but excluding
underwriting discounts and commissions to the extent they relate to Registrable
Securities), duplicating fees, delivery expenses, and expenses incurred in
connection with the listing of the securities on any securities exchange, shall
be paid by the Company, and the Company shall pay all reasonable fees and
disbursements of one counsel for the Holder of Registrable Securities for the
performance of the normal and customary functions of counsel for selling
shareholders in each such registration.
SECTION 2.5. MARKETING RESTRICTIONS. If (i) any Holder of Shares
or Registrable Securities requests registration of Registrable Securities under
Section 2.1 or 2.2, (ii) the offering proposed to be made is to be an
underwritten public offering and (iii) the managing underwriters of such public
offering furnish a written opinion that the total amount of securities to be
included in such offering would exceed the maximum amount of securities (the
"Maximum Amount") (as specified in such opinion) which can be marketed at a
price reasonably related to the then current market value of such securities and
without materially and adversely affecting such offering, then the rights of the
Company, the Holder of Registrable Securities and the holders of other
securities having the right to include such securities in such registration to
participate in such offering shall be as follows:
If such registration shall have been proposed (A) by the Company or
(B) by the holders of other securities of the Company exercising demand
registration rights, in the case of (A): (i) the Company shall be entitled
to participate in such registration first; (ii) then the Holders of the
Registrable Securities under this Agreement shall be entitled to
participate; (iii) then the holders of other securities (pro rata based on
the number of securities held by each other security holder) shall be
entitled to participate; and, in the case of (B), (i) if the demand was
proposed by the holders of other securities registrable, holders shall have
the first priority to participate in such registration, (ii) then the
Holders of the Registrable Securities under this Agreement, and (iii) then
the other
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security holders of the Company (in each case, pro rata within each such
group of security holders, based on the number of securities held by each
such security holder). If such registration shall have been requested by
the Demand Holder of Registrable Securities pursuant to Section 2.1 hereof,
(i) such Holder of Registrable Securities shall be entitled to participate
in such registration (ii) then the holders of other registrable Securities
shall be entitled to participate in such registration (pro rata based on
the number of securities held by each such security holder); and then (iii)
the Company shall be entitled to participate in such registration, in each
case with further pro rata allocations to the extent any such person has
requested registration of fewer securities than such person is entitled to
have registered so that the number of securities to be included in such
registration will not exceed the Maximum Amount;
and no securities (issued or unissued) other than those registered and included
in the underwritten offering shall be offered for sale or other disposition in a
transaction which would require registration under the Securities Act (but
excluding any issuance of shares pursuant to registrations on Form S-4 or Form
S-8 or any successor form or other forms not available for registering capital
stock for sale to the public at large) until the expiration of 90 days after the
effective date of the Registration Statement in which Registrable Securities
were included pursuant to Section 2.2 or such shorter period as may be
acceptable to the Company and the Holder of the Registrable Securities
SECTION 2.6. TERMINATION OF RIGHTS. Notwithstanding the foregoing
provisions of this Article II, the rights to registration shall terminate as to
any particular Registrable Securities when (a) a Registration Statement covering
such Registrable Securities has been declared effective and such Registrable
Securities have been disposed of in accordance with such effective Registration
Statement, (b) written opinion(s), to the effect that such Registrable
Securities may be sold without registration under the Securities Act or
applicable state law and without restriction as to the volume and timing of such
sale, shall have been received from counsel for the Company reasonably
acceptable to the Holder of a majority of such Registrable Securities, (c) after
five years from the date of this Agreement or (d) such Registrable Securities
have been sold through a broker, dealer or underwriter in a public distribution
or a public securities transaction in which the transferee receives a
certificate without a restrictive legend.
SECTION 2.7. RULE 144. The Company shall file the reports
required to be filed by it under the Securities Act and the Securities Exchange
Act and
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the rules and regulations promulgated thereunder and so long as the Company is
obligated to file periodic reports under the Securities Exchange Act, will take
such further actions as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitations of the exemption provided by Rule 144. Upon the request of any
Holder of Registrable Securities, the Company shall deliver to such Holder a
written statement as to whether it has complied with such requirements.
SECTION 2.8. INDEMNIFICATION. In the event of any registration of
any Registrable Securities under the Securities Act pursuant to this Agreement,
the Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, the seller of any Registrable Securities covered by
such Registration Statement, its directors and officers or general and limited
partners (and the directors and officers thereof) and each other person, if any,
who controls such seller within the meaning of the Securities Act (each, a
"Person"), against any and all losses, claims, damages or liabilities, joint or
several, and expenses (including fees of counsel and any amounts paid in any
settlement approved by the Company (which approval shall not be unreasonably
withheld or delayed)) to which such Person may become subject under the
Securities Act, common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof), or expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such securities were registered under the
Securities Act or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary, final or summary Prospectus
(together with the documents incorporated by reference therein or filed with the
Commission in connection therewith) and any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or (iii) any violation by the Company of any federal or state law,
rule or regulation applicable to the Company and relating to action required of
or inaction by the Company in connection with any such registration, and the
Company will reimburse such Person on demand for any legal or any other expenses
incurred by it in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided that the Company shall not be
liable to any such Person
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in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding, whether commenced or threatened, in respect thereof) or
expense arises out of or is based upon (i) any untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement or amendment thereof or supplement thereto or in any such preliminary,
final or summary Prospectus in reliance upon and in conformity with information
furnished to the Company in writing by or on behalf of any such seller or any
such director, officer, general or limited partner, underwriter, independent
underwriter, director or officer or partner of such underwriter or independent
underwriter or controlling person, expressly for use in the preparation thereof
or (ii) the failure of any such seller or any such director, officer, general or
limited partner, underwriter, independent underwriter or controlling person, to
comply with any legal requirement applicable to it to deliver a copy of a
Prospectus or any supplements or amendments thereto after the Company has made
such documents available to such Persons. Such indemnity and reimbursement of
expenses shall remain in full force and effect following the transfer of such
securities by such seller.
(a) The Company, as a condition to including any Registrable
Securities in any Registration Statement filed in accordance with this
Agreement, shall have received an undertaking reasonably satisfactory to it
from the prospective seller of such Registrable Securities and any
underwriter or independent underwriter, to indemnify and hold harmless (in
the same manner and to the same extent as set forth in paragraph (a) of
this Section 2.8) the Company and its directors and officers and all other
prospective sellers and their directors, officers, general and limited
partners and respective controlling Persons (within the meaning of the
Securities Act) with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any
preliminary, final or summary Prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or information has been furnished in writing to the Company or its
representative by or on behalf of such seller or underwriter expressly for
use in the preparation of such Registration Statement, preliminary, final
or summary Prospectus or amendment or supplement; PROVIDED, HOWEVER, that
the aggregate amount which any such seller or prospective
seller shall be required to pay pursuant to such undertaking shall be
limited to the amount of the net proceeds received by such Person upon the
sale of the Registrable Securities pursuant to the Registration Statement
giving rise to such claim. Such indemnity shall remain in full force and
effect following the transfer of such securities by such seller.
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(b) As soon as possible after receipt by an indemnified party
hereunder of written notice of the commencement of any action or proceeding
with respect to which a claim for indemnification may be made pursuant to
this Section 2.8, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to
the latter of the commencement of such action; PROVIDED that the
failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding
paragraphs of this Section 2.8, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. If any such
claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party;
PROVIDED that the indemnifying party shall not be entitled to so
participate or so assume the defense if, in the indemnified party's
reasonable judgment, a conflict of interest between the indemnified party
and the indemnifying party exists or may exist in respect of such claim.
After notice from the indemnifying party to such indemnified party of its
election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 2.8
for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof unless the indemnifying party
has failed to assume the defense of such claim or to employ counsel
reasonably satisfactory to such indemnified party; PROVIDED that
the indemnified parties shall have the right to employ one counsel (in each
case together with appropriate local counsel) (such counsel to be selected
by the Holder of a majority of the Registrable Securities included in such
registration) to represent such indemnified parties if, in such indemnified
parties' reasonable judgment, a conflict of interest between the
indemnified parties and the indemnifying parties exists or may exist in
respect of such claim, and in that event the fees and expenses of such
separate counsel shall be paid as incurred by the indemnifying party; and
PROVIDED, FURTHER, that if, in the reasonable judgment of
any of the indemnified parties, a conflict of interest between such
indemnified parties, and any other indemnified parties exists in respect of
such claim, such indemnified parties shall be entitled to additional
counsel or counsels and the indemnifying party shall be obligated to pay
the fees and expenses of such additional counsel or counsels. No
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indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimants or plaintiffs to such indemnified party of an
unconditional release from all liability in respect to such claim or
litigation. No indemnifying party will be liable for any settlement
effected without its prior written consent, which consent will not be
unreasonably withheld or delayed.
(c) Indemnification similar to that specified in the preceding
paragraphs of this Section 2.8 (with appropriate modifications) shall be
given by the Company and each seller of Registrable Securities with respect
to any required registration or other qualification of securities under any
state securities and "blue sky" laws.
(d) If the indemnification provided for in this Section 2.8 is
unavailable or insufficient to hold harmless an indemnified party under
Section 2.8(a) or (b) of this Agreement, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in Section
2.8(a) or (b) in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and the indemnified party
on the other hand in connection with statements or omissions which resulted
in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or other omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party
or the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statements or omission. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this Section 2.8(d) were to be
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
the first sentence of this Section 2.8(d). The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in the first sentence of this Section 2.8(d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any action or claim
(which shall be limited as provided in Section 2.8(c) if the indemnifying
party has assumed the defense of any such action in accordance with the
provisions thereof) which is the subject of this Section 2.8(d). No person
guilty of
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fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Promptly after receipt by
an indemnified party under this Section 2.8(d) of notice of the
commencement of any action against such party in respect of which a claim
for contribution may be made against an indemnifying party under this
Section 2.8(d), such indemnified party shall notify the indemnifying party
in writing of the commencement thereof if the notice specified in Section
2.8(c) has not been given with respect to such action; provided that the
omission so to notify the indemnifying party shall not relieve the
indemnifying party from any liability which it may have to any indemnified
party otherwise under this Section 2.8(d), except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice.
Notwithstanding anything in this Section 2.8(d) to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to
this Section 2.8(d) to contribute any amount in excess of the proceeds
received by such indemnifying party from the sale of Registrable Securities
in the offering to which the losses, claims, damages or liabilities of the
indemnified parties relate.
(e) The provisions of this Section 2.8 shall be in addition to any
other rights to indemnification or contribution which any indemnified party
may have pursuant to law or contract and shall remain in full force and
effect following the transfer of the Registrable Securities by any such
party.
ARTICLE III
CHANGES IN COMPANY COMMON STOCK
If, and as often as, there is any change in the Company Common Stock
or of any other securities into which such Company Common Stock has been
converted or changed or by way of a combination or reclassification, or through
a merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby to the Holder shall continue with respect
to the Registrable Securities as so changed.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Holder of the Registrable
Securities as of the date of this Agreement as follows:
(a) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement by the Company has been duly authorized by all requisite
action.
(b) BINDING OBLIGATION. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company.
(c) NO VIOLATION. The execution, delivery and performance
of this Agreement and the consummation of the transactions
contemplated herein by the Company do not violate any provision of law, any
order of any court or other agency of government, any organizational
document of the Company or any provision of any material indenture,
agreement or other instrument to which the Company or any of its properties
or assets is bound, or conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon
any of the properties or assets of the Company which violation, conflict,
breach or default or lien, charge, restriction or encumbrance would have a
material adverse effect on the business, condition (financial or otherwise)
or results of operations of the Company taken as a whole.
(d) GOVERNMENT ACTION. No action has been taken and no statute,
rule or regulation or order has been enacted, no
injunction, restraining order or order of any nature has been issued by a
federal or state court of competent jurisdiction and no action, suit or
proceeding is pending against or affecting or threatened against, the
Company before any court or arbitrator or any governmental body, agency or
official which, if adversely determined, would in any manner draw into
question the validity of this Agreement. Other than filings required with
the Commission and under state securities laws, no action or approval by,
or filing or registration with, any court or governmental agency or body is
required for the consummation of the transactions contemplated by this
Agreement by the Company.
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ARTICLE V
BENEFITS OF AGREEMENT
The obligations of the Company under this Agreement shall inure to
the benefit of, and be enforceable by, the Holder and its successors and assigns
without any further action on the part of any party hereto.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1. NOTICES. All notices, requests, consents and other
communications provided for herein shall be in writing and shall be effective
upon delivery in person, faxed or telecopied, or mailed by certified or
registered mail, return receipt requested, postage pre-paid, addressed as
follows:
(i) if to the Company, to Dynamic Materials Corporation,
551 Aspen Ridge Drive, Lafayette, Colorado 80026, Attention: ______, fax:
________; with a copy to John McCabe, Esq., Davis, Graham & Stubbs LLP,
4410 Arapahoe Avenue, Suite 200, Boulder, Colorado 80303, fax: ___________;
(ii) if to the Holder or any other Holder of Registrable
Securities, at such address as may have been furnished to the Company in
writing by such Holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a Holder of Registrable Securities) or
to the Holder of Registrable Securities (in the case of the Company) in
accordance with the provisions of this paragraph.
SECTION 6.2. WAIVERS; AMENDMENTS. No failure or delay of any
Holder of Registrable Securities or the Company in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of
such Holder and the Company are cumulative and not exclusive of any rights or
remedies which it would otherwise have. The provisions of this Agreement may be
amended, modified or waived with (and only with) the written consent of the
Company and a majority of the Holders of Registrable Securities outstanding
(exclusive of Registrable Securities then owned by the Company or any subsidiary
thereof).
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No notice or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances. The foregoing notwithstanding, this Agreement may not be amended
in a manner adverse to the rights of any Holder without the consent of such
Holder.
SECTION 6.3. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the laws of the State of Delaware without regard
to principles of conflicts of law.
SECTION 6.4. SURVIVAL OF AGREEMENTS; REPRESENTATIONS AND
WARRANTIES, etc. All warranties, representations and covenants made by the
Company herein or in any certificate or other instrument delivered by it or on
its behalf in connection with this Agreement shall be considered to have been
relied upon by the Holder of Registrable Securities and shall continue in full
force and effect so long as this Agreement is in effect regardless of any
investigation made by such Holder. All statements in any such certificate or
other instrument shall constitute representations and warranties hereunder.
SECTION 6.5. COVENANTS TO BIND SUCCESSORS AND ASSIGNS. All the
covenants, stipulations, promises and agreements in this Agreement contained by
or on behalf of the parties hereto shall bind their successors and assigns,
whether so expressed or not.
SECTION 6.6. SEVERABILITY. In case any one or more of the
provisions contained in this Agreement shall be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
SECTION 6.7. SECTION HEADINGS. The section headings used herein
are for convenience of reference only, are not part of this Agreement and are
not to affect the construction of or be taken into consideration in interpreting
this Agreement.
SECTION 6.8. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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SECTION 6.9. TERMINATION. The obligations of the Company to
register the Registrable Securities hereunder shall terminate in accordance with
the terms of this Agreement.
SECTION 6.10. COMPLETE AGREEMENT. This document and the documents
referred to herein contain the complete agreement between the parties and
supersede any prior understandings, agreements or representations by or between
the parties, written or oral, which may have related to the subject matter
hereof in any way, and any other agreements or understandings as to securities
registration or similar rights among the parties hereto are hereby terminated.
SECTION 6.11. NO INCONSISTENT AGREEMENTS. The Company has not
previously, and will not hereafter, enter into any agreement with respect to its
securities with any person which grants such person rights that are inconsistent
with or superior to the rights granted to the Holder in this Agreement.
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IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement as of the date first set forth above.
DYNAMIC MATERIALS CORPORATION
By: ______________________________
Name:
Title:
SNPE, INC. WITNESS
SNPE, S.A.
By: __________________________ By:___________________________
Name: Name:
Title: Title:
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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 the report of Arthur Andersen dated December 15, 1999 on
the Company's financial outlook and strategic options;
viii. reviewed publicly available data on companies deemed generally
comparable to the Company;
ix. compared the business profile, financial strength, financial
performance, potential growth, size and risk of the Company to that
of generally comparable companies;
x. reviewed publicly available data on precedent merger transactions,
where the target was deemed to be generally comparable to the
Company by size or industry;
xi. 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;
xii. reviewed certain financial projections, as provided by the Company,
in its forecasts of fiscal years 1999, 2000, 2001, 2002 and 2003;
xiii. determined a discount rate applicable to an equity investment in the
Company;
xiv. performed discounted cash flow analysis of the Company's projections
under several scenarios;
xv. reviewed data on size discounts and control premiums;
xvi. 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;
xvii. 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
xviii. 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
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<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.
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APPENDIX E
[COMPANY LETTERHEAD]
PRIVILEGED AND CONFIDENTIAL
January 20, 2000
The Board of Directors
Dynamic Materials Corporation
Lafayette, CO 80026
To the Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the common stockholders of Dynamic Materials Corporation, a Delaware
corporation ("DMC" or the "Company"), other than SNPE, Inc. ("SNPE"), of the
consideration to be received by DMC pursuant to the issuing certain securities
(the "Securities Issuance") described below. With your consent, however, we are
not opining with respect to, nor including within our understanding of the
Securities Issuance, any other transactions or contractual arrangements to be
entered into or payments to be made by or to DMC or any other person in
connection with that purchase and sale of securities.
We understand that, pursuant to a Stock Purchase Agreement, dated January 20,
2000, between DMC and SNPE (the "Stock Purchase Agreement"), the Company will
sell and SNPE will purchase 2,109,091 shares (the "Shares") of Company Common
Stock for $5,800,000 or $2.75 per share. In addition, SNPE will purchase a
Convertible Subordinated Note (the "Note") with an aggregate principal amount of
$1,200,000. We understand that the Stock Purchase Agreement and the Note will
have the terms, limitations and relative rights and preferences set forth in
such documents as provided to us on the date hereof.
Stifel, Nicolaus & Company, Inc., formerly Hanifen, Imhoff, Inc., ("Stifel"), as
part of its investment banking business, is regularly engaged in the evaluation
of capital structures, the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements, financial restructurings and other financial services. In the
ordinary course of our business, Stifel may trade the securities of the Company
for our own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in those securities. As you are aware,
Stifel did not participate in structuring or negotiating the terms of the
Securities Issuance, and has not heretofore provided any investment banking
services to the Company or any of its subsidiaries or affiliates.
As you are also aware, Stifel has been engaged by the Company to provide the
opinion contained herein, and will receive a fee for providing such opinion. In
addition, we note that we have not been authorized by the Company or its Board
of Directors to solicit, nor have we solicited, offers
<PAGE>
January 20, 2000
Page 2
for transaction alternatives to the Securities Issuance, nor have we been asked
to advise the Company or its Board as to financial alternatives to the
Securities Issuance.
In connection with our opinion, we have reviewed the Stock Purchase Agreement,
dated January 20, 2000, and the Note, and certain financial and other
information that was publicly available or furnished to us by DMC, including
certain internal financial analyses, budgets, forecasts, reports and other
information prepared by the Company's management. We have also discussed with
representatives of the management of DMC the business, properties and prospects
of the Company. We have also undertaken such other reviews, analyses and
inquiries relating to the Company as we deemed appropriate, including reviewing
materials prepared by and conducting interviews with both investment banking and
accounting professionals familiar with and in representation of the Company.
In our review and analysis and in rendering the opinion contained herein, we
have relied upon, and have not independently verified, the accuracy,
completeness and fair presentation of all financial and other information that
was provided to us by or on behalf of DMC or that was publicly available, and
such opinion is conditioned upon such information (whether written or oral)
being complete, accurate and fair in all material respects. We have not made an
independent evaluation or appraisal or conducted a physical inspection of any of
the assets of DMC, nor have we been furnished with any such appraisals. Our
opinion is based on economic, monetary, political, market and other conditions
existing and which can be evaluated as of the date of this opinion; however,
such conditions are subject to rapid and unpredictable change.
In conducting our analysis and arriving at the opinion expressed herein, we have
considered such financial and other factors as we have deemed appropriate under
the circumstances, including, among others: (i) the business and financial
aspects of the Securities Issuance; (ii) the historical and current markets for
DMC Common Stock; (iii) the financial impact of the Securities Issuance upon the
Company; (iv) certain of the Company's operating and financial information; (v)
the Company's Annual Reports to Stockholders and Annual Reports on Form 10-K for
its last three full fiscal years and its Quarterly Reports on Form 10-Q filed
since the date of its most recent such Form 10-K; (vi) the engagement with The
Wallach Company regarding the attempted sale of the Company's bonding division,
the offers received in connection with the engagement and the terminated
transaction with AMETEK, Inc.; (vii) the fact that DMC could be considered to be
in distress given the facts that; DMC has received a waiver of default on its
senior bank debt owed to KeyBank, DMC's auditors have indicated a possibility of
a "going concern" qualification and DMC faces transfer from the NASDAQ National
Market System to the small cap system and such other information as we deemed to
be appropriate. We also conducted such other reviews, analyses and inquiries
relating to the Company (in addition to those set forth above) as we considered
proper.
With your permission, in rendering such opinion we have also assumed that the
conditions to the consummation of the closing of the Securities Issuance set
forth in the Stock Purchase Agreement and the Note will be satisfied.
<PAGE>
January 20, 2000
Page 2
Finally, in rendering the opinion set forth below we note that: (i) the
consummation of the closing of the Securities Issuance is conditioned upon the
approval of DMC's stockholders; and (ii) we are not opining as to the prices at
which any of the securities of the Company may trade upon and following the
consummation of the Securities Issuance.
Based upon and subject to the foregoing, and upon such other matters as we
consider relevant, it is our opinion as investment bankers that, as of the date
hereof, the consideration to be received by DMC pursuant to the Securities
Issuance is fair to the common stockholders of DMC, other than SNPE, from a
financial point of view.
It is understood and agreed that this opinion is provided for the use of the
Board of Directors of the Company as one element in such Board's consideration
of the Securities Issuance, and does not constitute a recommendation to DMC or
its Board of Directors or to any security holders of DMC as to how such holders
should vote with respect to the Securities Issuance. This letter is not to be
used for any other purpose, or otherwise referred to, relied upon or circulated,
without our prior written consent. This opinion may be reproduced in full in any
proxy statement mailed to holders of DMC Common Stock in connection with the
Securities Issuance but may not otherwise be disclosed publicly in any manner
without our prior written approval.
Sincerely,
STIFEL, NICOLAUS & COMPANY, INCORPORATED
