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AS FILED WITH THE COMMISSION ON OCTOBER 26, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
FERROFLUIDICS CORPORATION
(NAME OF SUBJECT COMPANY)
FERROFLUIDICS CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.004 PER SHARE
(TITLE OF CLASS OF SECURITIES)
315414 20 1
(CUSIP NUMBER OF CLASS OF SECURITIES)
PAUL F. AVERY, JR.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FERROFLUIDICS CORPORATION
40 SIMON STREET
NASHUA, NEW HAMPSHIRE 03061
(603) 883-9800
(NAME AND ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICE
AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH COPIES TO:
STUART M. CABLE, P.C.
JAMES A. MATARESE, ESQ.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Ferrofluidics Corporation, a
Massachusetts corporation (the "Company"), and the address of the principal
executive offices of the Company is 40 Simon Street, Nashua, New Hampshire
03061. The title of the class of equity securities to which this Schedule 14D-9
Solicitation/ Recommendation Statement (the "Schedule 14D-9") relates is the
common stock, par value $.004 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer by Ferrotec Acquisition,
Inc., a Massachusetts corporation (the "Purchaser") and a wholly-owned
subsidiary of Ferrotec Corporation, a corporation organized under the laws of
Japan ("Parent"), disclosed in a Schedule 14D-1 Tender Offer Statement, dated
October 26, 1999 (the "Schedule 14D-1"), to purchase all of the outstanding
Shares at a purchase price of $6.50 per Share, net to the seller in cash,
without interest thereon, less applicable withholding taxes, if any, and upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated October 26, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with the Offer to Purchase, constitutes the
"Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of October 20, 1999 (the "Merger Agreement"), among Parent, the Purchaser and
the Company. The Merger Agreement provides, among other things, that as soon as
practicable after the consummation of the Offer and the satisfaction or waiver
of certain closing conditions, the Purchaser will be merged with and into the
Company (the "Merger"), with the Company as the surviving corporation. Certain
terms of the Merger Agreement are described below in Item 3(b). A copy of the
Merger Agreement is attached hereto as Exhibit 3 and is incorporated herein by
reference.
Based on the information in the Schedule 14D-1, Parent has formed the
Purchaser in connection with the Offer and the Merger Agreement. The address of
the principal executive offices of each of Parent and the Purchaser is Sumitomo
Building #6, 5-24-8 Higashi Ueno, Taito-Ku, Tokyo 110-0015, Japan. All
information contained in this Schedule 14D-9 or incorporated herein by reference
concerning the Purchaser, Parent or their affiliates, or actions or events with
respect to any of them, was provided for inclusion herein by the Purchaser or
Parent, and the Company takes no responsibility for such information.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Schedule 14D-9, are set forth in Item 1 above.
(b) Certain material contracts, agreements, arrangements and understandings
and any actual or potential conflicts of interest between the Company or its
affiliates and (i) the Company, its executive officers, directors or affiliates,
or (ii) the Purchaser, its executive officers, directors or affiliates are
described below or set forth in the Information Statement attached as Schedule I
hereto, which Information Statement is incorporated herein by reference:
Merger Agreement. The following is a summary of certain provisions of the
Merger Agreement. The summary is qualified in its entirety by reference to the
Merger Agreement which is incorporated herein by reference and a copy of which
has been filed with the Securities and Exchange Commission (the "Commission") as
Exhibit 3 to this Schedule 14D-9. Capitalized terms used but not defined in this
summary of the Merger Agreement have the meanings given to such terms in the
Merger Agreement.
The Offer. The Merger Agreement provides that the Purchaser will
commence the Offer and that, upon the terms and subject to the prior
satisfaction or waiver of the conditions of the Offer, the Purchaser will
purchase all Shares validly tendered and not properly withdrawn pursuant to the
Offer as soon as legally permitted after the expiration of the Offer. The Merger
Agreement provides that, without the prior written consent of the Company,
neither the Purchaser nor Parent may decrease the price per Share payable in the
Offer (the "Offer Price"), decrease the minimum number of Shares sought to be
purchased in the Offer, or
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amend or impose conditions to the Offer in addition to those set forth in the
Merger Agreement. The Purchaser shall, on the terms of, and subject to the prior
satisfaction or waiver of, the conditions of the Offer and as soon as
practicable after it is legally permitted to do so under applicable law after
expiration of the Offer, accept for payment and pay for the Shares validly
tendered and not withdrawn. Notwithstanding the foregoing, if on the initial
Expiration Date (which is 20 business days after the Offer is commenced), all
conditions of the Offer shall have been satisfied or waived other than the
condition that there be validly tendered and not withdrawn prior to the
Expiration Date that number of Shares which when added to the Shares already
owned by the Purchaser represents at least a majority of the Shares outstanding
on a fully-diluted basis (the "Minimum Condition"), the Purchaser shall extend
the Expiration Date to the date that is ten business days immediately following
such initial Expiration Date. In addition, and notwithstanding the foregoing but
subject to the parties' right to terminate the Merger Agreement under certain
circumstances, if on such initial Expiration Date or any other Expiration Date
the applicable waiting period (and any extension thereof) under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), in respect to the Offer shall not have expired or been terminated and all
other conditions to the Offer shall have been satisfied or waived, the Purchaser
shall be required to extend the Expiration Date until such waiting period shall
have expired or been terminated.
Board of Directors. Promptly upon the purchase of Shares by the
Purchaser and from time to time thereafter, the Purchaser shall be entitled to
designate up to such number of directors, rounded up to the next whole number,
on the Company's Board of Directors (the "Company Board") as will give the
Purchaser representation on the Company Board equal to the number of directors
which is the product of (i) the total number of directors on the Company Board
(giving effect to the directors designated by the Purchaser pursuant to this
sentence) multiplied by (ii) the percentage that the aggregate number of Shares
beneficially owned by the Purchaser or any affiliate of the Purchaser following
such purchase bears to the total number of Shares then outstanding. In
furtherance thereof, the Company shall, at such time, promptly take all actions
necessary to cause the Purchaser's designees to be elected as directors of the
Company including increasing the size of the Company Board or securing the
resignations of such number of its incumbent directors, or both, provided that
the number of directors constituting the Company Board shall be no less than
five. At such time, the Company shall use its best efforts to cause persons
designated by the Purchaser to constitute the same percentage as is on the
Company Board to be on each committee of the Company Board, each board of
directors of each of the Company Subsidiaries (as hereinafter defined) and each
committee of such board, in each case to the extent permitted by law.
Notwithstanding the foregoing, in the event that the Purchaser's designees are
elected to the Company Board, until the effective time of the Merger (the
"Effective Time"), the Company shall have at least two directors that are
directors of the Company as of the date of the Merger Agreement. In the Merger
Agreement, the Company has agreed to promptly take all actions required pursuant
to Section 14(f) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule 14f-1 promulgated thereunder in order to fulfill its
obligations under the Merger Agreement, including mailing to shareholders the
information required by such Section 14(f) and Rule 14f-1 as is necessary to
enable the Purchaser's designees to be elected to the Company Board. The
Purchaser or Parent will supply the Company and be solely responsible for any
information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. As used
herein, "Company Subsidiary" or "Company Subsidiaries" shall mean all of the
operational subsidiaries of the Company through which the Company currently
conducts its businesses or has conducted its businesses during the two years
preceding the date of the Merger Agreement.
The Merger. The Merger Agreement provides that, subject to the terms
and conditions thereof and in accordance with the Massachusetts Business
Corporation Law (the "MBCL"), at the Effective Time, the Purchaser will be
merged with and into the Company. Following the Merger, the separate corporate
existence of the Purchaser will cease and the Company will continue as the
surviving corporation (the "Surviving Corporation"). The Merger shall be
effected by the filing at the time of closing of the Merger of properly executed
Articles of Merger, or other appropriate documents with the Secretary of State
of The Commonwealth of Massachusetts.
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The Merger Agreement provides that, at the Effective Time, by virtue of the
Merger and without any action on the part of Parent, the Purchaser, the Company
or the holder of Shares and except as otherwise provided in the Merger Agreement
with respect to Shares as to which appraisal rights have been exercised, the
Shares will be converted into the right to receive $6.50 in cash, without
interest thereon, as soon as is reasonably practicable upon surrender of the
certificate(s) formerly representing such Shares (other than any Shares owned by
the Purchaser or by any affiliate of the Purchaser or Shares in the treasury of
the Company, or in the treasury of any wholly-owned subsidiary of the Company,
which Shares, by virtue of the Merger and without any action on the part of the
holder thereof, shall be canceled and retired and shall cease to exist with no
payment being made with respect thereto). At the Effective Time, all shares of
common stock, par value $.01 per share, of the Purchaser issued and outstanding
immediately prior to the Effective Time will, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become one thousand (1,000) validly issued, fully paid and nonassessable shares
of common stock, par value $.004 per share, of the Surviving Corporation.
Options and Warrants; Stock Plans. Each option or warrant to purchase
Shares held by an employee, officer or director of the Company and other
eligible holders that is outstanding immediately prior to the date upon which
the Purchaser or an affiliate thereof accepts for payment Shares tendered
pursuant to the Offer (the "Acceptance Date"), whether or not then vested or
exercisable, shall, as of the Acceptance Date, be canceled in exchange for a
single lump sum cash payment equal to the product of (1) the number of Shares
subject to such option or warrant and (2) the excess, if any, of the Offer Price
over the exercise price per share of such option or warrant, subject to any
required withholding of taxes, provided that the warrants may only be canceled
with the consent of the holders of such warrants. Prior to the Acceptance Date
and through the Effective Time, if necessary, the Company has agreed to use all
reasonable efforts to (i) obtain consents from appropriate holders of warrants
and (ii) make any amendments to the terms of such options, warrants or the
compensation plans or arrangements related thereto that are necessary to give
effect to the transactions contemplated above. Notwithstanding any foregoing
provision, payment may be withheld in respect of any warrant or stock
appreciation right ("SAR") until necessary or appropriate consents are obtained.
The Merger Agreement provides that the Articles of Organization of the
Purchaser, as in effect immediately prior to the Effective Time, will be the
Articles of Organization of the Surviving Corporation, until thereafter amended
in accordance with the provisions thereof and applicable law. The By-Laws of the
Purchaser in effect at the Effective Time will be the By-Laws of the Surviving
Corporation, until thereafter amended in accordance with the provisions thereof
and applicable law.
Vote Required to Approve the Merger. Pursuant to the Merger Agreement,
the Company will, if required by applicable law in order to consummate the
Merger, duly call, give notice of, convene and hold a special meeting of its
shareholders (the "Special Meeting") as soon as practicable following the
acceptance for payment and purchase of Shares by the Purchaser or its permitted
assignee pursuant to the Offer for the purpose of considering and taking action
upon the Merger Agreement. The Merger Agreement provides that the Company and
Parent will, if required by applicable law in order to consummate the Merger,
prepare and file with the Commission a definitive proxy statement (the "Proxy
Statement") relating to the Merger and the Merger Agreement and cause such Proxy
Statement to be mailed to the shareholders of the Company, provided that no
amendment or supplement to the Proxy Statement will be made without the approval
of the Company and the Parent, which approval will not be unreasonably withheld.
If the Purchaser acquires at least a majority of the outstanding Shares, the
Purchaser will have sufficient voting power to approve the Merger, even if no
other shareholder votes in favor of the Merger. Parent and the Purchaser have
agreed to vote or use its reasonable best efforts to cause all of the Shares
owned beneficially or of record by them and their affiliates as of the record
date for the Special Meeting in favor of the Merger at the Special Meeting.
Conditions to the Merger. The respective obligations of Parent, the
Purchaser and the Company to consummate the Merger and the transactions
contemplated thereby are subject to the satisfaction, at or before the Effective
Time, of certain conditions, including: (i) the shareholders of the Company
shall have duly approved the Merger and the transactions contemplated by the
Merger Agreement; (ii) any waiting period applicable to the Merger under the HSR
Act shall have expired or been terminated; (iii) the consummation of
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the Merger shall not be restrained, enjoined or prohibited by any order,
judgment, decree, injunction or ruling of a court of competent jurisdiction or
any governmental entity and there shall not have been any statute, rule or
regulation enacted, promulgated or deemed applicable to the Merger by any
governmental entity which prevents the consummation of the Merger, provided
however, that the Company, Parent and the Purchaser shall have used their best
efforts to prevent any such rule, regulation, injunction, decree or other order,
and to appeal as promptly as possible any injunction, decree or other order that
may be entered; (iv) all authorizations, approvals or consents required to
permit the Merger shall have been obtained and are in full force and effect; and
(v) the Purchaser or its permitted assignee shall have purchased all Shares
validly tendered and not withdrawn pursuant to the Offer and such Shares will
satisfy the Minimum Condition to the Offer.
Representations and Warranties. The Merger Agreement contains various
representations of the parties thereto, including representations by the Company
as to, among other things, (i) organization; (ii) capitalization; (iii)
authorization and validity of the Merger Agreement and necessary action; (iv)
consents and approvals; (v) Commission reports and financial statements; (vi)
undisclosed liabilities; (vii) absence of certain changes; (viii) disclosure
documents; (ix) employee benefit plans and ERISA (as defined in the Merger
Agreement); (x) litigation; (xi) compliance with applicable laws; (xii) taxes;
(xiii) real property; (xiv) intellectual property; (xv) contracts; (xvi)
environmental laws and regulations; (xvii) labor matters; (xviii) brokers or
finders; (xix) opinion of financial advisors; (xx) the recommendation of the
Company Board; (xxi) insurance; (xxii) permits; (xxiii) customer relationships
and warranties; and (xxiv) year 2000.
Covenants. Pursuant to the Merger Agreement, the Company has covenanted
that, the Company shall use its reasonable best efforts to, and shall cause each
of the Company Subsidiaries to use its reasonable best efforts to, conduct its
operations in the ordinary and usual course of business consistent with past
practice and use all reasonable efforts to preserve intact their respective
business organizations' goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with suppliers, distributors, customers and others having
business relationships with them. Without limiting the generality of the
foregoing, and except as otherwise permitted by the Merger Agreement or as
required by applicable law, rule or regulation prior to the Effective Time,
without the consent of the Purchaser, which consent shall not be unreasonably
withheld, the Company will not, and will cause each of the Company Subsidiaries
not to: (a) amend or propose to amend their respective charters or bylaws; or
split, combine or reclassify their outstanding capital stock or declare, set
aside or pay any dividend or distribution in respect of any capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for, shares of its capital stock, except for
dividends and distributions paid by Company Subsidiaries to other Company
Subsidiaries or to the Company; (b) (i) issue or authorize or propose the
issuance of, sell, pledge or dispose of, or agree to issue or authorize or
propose the issuance of, sell, pledge or dispose of, any additional shares of,
or any options, warrants, dividend entitlement rights, or rights of any kind to
acquire any shares of, their capital stock of any class, any debt or equity
securities convertible into or exchangeable for such capital stock or any other
equity related right (including any phantom stock or SARs), other than any such
issuance pursuant to options, warrants, rights or convertible securities
outstanding as of the date of the Merger Agreement; (ii) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets, in each case which are material, individually or in the aggregate, to
the Company and the Company Subsidiaries taken as a whole; (iii) sell (including
by sale-leaseback), lease, pledge, dispose of or encumber any assets or
interests therein, which are material, individually or in the aggregate, to the
Company and the Company Subsidiaries taken as a whole, other than in the
ordinary course of business and consistent with past practice; (iv) incur or
become contingently liable with respect to any material indebtedness for
borrowed money or guarantee any such indebtedness or issue any debt securities
or otherwise incur any material obligation or liability (absolute or contingent)
other than short-term indebtedness in the ordinary course of business and
consistent with past practice or otherwise pursuant to credit facilities as
disclosed as part of the Merger Agreement; (v) redeem, purchase, acquire or
offer to purchase or acquire any (x) shares of its capital stock or (y)
long-term debt other than as required by
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governing instruments relating thereto; or (vi) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing; (c)
enter into or amend any employment, severance, special pay arrangement with
respect to termination of employment or other arrangements or agreements with
any directors, officers or key employees except for (i) normal salary increases
and merit bonuses, (ii) arrangements in connection with employee transfers or
(iii) agreements with new employees, in each case, in the ordinary course of
business and consistent with past practice; or agree or implement an across the
board increase in employee compensation except in the ordinary course of
business consistent with past practice; (d) adopt, enter into or amend any, or
become obligated under any new bonus, profit sharing, compensation, stock
option, pension, retirement, deferred compensation, healthcare, employment or
other employee benefit plan, agreement, trust, fund or arrangement for the
benefit or welfare of any employee or retiree, except as required to comply with
changes in applicable law occurring after the date hereof; (e) except as may be
required as a result of a change in law or in generally accepted accounting
principles, change any of the accounting principles or practices used by it; (f)
pay, discharge or satisfy any material claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in, or contemplated by, the financial
statements (or the notes thereto) of the Company incurred in the ordinary course
of business consistent with past practice; (g) authorize, commit to or make any
equipment purchases or capital expenditures other than in the ordinary course of
business and consistent with past practice (provided, that such purchases and/or
expenditures shall, individually, be no more than $50,000, and, in the
aggregate, be no more than $250,000); or (h) except as otherwise permitted in
the Merger Agreement, take or agree to take any of the foregoing actions or any
action that would, or is reasonably likely to, result in any of its
representations and warranties set forth in the Merger Agreement becoming
untrue, or in any of the conditions to the Merger Agreement set forth in the
Merger Agreement not being satisfied.
No Solicitations. The Company has agreed that it will not, and will use
its best efforts to cause any officers, directors, employees and investment
bankers, attorneys or other agents retained by the Company or any of the Company
Subsidiaries not to, (i) initiate or solicit, directly or indirectly, any
inquiries or the making of any Acquisition Proposal (as hereinafter defined), or
(ii) except as permitted in the Merger Agreement, engage in negotiations or
discussions with, or furnish any information or data to any third party relating
to an Acquisition Proposal (other than the transactions contemplated hereby).
Notwithstanding anything to the contrary contained in the Merger Agreement, the
Company, and its officers, directors, investment bankers, attorneys or agents,
may: (a) participate in discussions or negotiations (including, as a part
thereof, making any counterproposal) with or furnish information to any third
party making an unsolicited Acquisition Proposal (a "Potential Acquiror") if
either: (1) the Company Board determines in good faith, after consultation with
its financial advisor, that such third party is reasonably likely to submit an
Acquisition Proposal, which is a Superior Proposal (as hereinafter defined), or
(2) the Company Board determines in good faith, based upon advice of outside
legal counsel, that the failure to participate in such discussions or
negotiations or to furnish such information may be inconsistent with the Company
Board's fiduciary duties under applicable law, or (b) following receipt of an
Acquisition Proposal, disclose to its shareholders the Company's position
contemplated by Rules 14d-9 and 14e-2 under the Exchange Act or otherwise make
any other necessary disclosure to its shareholders related to an Acquisition
Proposal.
The Company has agreed that, as of the date of the Merger Agreement, it
shall immediately cease and cause to be terminated any discussions or
negotiations with any parties (other than the Purchaser and Parent) conducted
heretofore with respect to any of the foregoing. The Company has agreed not to
release any third party from any confidentiality or standstill agreement to
which the Company is a party, provided, however, that the Company can release
any third party from any such standstill agreement if the Company Board
determines in good faith, after consultation with its outside legal counsel,
that the failure to so release such party from the standstill agreement may be
inconsistent with the Company Board's fiduciary duties under applicable law. The
Company also has agreed that any non-public information furnished to a Potential
Acquiror will be pursuant to a confidentiality agreement substantially similar
to the confidentiality provisions of the confidentiality agreement entered into
between the Company and Parent. As used herein, "Acquisition Proposal" shall
mean any bona fide proposal made by a third party to acquire (i) beneficial
ownership (as defined under Rule 13(d) of the Exchange Act) of a majority or
greater equity interest in the Company or
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(ii) all or substantially all of the business or assets of the Company (other
than the transactions contemplated by the Merger Agreement). As used herein,
"Superior Proposal" means any Acquisition Proposal which the Company Board, by
resolution duly adopted determines, after consultation with its financial
advisor, to be more favorable to the Company and its shareholders than the
transactions contemplated by the Merger Agreement.
Termination; Fees and Expenses. The Merger Agreement provides that it
may be terminated and the Offer (if not then already consummated) and/or the
Merger may be abandoned at any time (the "Termination Date") prior to the
Effective Time, whether before or after shareholder approval thereof: (a) by
mutual consent of the Company, Parent and the Purchaser; (b) by either of the
Company, on the one hand, or Parent and the Purchaser, on the other hand: (i)
if, without any material breach by the terminating party of its obligations
under the Merger Agreement, the Purchaser or its permitted assignees shall not
have purchased Shares pursuant to the Offer on or prior to 60 days after the
commencement of the Offer, provided, however, that neither the Purchaser, Parent
nor the Company shall terminate the Merger Agreement prior to February 29, 2000,
if all conditions to the Offer set forth in the Merger Agreement have been
satisfied or, to the extent permitted, waived, except that Shares shall not have
been purchased by the Purchaser by reason of any applicable waiting period under
the HSR Act in respect to the Offer not having expired or been terminated; (ii)
if there shall have been issued an order, decree or ruling or taken any other
action (which order, decree ruling or other action the parties hereto shall use
their respective reasonable best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
the Merger Agreement and such order, decree, ruling or other action shall have
become final and non-appealable; provided, however, that the party seeking
termination shall have complied fully with its obligations under the Merger
Agreement with respect to obtaining appropriate consents and authorizations, or
(iii) if the Minimum Condition shall not have been satisfied, in which case
neither Parent, the Purchaser nor any of their affiliates shall be permitted to
accept for payment or pay for any Shares unless and until the Company shall have
provided the Purchaser with written notice stating that the Company is not
exercising its right to terminate the Merger Agreement pursuant to its terms;
(c) by the Company: (i) if the Company Board shall have (A) withdrawn, modified
or changed in a manner adverse to the Purchaser its approval or recommendation
of the Merger Agreement, or the Merger and (B) either (x) determined in good
faith, after consultation with its financial advisor, that a third party has
submitted to the Company an Acquisition Proposal which is a Superior Proposal,
or (y) determined in good faith, upon the advice of outside legal counsel, that
the failure to take such action as set forth in the preceding clause (A) may be
inconsistent with the Company Board's fiduciary duties under applicable law; or
(ii) if Parent or the Purchaser (x) breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements contained in
the Merger Agreement or (y) breaches its representations and warranties in any
material respect and such breach would have a Parent Material Adverse Effect, in
such case in connection with the termination of the Merger Agreement after the
Acceptance Date such that the conditions to the obligations of Parent and the
Purchaser to consummate the Merger would not be satisfied; provided, however,
that after the Acceptance Date if any such breach is curable by the breaching
party, the Company may terminate the Merger Agreement pursuant to such agreement
only after the passage of 30 days from the written notification to Parent and
the Purchaser by the Company of the breach, and provided further that such
breach has not been cured within the 30 day period, provided, however, that the
Termination Date shall be delayed to give the breaching party the opportunity to
cure during the 30 day period; (d) by Parent and the Purchaser: (i) if the
Company (x) breaches or fails in any material respect to perform or comply with
any of its material covenants and agreements contained in the Merger Agreement
or (y) breaches its representations and warranties and such breach would have a
Company Material Adverse Effect, in each case such that the conditions set forth
in the Merger Agreement would not be satisfied; provided, however, that after
the Acceptance Date if any such breach is curable by the Company, then Parent or
Purchaser may terminate the Merger Agreement pursuant to the Merger Agreement
only after the passage of 30 days from the written notification to the Company
by Parent or the Purchaser of the breach, and provided further that such breach
has not been cured within the 30 day period, provided, however that the
Termination Date shall be delayed to give the breaching party the opportunity to
cure during the 30 day period; (ii) if the Company Board shall have withdrawn,
modified or changed in a manner adverse to the Purchaser its approval or
recommendation of the Merger Agreement or the Merger, or shall have
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recommended an Acquisition Proposal involving the Company or shall have executed
an agreement in principal or definitive agreement relating to an Acquisition
Proposal involving the Company or similar business combination with a person or
entity other than the Purchaser or its affiliates (or the Company Board resolves
to do any of the foregoing) provided, however, that prior to terminating the
Merger Agreement as a result of a third party Acquisition Proposal, the Company
shall give the Purchaser telephonic notice of at least forty-eight hours in
advance of such termination; (iii) if for any five consecutive trading days
prior to the Effective Time, the Dow Jones Industrial Average shall be less than
6,500 on each of such days; or (iv) if due to an occurrence or circumstance that
would result in a failure to satisfy any condition set forth in Annex A to the
Merger Agreement, the Purchaser shall have failed to commence the Offer on or
prior to five days following the initial public announcement of the Merger
Agreement. As used herein, "Company Material Adverse Effect" shall mean a
material adverse effect on the current business, results of operations or
financial condition of the Company and the Company Subsidiaries taken as a
whole, and "Parent Material Adverse Effect" shall mean a material adverse effect
on the current business, results of operations or financial condition of the
Parent and its subsidiaries, taken as a whole.
In the event of the termination of the Merger Agreement, written notice
thereof shall forthwith be given to the other party or parties specifying the
provision thereof pursuant to which such termination is made, and the Merger
Agreement shall forthwith become null and void, and there shall be no liability
on the part of Parent, the Purchaser or the Company or their respective
directors, officers, employees, shareholders, representatives, agents or
advisors other than, with respect to Parent, the Purchaser and the Company, the
obligations pursuant to the Merger Agreement. Nothing contained in the Merger
Agreement shall relieve Parent, the Purchaser or the Company from liability for
fraud or willful breach of the Merger Agreement.
If the Merger Agreement is terminated: (A) by the Company pursuant to
clause (c)(i) above or by Parent and the Purchaser pursuant to clause (d)(ii)
above, the Company shall pay to Purchaser liquidated damages in the amount of
$3,000,000 in cash.
Employee Benefits. The Merger Agreement provides that Parent will cause
the Surviving Corporation to honor all obligations under the Company's current
employment and severance agreements and the Company's general severance policy.
The Merger Agreement further provides that for a period of one year following
the Effective Time, the Company's employees will continue to participate in the
Company's benefit plans (other than stock option or stock purchase plans) on
substantially similar terms to those in effect at the time the Merger Agreement
was executed and that following such period, the Company and any of the Company
Subsidiaries and successors shall provide their employees with employment
benefits substantially similar in the aggregate to the benefits they received
prior to the Effective Time.
Indemnification; Directors' and Officers' Insurance. For a period of
six years from the Effective Time, in the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person who is now, or has been at any
time prior to the date of the Merger Agreement (except for Ronald Moskowitz and
Jan R. Kirk), or any person who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of the Company or any of the Company
Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director, officer, employee,
fiduciary or agent of the Company or any of the Company Subsidiaries, or is or
was serving at the request of the Company or any of the Company Subsidiaries, or
is or was serving at the request of the Company or any of the Company
Subsidiaries as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (ii) the
negotiation, execution or performance of the Merger Agreement or any of the
transactions contemplated thereby, whether in any case asserted or arising
before or after the Effective Time, the Company, the Purchaser and Parent agree
to cooperate and use their reasonable best efforts to defend against and respond
thereto. The Company shall indemnify and hold harmless, and after the Effective
Time, Surviving Corporation and the Purchaser shall indemnify and hold harmless,
as and to the full extent permitted by applicable law, each Indemnified Party
against any losses, claims, damages, liabilities, costs, expenses (including
reasonable attorneys' fees and expenses), judgments, fines and amounts paid in
settlement ("Losses") in connection with any such threatened or actual claim,
action, suit, proceeding or
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investigation, and in the event of any such threatened or actual claim, action,
suit, proceeding or investigation (whether asserted or arising before or after
the Effective Time).
Without limiting the foregoing, in the event any Indemnified Party becomes
involved in any capacity in any claim, then from and after the Effective Time,
the Company, the Surviving Corporation and the Purchaser shall advance to such
Indemnified Party its legal and other expenses, subject to the provision that
the Parent and/or the Purchaser may require an unsecured undertaking from the
Indemnified Parties to reimburse the amounts so advanced in the event of a final
non-appealable determination by a court of competent jurisdiction that such
Indemnified Party is not entitled thereto. The Indemnified Parties shall retain
Goodwin, Procter & Hoar LLP (provided that no policy for D&O Insurance, as
defined below, requires that counsel be chosen from an approved list, or if any
such policy requires counsel to be chosen from an approved list, Goodwin,
Procter & Hoar LLP is so named on the approved list) or other counsel to
represent them in such matter, provided that such choice of other counsel is
consented to by the Purchaser or the Surviving Corporation (and/or the
applicable insurance carriers), and which consent shall not be unreasonably
withheld, and the Company, and the Surviving Corporation and the Purchaser after
the Effective Time, shall pay all reasonable fees and expenses of such counsel
within 30 days after statements therefor are received. The Company, the
Surviving Corporation and the Purchaser will use their respective reasonable
best efforts to assist in the vigorous defense of any such matter; provided that
none of the Company, the Surviving Corporation or the Purchaser shall be liable
for any settlement effected without its prior written consent (which consent
shall not be unreasonably withheld); and provided further that the Surviving
Corporation and the Purchaser shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-appealable,
that indemnification of such Indemnified Party in the manner contemplated in the
Merger Agreement is prohibited by applicable law.
Notwithstanding the foregoing, any payment for indemnification shall be
limited to a maximum of $20,000,000. For a period of two years from the
Effective Time, Parent shall be responsible for such indemnification up to an
aggregate $10,000,000, subject to the terms and restrictions contained in the
Merger Agreement. In the event that after the Effective Time an Indemnified
Party does not receive payment for any Losses from the Surviving Corporation or
the carrier(s) of the D&O Insurance within ninety (90) days after the giving of
an indemnification notice, Parent shall be obligated to pay to such Indemnified
Party an amount or amounts equal to such Losses (subject to the $10,000,000
limit described above for all Losses incurred by the Indemnified Parties).
The Merger Agreement provides that prior to the Effective Time the Company
shall purchase extended reporting period endorsement of not less than
$20,000,000 under the Company's existing officers' and directors' liability
insurance policy ("D&O Insurance") for a period of not less than six years after
the Effective Time. To the extent the Company, the Purchaser and/or Parent
advances or pays any expenses or damages related to a claim in advance of any
reimbursement by an insurance carrier, the Company, the Purchaser and/or Parent
shall be entitled to any such reimbursement by such insurance carrier; and in
the event of any claim against an insurance carrier for reimbursement for or
payment of any of said expenses or damages, Company, Purchaser and/or Parent
shall have the right to proceed against such carrier on behalf of themselves and
the Indemnified Parties.
Parent, the Purchaser and the Company have also agreed that in the event
Parent or the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any person or entity, then and in each such case, proper provision shall be
made so that the successors and assigns of Parent or the Surviving Corporation,
as the case may be, shall assume the foregoing indemnity obligations.
Confidentiality Agreement. On August 16, 1999, the Company entered into a
confidentiality agreement with Parent (the "Confidentiality Agreement") pursuant
to which the Company agreed to provide certain information to Parent and its
affiliates, and Parent agreed to treat, and to cause its affiliates to treat,
such information as confidential. In addition, Parent agreed that neither Parent
nor any of its affiliates would,
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among other things, acquire any securities of the Company or seek to effect a
tender offer, merger or other business combination transaction involving the
Company for a two-year period.
The foregoing summary of the Confidentiality Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of the
Confidentiality Agreement, a copy of which is filed as Exhibit 4 hereto and is
incorporated herein by reference.
Agreements with Paul F. Avery, Jr. The terms of employment of Paul F.
Avery, Jr., President, Chief Executive Officer and Chairman of the Board of the
Company, are set forth in an Employment Agreement dated as of June 3, 1998
between Mr. Avery and the Company, as amended on June 3, 1999 and as further
amended on September 9, 1999 (collectively, the "Avery Employment Agreement").
Under the Avery Employment Agreement, Mr. Avery serves as the President, Chief
Executive Officer and Chairman of the Board of the Company until June 3, 2000 at
a salary of $250,000 per year, subject to earlier termination for death,
disability, cause or upon 60 days' written notice by either Mr. Avery or the
Company. Pursuant to the Avery Employment Agreement, the Company is required to,
among other things, (i) reimburse Mr. Avery for all reasonable business expenses
incurred by Mr. Avery in the performance of his duties, (ii) provide Mr. Avery
with an automobile for business and personal use and pay or reimburse Mr. Avery
for all expenses associated therewith, and (iii) maintain insurance on Mr.
Avery's life in the amount of $1,000,000, payable as directed by Mr. Avery,
until the expiration of the term of the agreement, unless Mr. Avery is
terminated by the Company for cause. In addition, Mr. Avery is entitled to
participate in the health, welfare, retirement and other fringe benefit plans
which the Company makes available to management from time to time.
Mr. Avery may terminate his employment at any time upon 60 days' written
notice to the Company and the Company may terminate Mr. Avery's employment other
than for "cause" (as defined in the Avery Employment Agreement) at any time upon
60 days' written notice to Mr. Avery. If Mr. Avery is terminated for cause, he
is entitled to any earned but unpaid salary at the date of termination and the
contribution by the Company to the cost of Mr. Avery's participation in the
Company's group medical and dental insurance plans as permissible under
applicable law and plan terms. If Mr. Avery's employment is terminated for
reasons other than (i) by the Company for cause or (ii) voluntary termination by
Mr. Avery, Mr. Avery is entitled to receive an amount equal to the aggregate
base salary which Mr. Avery would have received had he been employed by the
Company through the last day of the term of the agreement. If Mr. Avery dies or
becomes disabled during the term of the Avery Employment Agreement, Mr. Avery's
employment immediately terminates and he is entitled to any earned but unpaid
salary. If the Company undergoes a "change of control" (as defined in the Avery
Employment Agreement), and Mr. Avery is terminated, voluntarily or
involuntarily, other than for cause after the date such change in control
occurs, Mr. Avery is entitled to receive an amount equal to the aggregate base
salary which Mr. Avery would have received had he been employed by the Company
through the last day of the term of the agreement.
In addition to any other payments to which he might be entitled upon
termination of his employment, the terms of the Avery Employment Agreement also
provide that upon the termination of Mr. Avery's employment for reasons other
than (i) by the Company for cause, (ii) the death or disability of Mr. Avery or
(iii) the expiration of the term of the agreement, the Company and Mr. Avery
shall immediately enter into an agreement pursuant to which Mr. Avery shall be
engaged as a consultant to the Company. The terms and conditions of such
consultancy shall be identical to those set forth in the Consulting Agreement
dated as of May 1, 1997 between the Company and Mr. Avery (the "Avery Consulting
Agreement"), which terminated upon Mr. Avery's engagement by the Company as
President, Chief Executive Officer and Chairman of the Board on June 3, 1998.
Under the Avery Consulting Agreement, Mr. Avery performed such consulting,
advisory and related services for the Company as were reasonably requested by
the Company from time to time for a consulting fee of $10,000 per month for a
term of three years, which term could be extended upon mutual written agreement.
In addition, under the Avery Consulting Agreement, the Company could also
request that Mr. Avery serve as Chairman of the Board. If the Company so
requested, and if Avery agreed to so serve, the Company would be required to pay
Mr. Avery an annual retainer of $50,000 for such service for so long as Mr.
Avery served in such position. Such retainer would be in addition to any
payments to be made to Mr. Avery with respect to his
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consultancy. Under the Avery Consulting Agreement, the Company was required to
reimburse Mr. Avery for all reasonable business expenses incurred by Mr. Avery
in the performance of his duties. Mr. Avery was entitled to participate in and
enjoy the benefit of the Company's retirement plans, but was not entitled to
participate in the health, welfare, retirement and other fringe benefit plans,
which the Company made available to management from time to time, except at his
own expense. Mr. Avery could terminate his consultancy at any time upon 60 days
written notice to the Company and the Company could terminate Mr. Avery's
consultancy other than for "cause" (as defined in the Avery Consulting
Agreement) at any time upon 60 days written notice to Mr. Avery. If Mr. Avery
was terminated for cause, he would be entitled to any earned but unpaid
consulting fees at the date of termination. If Mr. Avery were to die or become
disabled during the term of the Avery Consulting Agreement, Mr. Avery's
consultancy would be immediately terminated. If Mr. Avery's consultancy was
terminated for reasons other than for cause or due to death or disability, the
Company would continue to pay Mr. Avery his consulting fees for the duration of
the term of the Avery Consulting Agreement.
In connection with the Offer and the Merger, the Company, the Purchaser,
Parent and Mr. Avery agreed, subject to certain modifications described below,
that effective upon the Acceptance Date, Mr. Avery's employment with the Company
will terminate and that Mr. Avery will serve as a consultant and advisor to the
Company pursuant to the terms of the Avery Consulting Agreement. The Avery
Consulting Agreement will commence as of the Acceptance Date and will continue
for a period of three years. Under the Avery Consulting Agreement, as modified,
the parties agreed that, in addition to the consulting fee of $10,000 per month,
the Company will pay Mr. Avery $250,000 on the Acceptance Date (or, at Mr.
Avery's option, over the three-year term on a weekly basis) and an additional
$50,000 per annum advisory fee for so long as Mr. Avery is retained by the
Company to provide advisory services. In addition, the Company will be required
to maintain insurance on Mr. Avery's life in an amount of $1,000,000, payable as
directed by Mr. Avery, for two years.
In the event that the Acceptance Date does not occur, the Avery Consulting
Agreement will not become effective and Mr. Avery will continued to be employed
by the Company under the terms of the Avery Employment Agreement.
The foregoing description of certain terms and provisions of the Avery
Employment Agreement and the agreements between the Company, Parent, the
Purchaser and Mr. Avery does not purport to be complete and is qualified in its
entirety by reference to the text of such agreements, copies of which are filed
with this Schedule 14D-9 as Exhibits 5, 6 and 7, respectively, and are
incorporated herein by reference.
Agreements with William B. Ford. The terms of employment of William B.
Ford, Vice President and Chief Financial Officer of the Company, are set forth
in an Employment Agreement dated as of September 23, 1996 by and between the
Company and Mr. Ford (the "Ford Employment Agreement"). The Ford Employment
Agreement provides for Mr. Ford's employment at a salary of $140,000 per year,
subject to annual salary reviews by the Compensation Committee of the Company
Board or the President of the Company, as appropriate. Pursuant to the Ford
Employment Agreement, the Company is required to reimburse Mr. Ford for all
reasonable business expenses incurred by Mr. Ford in the performance of his
duties. In addition, Mr. Ford is entitled to participate in the health, welfare,
retirement and other fringe benefit plans which the Company makes available to
management from time to time.
Pursuant to the Ford Employment Agreement, the Company or Mr. Ford may
terminate Mr. Ford's employment without cause upon six months written notice if
such notice is given within one year of his employment or upon one year's
written notice if such notice is given after the first year of his employment.
If the Company undergoes a "change of control" (as defined in the Ford
Employment Agreement) and Mr. Ford is terminated by the Company other than for
cause within 12 months after such change of control occurs, Mr. Ford shall be
entitled to receive an amount equal to six months' salary at the rate then in
effect if such termination occurs within the first year of Mr. Ford's
employment, and an amount equal to 12 months' salary at the rate then in effect
if such termination occurs after the first year of Mr. Ford's employment. If Mr.
Ford dies or becomes disabled during the term of the Ford Employment Agreement,
Mr. Ford's employment automatically terminates and he is entitled to any earned
but unpaid salary. If Mr. Ford is
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terminated for "cause" (as defined in the Ford Employment Agreement), he is
entitled to any earned but unpaid salary at the date of termination and the
contribution by the Company to the cost of Mr. Ford's participation in the
Company's group medical and dental insurance plans as permissible under
applicable law and plan terms.
In connection with the Offer and the Merger, the Company, Parent and Mr.
Ford have entered into an Employment Agreement (the "New Ford Employment
Agreement") which becomes effective only if the Purchaser or an affiliate
thereof accepts for payment Shares tendered pursuant to the Offer. Under the New
Ford Employment Agreement, the parties agreed that Mr. Ford's employment with
the Company pursuant to the Ford Employment Agreement will be terminated
effective as of the Acceptance Date. The New Ford Employment Agreement will be
effective from the Acceptance Date until March 31, 2000 and provides that Mr.
Ford will continue to serve the Company in an executive capacity. Under the New
Ford Employment Agreement, Mr. Ford will receive a payment of $45,000 on the
Company's first payroll date after January 1, 2000 and a further payment of
$104,000 on the Company's first payroll date after January 1, 2001. Mr. Ford
will also be compensated by the Company at the annual rate of $145,000, payable
not less than twice a month. The parties also agreed that the consideration
payable to Mr. Ford with respect to his options to purchase shares of Common
Stock in connection with the Merger would be payable in installments as follows:
$50,000 on January 2, 2000, and $48,750 on January 2, 2001.
In addition, Mr. Ford will be entitled to participate in the health,
welfare, retirement and other fringe benefit plans which the Company makes
available to management from time to time and will be entitled to accrue
vacation days at the rate of four weeks per year. Mr. Ford will be given credit
under all of the Company's employee benefits and policies, including for accrued
vacation time, for all services prior to the Acceptance Date. Mr. Ford will be
paid upon the termination of his employment with the Company for all accrued
vacation time as of the termination date in accordance with the Company's
policy.
If Mr. Ford dies or becomes disabled during the term of the New Ford
Employment Agreement, Mr. Ford's employment automatically terminates and he, or
his beneficiary, as the case may be, will be entitled to any earned but unpaid
salary. If Mr. Ford is terminated for "cause" (as defined in the New Ford
Employment Agreement), he will be entitled to any earned but unpaid salary at
the date of termination and the contribution by the Company to the cost of Mr.
Ford's participation in the Company's group medical and dental insurance plans
as permissible under applicable law and plan terms.
In the event that the Acceptance Date does not occur, then the New Ford
Employment Agreement will not become effective and Mr. Ford will continue to be
employed by the Company under the Ford Employment Agreement.
The foregoing description of certain terms and provisions of the Ford
Employment Agreement and the New Ford Employment Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of such
agreements, copies of which are filed with this Schedule 14D-9 as Exhibits 8 and
9, respectively, and are incorporated herein by reference.
Agreements with Other Executive Officers. On August 6, 1999, the Company
entered into a Letter Agreement with Alvan D. Chorney, the Company's Vice
President--New Business Development (the "Chorney Letter Agreement"), pursuant
to which the parties agreed, among other things, to confirm certain provisions
of a Severance Agreement dated as of October 1, 1993 between the Company and Mr.
Chorney (the "Chorney Severance Agreement") and provide for the payment of
certain severance payments to Mr. Chorney in the event that his employment with
the Company is terminated following a change of control. The Chorney Letter
Agreement provides that if the Company undergoes a change of control and Mr.
Chorney is terminated by the Company (other than for cause or by reason of Mr.
Chorney's death or disability) within 12 months of such change of control event,
Mr. Chorney will receive equal bi-weekly payments for 24 months at a rate equal
to the highest annual salary rate during Mr. Chorney's employment with the
Company. The Chorney Severance Agreement remains in effect with respect to any
termination of Mr. Chorney's employment by the Company other than in connection
with or following a change of control.
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The Chorney Severance Agreement provides Mr. Chorney with certain severance
benefits in the event that his employment is terminated by the Company other
than by reason of death, disability or cause. Pursuant to this agreement, if Mr.
Chorney's employment is terminated other than for any of the aforementioned
reasons, he is entitled to receive for a period of eighteen months an aggregate
amount equal to the greater of (i) $225,000 and (ii) the annual base salary
which he would have received over an eighteen-month period commencing on the
date of such termination.
On July 1, 1999, the Company entered into a Letter Agreement with Timothy
D. Barton, the Company's Vice President and General Manager--Components Division
(the "Barton Letter Agreement"). The Barton Letter Agreement provides, among
other things, that if the Company undergoes a change of control and Mr. Barton
is terminated by the Company, Mr. Barton will receive a payment equal to
6-months' salary.
The foregoing description of certain terms and provisions of the Chorney
Severance Agreement, the Chorney Letter Agreement and the Barton Letter
Agreement does not purport to be complete and is qualified in its entirety by
reference to the text of such agreements, copies of which are filed with this
Schedule 14D-9 as Exhibits 10, 11 and 12, respectively, and are incorporated
herein by reference.
Transactions Between the Company and Parent. Parent beneficially owns
15,000 Shares representing 0.27% of the issued and outstanding Shares as of
October 20, 1999 and Akira Yamamura, the President and Chief Executive Officer
of Parent, individually beneficially owns 50 Shares.
Parent is a successor to Nippon Ferrofluidics Corporation ("NFC"), which
was a wholly owned subsidiary of the Company. In 1987, Parent acquired NFC from
the Company.
Parent and the Company have had a long-standing business relationship with
each other. On May 2, 1983, the Company and NFC, then a wholly-owned subsidiary
of the Company, entered into a License Agreement whereby the Company licensed to
NFC ferrofluid technology for a period of three years. On May 2, 1986, the
license was extended for one year. In connection with Parent's acquisition of
NFC in 1987, the Company and NFC, then a wholly-owned subsidiary of Parent,
entered into three separate agreements pursuant to which the Company licensed
ferrofluid technology and furnace technology to NFC and NFC licensed motor
technology to the Company.
In 1993, the Company and NFC entered into the Superseding 1993 Fluids
License Agreement (the "1993 Agreement") that superseded and replaced all prior
license agreements between the parties. Pursuant to the 1993 Agreement, all
ferrofluid technology, with certain exceptions, owned by either party was
licensed to the other party in perpetuity. At the time the 1993 Agreement was
entered into, Parent made an up-front payment to the Company in the amount of
Y850 million, which is being amortized in equal installments during the term of
the 1993 Agreement. During each of fiscal 1997 and 1998, Parent incurred Y68
million in royalty expense under the 1993 Agreement.
In March 1998, Parent obtained certain U.S. patents relating to
ferrofluids. On October 20, 1998, Parent and the Company entered into the 1998
Agreement Amending the Superseding 1993 Fluids License Agreement (the "1998
Agreement"). Pursuant to the 1998 Agreement, Parent granted to the Company the
exclusive license to make, use, sell or otherwise distribute vacuum rotary feed
through seals throughout the world other than in Asia. Pursuant to the 1998
Agreement, the Company ceased operations of its Japanese subsidiary whose
operations related solely to these seals. Under the 1998 Agreement, the Company
agreed to pay to Parent a 5% royalty on sales of vacuum rotary feed through
seals or $50,000 per quarter, whichever is greater. The 1998 Agreement
terminates on December 31, 2005, unless terminated sooner by mutual agreement of
the parties. If terminated, the rights between the parties would revert back to
the 1993 Agreement. The Company incurred $272,000 in royalty expense under the
1998 Agreement during fiscal 1999.
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ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors. The Company Board has
determined that the Offer and the Merger are fair to and in the best interests
of the Company and its stockholders, has unanimously approved the Merger
Agreement and the transactions contemplated thereby and unanimously resolved to
recommend that all holders of Shares accept the Offer, tender their Shares and
approve the Merger Agreement.
(b) Background; Reasons for the Recommendation. Management of the Company
and Parent were generally familiar with each other as a result of the business
relationships between the Company and Parent discussed above. In March 1997,
Salvatore J. Vinciguerra, the then President and Chief Executive Officer of the
Company, and Paul F. Avery, Jr., the then Chairman of the Company Board, visited
Japan and met with Akira Yamamura, the President and Chief Executive Officer of
Parent, to discuss a potential transaction between the companies. Messrs. Avery
and Yamamura discussed in general terms the merits of combining the two
companies and various alternative transaction structures, including the
acquisition by Parent of the Company for cash or for stock of the Parent.
Several weeks following this meeting, Messrs. Vinciguerra, Avery and Yamamura
met in Boston to further discuss a potential transaction between the companies.
However, the parties did not reach any agreements at this time and did not
continue discussions following the Boston meeting.
On July 28, 1999, Mr. Yamamura called Mr. Avery to discuss whether the
Company might have an interest at that time in exploring a potential transaction
with Parent that would combine the companies. Based on this discussion, Messrs.
Avery and Yamamura agreed to undertake more significant discussions and have
representatives of the Company meet with Parent's financial advisor.
On August 5, 1999, at Mr. Yamamura's request, Mr. Avery and William B.
Ford, the Vice President and Chief Financial Officer of the Company, met with
representatives of Parent's financial advisor. At this meeting, Parent's
financial advisor explained to Messrs. Avery and Ford Parent's desire to combine
the two companies as part of Parent's global acquisition strategy. On behalf of
Parent, its financial advisor at this meeting proposed an acquisition of the
Company by Parent in a transaction in which the shareholders of the Company
would receive an aggregate of $35 million (or approximately $6.00 per share) in
cash. The proposal was subject to various conditions, including a satisfactory
due diligence investigation of the Company by Parent, negotiation of definitive
documentation acceptable to both companies and the approval of the Boards of
Directors of both companies.
On August 16, 1999, the Company and Parent entered into a confidentiality
agreement to permit the exchange of confidential information between the parties
for the purpose of evaluating the merits of a potential transaction between the
companies. The Confidentiality Agreement also provided that, with certain
exceptions, until the date that is two years from the date of the
Confidentiality Agreement, neither Parent nor any of its representatives would,
among other things, acquire any securities of the Company or seek to effect a
tender offer, merger or other business combination transaction involving the
Company. Pursuant to the Confidentiality Agreement, the Company thereafter
provided Parent and its financial advisors and legal counsel with certain
information concerning the Company's business, operations and financial
condition.
On August 23, 1999, Messrs. Avery and Yamamura met to continue discussions
concerning a potential transaction following a review by Parent of the
information provided to Parent by the Company. Mr. Yamamura affirmed Parent's
desire to proceed with an acquisition of the Company at an aggregate cash
purchase price of $35 million.
On August 31, 1999, the Company Board held a meeting to discuss Parent's
proposal to acquire the Company for an aggregate cash purchase price of $35
million. At this meeting, the Company Board discussed the Company's current
business plan in view of Parent's all cash proposal, which would provide the
Company's stockholders with full liquidity for their investment at a price
significantly greater than the recent trading price of the Company's stock. The
Company Board also discussed management's discussions with a potential strategic
partner ("Company A") that had expressed an interest in exploring a possible
acquisition of the
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Company. Mr. Avery informed the Company Board that representatives of Company A
had informed him that Company A was no longer interested in pursuing a possible
acquisition of the Company because Company A had concluded that certain business
lines of the Company were not a strategic fit with Company A's businesses.
Following these discussions, the Company Board authorized management to continue
discussions with Parent concerning a potential transaction with the objective of
obtaining a higher price and other favorable terms. The Company Board also
authorized management to seek bids from various financial advisors for the
purpose of engaging a financial advisor to evaluate the fairness from a
financial point of view of the consideration to be received by the Company's
stockholders in any transaction that might be considered by the Company Board.
In addition, the Company Board authorized management to continue to pursue other
potential bidders with the assistance of The Bigelow Company, an investment
banking concern familiar with the Company's industry ("Bigelow").
Following the meeting of the Company Board on August 31, 1999, Parent, its
financial advisors and the Company continued discussions concerning a potential
acquisition of the Company by Parent, and, in particular, discussed the amount
of the cash purchase price. After further negotiations between the parties,
Parent increased its proposed cash purchase price to $6.25 per share. In
addition, the parties began negotiating the terms of a draft merger agreement
prepared by Parent's legal counsel and the arrangements for senior management of
the Company following the completion of a transaction.
During this period, the Company, with the assistance of Bigelow, contacted
several other potential strategic partners to determine whether such parties
might have an interest in pursuing a transaction with the Company. The Company
also received bids from various investment banking firms to evaluate the
fairness from a financial point of view of the consideration to be received by
the Company's stockholders in any proposed transaction involving the Company.
Following the receipt of such bids, the Company retained Advest, Inc. ("Advest")
to advise the Company with respect to such matters.
On September 9, 1999, the Company Board met to discuss the status of
negotiations with Parent, including the price and other proposed terms. At this
meeting, Mr. Avery informed the Company Board that Parent had increased its
proposed cash purchase price from $6.00 per share to $6.25 per share. Management
also updated the Company Board on the progress being made by Bigelow to solicit
indications of interest from other potential strategic partners. The Company
Board then engaged in a discussion concerning the Company's current business
plan in view of Parent's latest proposal. Following this discussion, the Company
Board instructed management to continue negotiations of the terms of the
proposed transaction with Parent and to continue pursuing other indications of
interest.
On September 21, 1999, Bigelow received a preliminary indication of
interest from another company ("Company B") within the industries in which the
Company operates. In its preliminary indication of interest, Company B expressed
a willingness to acquire the Company for an aggregate cash purchase price of not
more than $30 million. Management of the Company instructed Bigelow to inform
Company B that it would have to significantly increase its proposed purchase
price for the Company to continue to explore a potential transaction with
Company B.
On September 28, 1999, representatives of Company B met with Messrs. Avery
and Ford and other representatives of the Company to discuss the strategic fit
of the Company's businesses with those of Company B, although no new proposal by
Company B resulted from that meeting.
On September 29, 1999, Mr. Avery received a telephone call from a
representative of another company ("Company C") within the industries in which
the Company operates expressing an interest in exploring a potential transaction
with the Company. Following a discussion, Mr. Avery and the representative from
Company C agreed that representatives from Company C should meet in person with
Messrs. Avery and Ford to further discuss Company C's interest. Bigelow also
informed Mr. Avery the same day that Company B had decided not to pursue a
transaction with the Company.
On September 30, 1999, Messrs. Avery and Ford and other representatives of
the Company met with representatives from another company ("Company D") within
the industries in which the Company operates expressing an interest in exploring
a potential transaction with the Company.
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<PAGE> 16
On September 30, 1999, the Company Board held a meeting to discuss the
status of negotiations with Parent and the Company's and Bigelow's efforts to
solicit additional indications of interest. At this meeting, the Company Board
discussed the terms of the draft merger agreement proposed by Parent, including
the scope of the Company's ability to terminate the merger agreement to accept a
more favorable transaction. Messrs. Avery and Ford also updated the Company
Board on the status of the discussions with Company A, Company B, Company C and
Company D.
On October 1, 1999, Bigelow informed Mr. Avery that Company D had decided
not to pursue a transaction with the Company.
On October 4, 1999, representatives of Company C met with Messrs. Avery and
Ford and other representatives of the Company to discuss Company C's interest in
pursuing a potential transaction with the Company. Following this meeting, on
October 5, 1999 Mr. Avery received a telephone call from a representative of
Company C informing him that Company C had decided not to continue discussions
with the Company concerning a possible transaction.
On October 5, 1999, Mr. Avery met with Mr. Yamamura in Manchester, New
Hampshire to discuss, among other things, employee matters, including his and
Mr. Ford's role with the Company following completion of the proposed
transaction.
On October 6, 1999, the Company Board held a meeting at which Mr. Avery
again reported on management's discussions with Company A, Company B, Company C
and Company D. The Company Board also discussed the status of negotiations with
Parent and the terms of the proposed transaction, including the proposed
purchase price. At the meeting, the Company's legal counsel described the
current terms of the draft merger agreement and the Company Board discussed
certain of them at length.
Following the October 6 meeting of the Company Board and throughout the
week of October 11, 1999, the parties continued negotiating the terms of the
draft merger agreement. As a result of these negotiations, Parent indicated that
it was willing to agree to a purchase price of $6.50 per share if the parties
could agree on the other unresolved terms of the draft merger agreement and
related documentation.
On October 14, 1999, the Company Board met to consider the approval of the
Merger Agreement and the transactions contemplated thereby. At that meeting,
Messrs. Avery and Ford, together with the Company's legal counsel, updated the
Company Board on the status of negotiations with Parent. Messrs. Avery and Ford
updated the Company Board on the key issues under discussion and the relative
positions of the parties with respect to such issues. The Company's legal
counsel reviewed for the Company Board the terms of the Merger Agreement and the
agreements with Messrs. Avery and Ford governing their involvement with the
Company following completion of the transaction. In addition, Advest gave a
presentation to the Company Board concerning the fairness, from a financial
point of view, of the cash consideration to be received by the stockholders of
the Company in the transaction. Following this presentation, Advest delivered
its opinion to the effect that, as of the date of such opinion, the cash
consideration of $6.50 per share to be received by the Company's stockholders in
the transaction was fair, from a financial point of view, to the Company and its
stockholders. The Company Board, after considering the terms of the Merger
Agreement and after discussing and considering the analyses and opinion of
Advest, determined that the Offer and the Merger were fair to and in the best
interests of the Company and its stockholders, recommended that all stockholders
tender their shares pursuant to the Offer, and authorized management to complete
negotiations of, and execute, the Merger Agreement and related agreements.
Preparation of final versions of the Merger Agreement and related agreements
continued through the evening of October 19, 1999 and into the morning of
October 20, 1999. Early in the morning of October 20, 1999, the Company, Parent
and Purchaser executed the Merger Agreement and issued a joint public
announcement of the transaction.
In reaching its determination regarding the transaction, the Company Board
considered a number of factors, including, without limitation, the following:
(i) The Company's business, assets, management, strategic objectives,
competitive position and prospects.
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<PAGE> 17
(ii) The Company's historical financial information and projected
financial results, including those set forth in the strategic plans
developed annually by the Company and management's most recent projections.
(iii) Historical market prices and trading information with respect to
the shares of Common Stock and a comparison of these market prices and
trading information with those of selected publicly-held companies
operating in industries similar to that of the Company and the various
price to earnings multiples at which the shares of Common Stock and the
securities of these other companies trade.
(iv) A financial analysis of the valuation of the Company under
various methodologies, including a discounted cash flow analysis, a
selected comparable public companies analysis and a selected comparable
transactions analysis.
(v) The prices and forms of consideration paid in selected recent
comparable acquisition transactions, and the fact that the price to be paid
under the Merger Agreement to holders of the shares of Common Stock
compares favorably to the prices paid in other recent acquisition
transactions of companies in similar industries.
(vi) The fact that the $6.50 per share price to be paid in the Offer
and the Merger represents (A) a premium of 79% over $3.625, the closing
price of a share of Common Stock on the Nasdaq National Market on October
13, 1999, and (B) a premium of 65% over $3.942, the sixty day average of
the closing price of a share of Common Stock as of October 13, 1999.
(vii) The terms and conditions of the Merger Agreement, including the
"all cash" nature of the transaction and the fact that (A) the Offer and
Merger are not subject to a financing condition, (B) Parent and the
Purchaser have agreed that shares of Common Stock not purchased in the
Offer will receive pursuant to the Merger the same form and amount of
consideration as the shares of Common Stock purchased in the Offer, and (C)
the Company, under certain circumstances and subject to certain conditions
(including the payment of liquidated damages to Parent) may terminate the
Merger Agreement in order to execute an agreement with a third party
providing for the acquisition of the Company on terms more favorable to the
Company's stockholders than the Offer and the Merger.
(viii) The opinion of Advest, delivered to the Company Board on
October 14, 1999, that as of such date, and based upon and subject to the
limitations set forth therein, the cash consideration of $6.50 per share to
be received by the Company's stockholders in the transaction was fair, from
a financial point of view, to the Company and its stockholders (a copy of
such opinion is attached hereto as Schedule II to this Schedule 14D-9 and
is incorporated herein by reference).
In view of the wide variety of factors considered by the Company Board, the
Company Board did not find it practicable to, and did not assign relative
weights to the factors set forth above. Rather, the Company Board reached its
determination based on the totality of the circumstances and the advice
presented to it by its financial and legal advisors.
In analyzing the Offer and the Merger, the Company's management and the
Company Board were assisted and advised by representatives of Advest and the
Company's legal counsel, who reviewed various financial, legal and other
considerations in addition to the terms of the Merger Agreement. The full text
of the written opinion of Advest, setting forth the procedures followed, the
matters considered, the scope of the review undertaken and the assumptions made
by Advest in arriving at its opinion, is attached hereto as Schedule II to this
Schedule 14D-9 and is incorporated herein by reference. Stockholders are urged
to, and should, read such opinion carefully and in its entirety. The opinion was
provided for the information and assistance of the Company Board in connection
with its consideration of the Offer and the Merger. Such opinion addresses only
the fairness from a financial point of view of the consideration to be received
by the stockholders of the Company in the Offer and the Merger and does not
constitute a recommendation to any stockholder as to whether to tender shares in
the Offer or to vote in favor of the Merger.
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<PAGE> 18
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company entered into a letter agreement with Advest dated as of
September 9, 1999 (the "Engagement Letter"), pursuant to which the Company
engaged Advest to act as the Company's financial advisor in connection with the
Offer and the Merger. Subject to the terms and conditions of the Engagement
Letter, Advest agreed to review and analyze proposed transactions, and, if fair,
to render a written fairness opinion (a "Fairness Opinion") to the Company in
connection with a potential sale of or merger involving the Company. Pursuant to
the terms of the Engagement Letter, Advest agreed to act as the exclusive
financial advisor to the Company for a period of six months following the
signing of the Engagement Letter, unless a transaction is consummated prior to
the expiration of such period. In connection with the Engagement Letter, the
Company agreed to pay Advest (i) an initial fee of $25,000 upon acceptance of
the Engagement Letter, plus an additional $10,000 to be paid monthly (contingent
upon continuation of the term of the Engagement Letter) commencing with the
first day of December 1999 until the earlier to occur of the consummation of a
transaction or the expiration of the term of the Engagement Letter; (ii) a
completion fee of $50,000 upon delivery of a Fairness Opinion to the Company or
to the Company Board; and (iii) a final payment for delivery of the Fairness
Opinion of $25,000 upon the closing of a transaction. In addition, the Company
agreed to (a) reimburse Advest for its reasonable out-of-pocket expenses
incurred during its engagement and the period following the close of a
transaction and (b) indemnify Advest against certain liabilities incurred in
connection with its engagement. In addition, Advest in the past has provided
certain investment banking services to the Company and has received fees for
rendering such services.
Except as disclosed herein (including under Item 4 hereof), neither the
Company nor any person acting on its behalf currently intends to employ, retain
or compensate any other person to make solicitations or recommendations to
holders of Shares on the Company's behalf concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transaction in the Shares has been effected during the past 60 days
by the Company, or to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, each executive officer,
director and, affiliate of the Company currently intends to tender all Shares
over which he or she has dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in Items 3(b) and 4 above, the Company is not
engaged in any negotiation in response to the Offer which relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization
involving the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as set forth in Items 3(b) and 4 above, there are no
transactions, board resolutions, agreements in principle or signed contracts in
response to the Offer which relate to or would result in one or more of the
events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) State Takeover Laws. Chapters 110C, 110D and 110F of the Massachusetts
General Laws (the "MGL") are generally applicable with respect to any "takeover"
of a Massachusetts corporation. Chapter 110D of the MGL (the "Control Share
Act") regulates "control share acquisitions," defined as the acquisition of
stock in certain "issuing public corporations" organized in Massachusetts which
increases the voting power of the acquiror above certain specified levels (i.e.,
20%, 33 1/3% and 50%). The Control Share Act disqualifies the voting rights of
Shares acquired in a "control share acquisition" unless, among other things,
such acquisition is pursuant to a merger agreement to which the issuing public
corporation is a party. In accordance with the provisions of Chapter 110D, on
October 14, 1999, the Company Board approved the
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<PAGE> 19
Merger Agreement, the Offer, and the Merger and the Purchaser's and Parent's
acquisition of Shares pursuant to the Offer and the Merger. Accordingly, the
Control Share Act is inapplicable to the Offer and the Merger.
Chapter 110C of the MGL (the "Take-Over Bid Statute") imposes procedural
requirements in connection with certain take-over bids. A take-over bid is the
acquisition or offer to acquire stock which would result in the acquiror
possessing more than 10% of the voting power of any class of an issuer's stock.
A take-over bid does not include, among other things, any offer which the board
of directors of the issuer has consented to and approved and has recommended its
stockholders accept, if the terms of such bid, including any inducements to
officers or directors which are not made available to all stockholders, have
been furnished to the stockholders. In accordance with the provisions of Chapter
110C, on October 14, 1999, the Company Board approved the Merger Agreement, the
Offer, and the Merger and the Purchaser's and Parent's acquisition of Shares
pursuant to the Offer and the Merger. Furthermore, the Company has furnished all
of the material terms of the Offer and the Merger to the stockholders in
accordance with applicable disclosure requirements. Accordingly, the Take-Over
Bid Statute is inapplicable to the Offer and the Merger.
Chapter 110F of the MGL (the "Business Combination Statute") limits the
ability of a Massachusetts corporation to engage in business combinations with
"interested stockholders" (defined as any beneficial owner of 5% or more of the
outstanding voting stock of the corporation) unless, among other things, the
corporation's board of directors has given its prior approval to either the
business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder." On October 14, 1999, the Company Board
approved the Merger Agreement, the Offer, and the Merger and the Purchaser's and
Parent's acquisition of Shares pursuant to the Offer and the Merger.
Accordingly, the Business Combination Statute is inapplicable to the Offer and
the Merger.
(b) Regulatory Matters. The Offer and Merger are not subject to the HSR
Act, which provides that certain acquisition transactions may not be consummated
unless certain information has been furnished to the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice (the
"Antitrust Division") and certain waiting period requirements have been
satisfied. Accordingly, neither the Purchaser nor the Company is required to
furnish any information to the FTC or the Antitrust Division.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer. At any time before or after the Purchaser's acceptance
for payment of Shares, the FTC or the Antitrust Division could take such action
under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Purchaser's acquisition of Shares
pursuant to the Offer or otherwise or seeking divestiture of Shares acquired by
the Purchaser or divestiture of substantial assets of the Purchaser or its
subsidiaries. Private parties and state attorney generals may also bring legal
action under the antitrust laws under certain circumstances. Based upon the
Purchaser's discussions with the Company and its examination of publicly
available information with respect to the Company, the Purchaser believes that
the acquisition by the Purchaser of the Shares will not violate the antitrust
laws. Nevertheless, there can be no assurance that a challenge to the Offer on
antitrust grounds will not be made, or, if such a challenge is made, of the
result.
(c) Information Statement. The Information Statement attached as Schedule
I hereto is being furnished in connection with the possible designation by the
Purchaser and Parent pursuant to the Merger Agreement, of certain persons to be
appointed to the Company Board other than at a meeting of the Company's
stockholders.
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<PAGE> 20
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1* Letter to Stockholders of Ferrofluidics Corporation dated
October 26, 1999 from Paul F. Avery, Jr., President and
Chief Executive Officer of Ferrofluidics Corporation.
Exhibit 2 Joint Press Release issued by Ferrofluidics Corporation and
Ferrotec Corporation dated October 20, 1999.
Exhibit 3 Agreement and Plan of Merger dated as of October 20, 1999 by
and among Ferrotec Corporation, Ferrotec Acquisition, Inc.
and Ferrofluidics Corporation.
Exhibit 4 Confidentiality Agreement dated as of August 16, 1999 by and
between Ferrotec Corporation and Ferrofluidics Corporation.
Exhibit 5 Employment Agreement dated as of June 3, 1998 by and between
Ferrofluidics Corporation and Paul F. Avery, Jr., as amended
by Agreement, dated as of June 3, 1999 by and between
Ferrofluidics Corporation and Paul F. Avery, Jr., as further
amended by Agreement dated September 9, 1999 by and between
Ferrofluidics Corporation and Paul F. Avery, Jr.
Exhibit 6 Consulting Agreement dated as of October 20, 1999 by and
among Ferrofluidics Corporation, Ferrotec Corporation,
Ferrotec Acquisition, Inc. and Paul F. Avery, Jr.
Exhibit 7 Letter Agreement dated as of October 20, 1999 by and among
Ferrofluidics Corporation, Ferrotec Corporation, Ferrotec
Acquisition, Inc. and Paul F. Avery, Jr.
Exhibit 8 Employment Agreement dated as of September 23, 1996 by and
between Ferrofluidics Corporation and William B. Ford.
Exhibit 9 Employment Agreement dated as of October 20, 1999 by and
among Ferrofluidics Corporation, Ferrotec Corporation,
Ferrotec Acquisition, Inc. and William B. Ford.
Exhibit 10 Severance Agreement dated as of October 1, 1993 by and
between Ferrofluidics Corporation and Alvan F. Chorney.
Exhibit 11 Letter Agreement dated as of August 6, 1999 by and between
Ferrofluidics Corporation and Alvan F. Chorney.
Exhibit 12 Letter Agreement, dated as of July 1, 1999 by and between
Ferrofluidics Corporation and Timothy D. Barton.
Exhibit 13 Amendment dated as of October 20, 1999 to the Shareholder
Rights Agreement dated as of August 3, 1994 by and between
Ferrofluidics Corporation and American Stock Transfer and
Trust Company.
Exhibit 14* Opinion dated October 14, 1999 of Advest, Inc.
</TABLE>
- ---------------
* Included in copies mailed to stockholders by Ferrofluidics Corporation and
Ferrotec Corporation.
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<PAGE> 21
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
FERROFLUIDICS CORPORATION
By: /s/ PAUL F. AVERY, JR.
------------------------------------
Paul F. Avery, Jr.
President and Chief Executive
Officer
Dated: October 26, 1999
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SCHEDULE I
FERROFLUIDICS CORPORATION
40 SIMON STREET
NASHUA, NEW HAMPSHIRE 03061
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
------------------------
This Information Statement is being mailed on or about October 26, 1999 as
part of a Schedule 14D-9 Solicitation/Recommendation Statement (the "Schedule
14D-9") of Ferrofluidics Corporation, a Massachusetts corporation (the
"Company"), to the holders of shares (the "Shares") of common stock, par value
$.004 per share, of the Company (the "Common Stock"). You are receiving this
Information Statement in connection with the possible election of the Purchaser
Designees (as hereinafter defined) to seats on the Company's Board of Directors
(the "Company Board").
The Company, Ferrotec Corporation, a corporation organized under the laws
of Japan ("Parent"), and Ferrotec Acquisition, Inc., a Massachusetts corporation
and a wholly-owned subsidiary of Parent (the "Purchaser"), have entered into an
Agreement and Plan of Merger dated as of October 20, 1999 (the "Merger
Agreement"), pursuant to which (i) Parent has caused the Purchaser to commence a
tender offer (the "Offer") for all outstanding Shares at a price of $6.50 per
Share, net to the seller in cash, without interest, and (ii) the Purchaser will
be merged (the "Merger") with and into the Company with the Company as the
surviving corporation. As a result of the Offer and the Merger, the Company will
become a wholly-owned subsidiary of Parent.
The Merger Agreement requires the Company to take action to cause the
Purchaser Designees to be elected to the Company Board under the circumstances
described therein. See "Right to Designate Directors; Purchaser Designees"
below.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
October 26, 1999. The Offer is scheduled to expire at 12:00 midnight, New York
City time, on November 23, 1999. In certain circumstances, the Offer may be
extended.
The information contained in this Information Statement concerning Parent,
the Purchaser and the Purchaser Designees has been furnished to the Company by
Parent, and the Company assumes no responsibility for the accuracy or
completeness of such information.
RIGHT TO DESIGNATE DIRECTORS; PURCHASER DESIGNEES
The Merger Agreement provides that, promptly upon the purchase by the
Purchaser of Shares pursuant to the Offer, and from time to time thereafter, the
Purchaser shall be entitled to designate up to such number of directors, rounded
up to the next whole number, on the Company Board as shall give the Purchaser
representation on the Company Board equal to the product of (a) the total number
of directors on the Company Board (after giving effect to the directors elected
pursuant to this sentence) and (b) the percentage that the aggregate number of
Shares beneficially owned by the Purchaser or any affiliate of the Purchaser
following such purchase bears to the total number of Shares then outstanding,
and that the Company shall, at such time, promptly take all actions necessary to
cause the Purchaser's designees (the "Purchaser Designees") to be elected as
directors of the Company, including increasing the size of the Company Board or
securing the resignations of incumbent directors or both, provided that the
number of directors constituting the Company Board shall be no less than five.
At such times, the Company shall use its best efforts to cause
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<PAGE> 23
Purchaser Designees to constitute the same percentage as is on the Company Board
on (i) each committee of the Company Board, (ii) each board of directors of each
of the Company's subsidiaries, and (iii) each committee of each such board, in
each case only to the extent permitted by applicable law. Notwithstanding the
foregoing, in the event that the Purchaser Designees are elected to the Company
Board, until the effective time of the Merger (the "Effective Time"), the
Company Board shall have at least two directors who are directors on the date of
the Merger Agreement (the "Independent Directors"); provided that, in such
events, if the number of Independent Directors shall be reduced below two for
any reason whatsoever, any remaining Independent Directors (or Independent
Director, if there be only one remaining) shall be entitled to designate persons
to fill such vacancies who shall be deemed to be Independent Directors for
purposes of the Merger Agreement or, if no Independent Director then remains,
the other directors shall designate two persons to fill such vacancies who shall
not be stockholders, affiliates or associates of the Purchaser and such persons
shall be deemed to be Independent Directors for purposes of the Merger
Agreement. In addition, in the event that the Purchaser Designees are elected to
the Company Board, after the acceptance for payment of Shares pursuant to the
Offer and prior to the Effective Time, the affirmative vote of a majority of the
Independent Directors shall be required to (a) amend or terminate the Merger
Agreement by the Company, (b) extend the time for performance of Parent's or the
Purchaser's respective obligations under the Merger Agreement or (c) exercise or
waive any of the Company's rights, benefits or remedies under the Merger
Agreement.
As of the date of this Information Statement, Parent has not determined the
identity of the Purchaser Designees. However, the Purchaser Designees are
expected to be selected from among the directors and executive officers of
Parent. Certain information regarding the directors and executive officers of
Parent is contained in Annex I hereto. It is currently anticipated that the
initial Independent Directors will be Dennis R. Stone and Dean Kamen. Certain
information regarding the Company's directors is set forth below in "Information
Regarding Directors and Executive Officers of the Company."
None of the Purchaser Designees (i) is currently a director of, or holds
any position with, the Company, (ii) has a familial relationship with any
directors or executive officers of the Company, or (iii) to the best knowledge
of Parent, beneficially owns any securities (or rights to acquire securities) of
the Company with the exception of Akira Yamamura, President and Chief Executive
Officer of Parent, who individually beneficially owns fifty Shares. The Company
has been advised by Parent that, to the best of Parent's knowledge, none of the
Purchaser Designees has been involved in any transactions with the Company or
any of its directors, executive officers or affiliates which are required to be
disclosed pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"), except as may be disclosed herein or in the
Schedule 14D-9.
It is expected that the Purchaser Designees may assume office promptly
following the purchase by the Purchaser of such number of Shares which satisfies
the Minimum Condition (as defined in the Merger Agreement) and the satisfaction
or waiver of certain other conditions set forth in the Merger Agreement, and
that, upon assuming office, the Purchaser Designees will thereafter constitute
at least a majority of the Company Board.
SHARE INFORMATION
The Common Stock is the only class of voting securities of the Company
outstanding. Each Share is entitled to one vote on each matter properly brought
before an annual or special meeting of stockholders of the Company. As of
October 14, 1999, there were 5,574,177 Shares outstanding.
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<PAGE> 24
INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
THE COMPANY BOARD
The Restated Articles of Organization and the Amended and Restated By-Laws
of the Company provide that the number of directors (which is to be not less
than three) is to be determined from time to time by vote of the Company Board.
The Company Board currently consists of four members and is divided into
three classes, with one director in Class I, one director in Class II, and two
directors in Class III. Directors serve for three-year terms with one class of
Directors being elected by the Company's stockholders at each annual meeting.
The Company Board is currently composed of Paul F. Avery, Jr., Howard F. Nichols
and Messrs. Stone and Kamen. During the fiscal year ended July 3, 1999 ("Fiscal
1999"), each of Stephen B. Hazard and Robert P. Rittereiser resigned from the
Company Board. Neither Mr. Hazard nor Mr. Rittereiser resigned from the Company
Board because of a disagreement with the Company on any matter relating to the
Company's operations, policies or practices.
There are no family relationships among any of the directors or executive
officers of the Company. As indicated above, certain of the current directors
will resign effective immediately following the purchase of at least a majority
of the then outstanding Shares by the Purchaser pursuant to the Offer and will
be replaced by the Purchaser Designees.
MEETINGS; COMMITTEES
During Fiscal 1999, the Company Board held thirteen meetings. Each Director
attended at least 75% of the aggregate of (i) the total number of meetings of
the Company Board and (ii) total number of meetings held by all committees of
the Company Board on which such Director served.
Audit Committee. The Company Board has established an Audit Committee
currently consisting of Messrs. Nichols and Stone (the "Audit Committee"). The
principal functions of this committee are to review the financial statements of
the Company and the scope of the annual audit, monitor the Company's internal
financial and accounting controls and recommend to the Company Board the
appointment of independent certified public accountants. The Audit Committee met
two times during Fiscal 1999.
Compensation Committee. The Company Board also has established a
Compensation Committee currently consisting of Messrs. Stone and Kamen (the
"Compensation Committee"). The principal function of this committee is to
recommend the compensation levels of executive officers of the Company to the
Company Board. The Compensation Committee met once during Fiscal 1999.
The Company Board does not have a nominating committee.
BIOGRAPHICAL INFORMATION REGARDING DIRECTORS
The following biographical descriptions set forth certain information with
respect to the members of the Company Board, based on information furnished to
the Company by each director.
Paul F. Avery, Jr., age 70, has been the President, Chief Executive Officer
and Chairman of the Board of Directors of the Company since June 3, 1998. Mr.
Avery also served as the Chief Executive Officer of the Company from October 1,
1993 until June 25, 1996, President of the Company from October 1, 1993 until
January 1, 1995 and Chairman of the Board and Treasurer of the Company from
October 1, 1993 until May 1, 1997. He is also President of P.F. Avery
Corporation, a management consulting firm, a position he has held since 1983.
From 1967 to 1983 he was President and Treasurer of C.E. Avery, a wholly-owned
subsidiary of Combustion Engineering, Inc., and President and Chief Executive
Officer of CE-KSB Pump Company, Inc. Both companies were involved in the design
and fabrication of pumps and reactor internals for the utility industry. Mr.
Avery is also general partner of a 3MW hydro-electric facility in Nashua, New
Hampshire, and serves as a director of several privately held companies.
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<PAGE> 25
Dean Kamen, age 48, has been a Director of the Company since 1989. Mr.
Kamen is the founder and Chairman and Chief Executive Officer of DEKA Research
and Development Corporation, which develops highly specialized medical
equipment. Mr. Kamen is the founder and, from 1976 to 1982, was the Chief
Executive Officer of Auto-Syringe, Inc., a manufacturer of medical devices that
was acquired by Baxter Healthcare Corporation. He is a member of the Board of
Directors of Sander's Prototype, Inc. and Zero Emissions Technology. He also
serves as a director of several privately-held companies.
Howard F. Nichols, age 71, a consultant, has been a Director of the Company
since July 1979. Until July 1989, Mr. Nichols was a Vice President of The First
National Bank of Boston, Trust Department. He is also a member of the Board of
Directors of Doble Engineering Co., Bemis Associates, Inc., Weymouth Art Leather
Co., McCrillis & Eldredge Insurance, Inc. and Seamans Supply Co., all of which
are privately-held companies.
Dennis R. Stone, CPA, age 52, has been a Director of the Company since
1994. Mr. Stone is a stockholder and director of the accounting firm of Nathan
Wechsler & Company, Professional Association, Portsmouth, New Hampshire. From
1989 to 1997, he was a principal in the firm of Dennis R. Stone, CPA,
Portsmouth, New Hampshire. From 1989 to 1991 he also served as Executive Vice
President and Chief Financial Officer of The Blake Insurance Group, Inc.,
Portsmouth, New Hampshire. Mr. Stone also serves as an investigative auditor for
the New Hampshire Supreme Court Professional Conduct Committee. He is a member
of the Board of Directors of Odyssey House, Inc.
BIOGRAPHICAL INFORMATION REGARDING EXECUTIVE OFFICERS OF THE COMPANY
The following biographical descriptions set forth certain information with
respect to the executive officers of the Company, based on information furnished
to the Company by each executive officer. The names and ages of all executive
officers of the Company and principal occupation and business experience during
at least the last five years for each are set forth below.
Paul F. Avery, Jr., is the President, Chief Executive Officer and Chairman
of the Board of the Company. For biographical information regarding Mr. Avery,
see "--Biographical Information Regarding Directors" above.
Alvan F. Chorney, age 54, has held the position of Vice President--New
Business Development since July 27, 1998. He served as Vice President and
General Manager--Components Division of the Company from April 19, 1996 to July
27, 1998. Prior to that, Mr. Chorney served as Senior Vice President of the
Company from November 1991 to April 19, 1996. Mr. Chorney was also a Director of
the Company from 1986 to April 1994. In September 1997, the Commission's
Division of Enforcement brought a cease-and-desist proceeding against, among
others, Mr. Chorney, alleging that in 1992 Mr. Chorney failed to properly report
on Schedule 13D his beneficial ownership of certain Shares. On May 20, 1999,
without admitting or denying the Commission's allegations, Mr. Chorney agreed to
cease and desist from committing or causing any violations of, and committing or
causing any future violations of, Section 13(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and Rule 13d-1 thereunder.
William B. Ford, age 59, has held the position of Treasurer of the Company
since May 19, 1997 and the position of Vice President and Chief Financial
Officer of the Company since September 23, 1996. From November 1993 until April
1995, Mr. Ford was Vice President and Chief Financial Officer of Versyss
Incorporated, a software developer and distributor of integrated hardware and
software systems for medical practice management and other small business
applications. From 1987 to November 1993, he was a Director in the Financial
Advisory Services consulting practice of Coopers & Lybrand L.L.P.
Timothy D. Barton, age 44, has held the position of Vice
President--Components Division of the Company since July, 1998. From 1991 to
1998, Mr. Barton served as Director of Sales and Marketing of the Company. From
1985 to 1991, he served as Regional Sales Manager of the Company, and prior to
that, from 1983 to 1985, he served as Project Engineer of the Company.
S-4
<PAGE> 26
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors. Directors who are officers or employees of the Company receive
no compensation for their service as Directors. Directors who are not officers
or employees of the Company receive such compensation for their services as the
Company Board may from time to time determine. Non-employee Directors each
receive an annual retainer of $20,000, payable quarterly.
Pursuant to the Ferrofluidics Corporation Amended and Restated 1995 Stock
Option and Incentive Plan (the "1995 Incentive Plan"), eligible non-employee
Directors are entitled to receive options to purchase Shares in accordance with
the formula provisions thereof. Under the 1995 Incentive Plan, eligible non-
employee Directors automatically receive an option to purchase 3,000 Shares on
the fifth business day after each annual meeting of stockholders of the Company,
commencing with the Company's 1995 Annual Meeting of Stockholders. Accordingly,
on December 24, 1998, each of Messrs. Stone, Nichols, Kamen, Hazard and
Rittereiser was granted an option to purchase 3,000 Shares at an exercise price
of $3.16 per share. All such options vested and became immediately exercisable
upon grant and have an exercise price equal to 100% of the fair market value of
a Share on the grant date.
Executive Officers. The following sections set forth and discuss the
compensation paid or awarded during the last three years to the Company's Chief
Executive Officer and each of the four most highly compensated executive
officers who earned in excess of $100,000 during Fiscal 1999 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION AWARDS
-------------------------------------------
ANNUAL COMPENSATION SECURITIES
----------------------- OTHER ANNUAL RESTRICTED UNDERLYING LTIP
NAME AND FISCAL COMPENSATION STOCK AWARD(S) WARRANTS/ PAYOUTS
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) ($) ($) OPTIONS(#) ($)
- ------------------ ------ ------------ -------- ------------ --------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul F. Avery, Jr........... 1999 210,000 -- 15,604(2) -- 83,000(3) --
President, Chief 1998 19,230(5) -- 1,111(6) -- 75,000(3) --
Executive Officer and 1997 183,814(5) -- 3,615(6) -- -- --
Chairman of the Board
Alvan F. Chorney............ 1999 180,000 -- 231(9) -- 34,000(3) --
Vice President -- 1998 183,974 1,720 1,000(9) -- -- --
New Business 1997 170,223 5,156 1,000(9) -- -- --
Development
William B. Ford............. 1999 121,519 -- -- -- 36,000(3) --
Vice President, Chief 1998 150,365 -- -- -- -- --
Financial Officer and 1997 112,223(5) -- -- -- 30,000(3) --
Treasurer
Timothy D. Barton........... 1999 111,884 -- -- -- 19,000(3) --
Vice President and 1998 -- -- -- -- -- --
General Manager -- 1997 -- -- -- -- -- --
Components Division
<CAPTION>
PAYOUTS
------------
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
- ------------------ ------------
<S> <C>
Paul F. Avery, Jr........... 11,570(4)
President, Chief 120,450(7)
Executive Officer and 19,350(8)
Chairman of the Board
Alvan F. Chorney............ --
Vice President -- --
New Business 2,099(10)
Development
William B. Ford............. 2,745(11)
Vice President, Chief 5,832(10)
Financial Officer and --
Treasurer
Timothy D. Barton........... --
Vice President and --
General Manager -- --
Components Division
</TABLE>
- ---------------
(1) Includes all voluntary pre-tax contributions to the Ferrofluidics
Corporation Tax Savings and Deposit and Investment Plan.
(2) Of such amount, $12,982 represents an automobile allowance and $2,622
represents an allowance for medical and health expenses incurred by Mr.
Avery in excess of amounts covered by the Company's group health plan.
(3) This amount represents Shares subject to options granted during the fiscal
year.
(4) This amount includes the full dollar value of insurance premiums paid by
the Company on behalf of Mr. Avery with respect to term life insurance.
(5) This amount represents less than a full year's salary.
(6) This amount represents an automobile allowance.
(7) This amount includes the full dollar value of insurance premiums paid by
the Company on behalf of Mr. Avery with respect to term life insurance in
the amount of $10,450 and payments made to
S-5
<PAGE> 27
Mr. Avery pursuant to a consulting agreement with the Company in the amount
of $110,000. See "Agreements with Paul F. Avery, Jr." in Item 3(b) of the
Schedule 14D-9.
(8) This amount includes the full dollar value of insurance premiums paid by
the Company on behalf of Mr. Avery with respect to term life insurance in
the amount of $9,350 and payments made to Mr. Avery pursuant to a
consulting agreement with the Company in the amount of $10,000. See
"Agreements with Paul F. Avery, Jr." in Item 3(b) of the Schedule 14D-9.
(9) This amount represents an allowance for medical and health expenses
incurred by Mr. Chorney in excess of amounts covered by the Company's group
health plan.
(10) This amount represents reimbursement by the Company to Mr. Chorney and Mr.
Ford, respectively, of expenses incurred in connection with their
relocation to New Hampshire.
(11) This amount represents reimbursement by the Company for tax incurred by Mr.
Ford relating to the reimbursement by the Company of certain relocation
expenses incurred by Mr. Ford.
Option Grants in Last Fiscal Year. The following table sets forth
information regarding each stock option granted during Fiscal 1999 to each of
the Named Executive Officers. The potential realizable values that would exist
for the respective options are based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date of grant over the full term of
the option. Actual gains, if any, on stock options, exercises and holdings of
Common Stock are dependent on the future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
GRANTED(1) FISCAL YEAR PER SHARE(2) DATE 5% 10%
---------- ------------ ------------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Avery, Jr. .......... 83,000 27.4% $3.81 11/5/03 $87,369 $193,062
Alvan F. Chorney............. 34,000 11.2 3.81 11/5/03 35,790 79,085
William B. Ford.............. 36,000 11.9 3.81 11/5/03 20,000 83,738
Timothy D. Barton............ 19,000 6.3 3.81 11/5/03 20,000 44,195
</TABLE>
- ---------------
(1) The options were fully vested upon grant. Options are generally subject to
the employee's continued employment. The options terminate five years after
the grant date, subject to earlier termination in accordance with the 1995
Incentive Plan and the applicable option agreement.
(2) The exercise price is equal to the market value on the date of the grant.
The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term
using the 5% and 10% appreciation rates established in regulations of the
Commission, compounded annually. The potential realizable value is not
intended to predict future appreciation of the price of the Common Stock.
The values shown do not consider nontransferability, vesting or termination
of the options upon termination of employment.
S-6
<PAGE> 28
Option Exercises and Year-End Holdings. The following table sets forth the
Shares acquired and the value realized upon exercise of stock options during
Fiscal 1999 by each of the Named Executive Officers and certain information
concerning stock options held by the Named Executive Officers as of July 3,
1999.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED FISCAL YEAR-END AT FISCAL YEAR-END(1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul F. Avery, Jr............. 0 $0 288,000/0 $31,374/$0
Alvan F. Chorney.............. 0 0 59,000/0 12,852/0
William B. Ford............... 0 0 43,000/23,000 10,584/3,024
Timothy Barton................ 0 0 26,625/0 7,182/0
</TABLE>
- ---------------
(1) Based on the fair market value of the Common Stock of $4.188 per Share, the
price of the last reported trade of the Common Stock on the Nasdaq National
Market on July 2, 1999, less the option exercise price per Share. Options
are in-the-money if the fair market value of the Shares covered thereby is
greater than the option exercise price.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Avery has entered into a Consulting Agreement with the Company, Parent
and the Purchaser. Mr. Avery currently has an Employment Agreement dated as of
June 3, 1998, as amended, with the Company (the "Avery Employment Agreement").
For a summary of certain provisions of these agreements, see "Agreements with
Paul F. Avery, Jr." in Item 3(b) of the Schedule 14D-9.
Mr. Ford has entered into a Employment Agreement with the Company, Parent
and the Purchaser. Mr. Ford currently has an Employment Agreement dated as of
September 23, 1996 with the Company (the "Ford Employment Agreement"). For a
summary of certain provisions of these agreements, see "Agreements with William
B. Ford" in Item 3(b) of the Schedule 14D-9.
Mr. Chorney currently has a Letter Agreement dated as of August 6, 1999
with the Company providing for certain payments and benefits to Mr. Chorney in
the event of a change of control in the Company. Mr. Chorney also has a
Severance Agreement dated as of October 1, 1993 with the Company. For a summary
of certain provisions of these agreements, see "Agreements with Other Executive
Officers" in Item 3(b) of the Schedule 14D-9.
Mr. Barton currently has a Letter Agreement dated as of July 1, 1999 with
the Company providing for certain payments and benefits to Mr. Barton in the
event of a change of control in the Company. For a summary of certain provisions
of this agreement, see "Agreements with Other Executive Officers" in Item 3(b)
of the Schedule 14D-9.
S-7
<PAGE> 29
TOTAL STOCKHOLDER RETURN
The graph presented below compares the yearly percentage change in the
Company's cumulative total stockholder return on the Common Stock, based on the
market price of the Common Stock and assuming reinvestment of dividends, with
the cumulative total return of companies within the Nasdaq National Market and
the companies within the Dow Jones Industrial Technology Index. The calculation
of total cumulative return assumes a $100 investment in the Common Stock, the
Nasdaq National Market and the Dow Jones Industrial Technology Index on June 30,
1994. The comparisons in this table are historical and are not intended to
forecast or be indicative of possible future performance of the Common Stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG FERROFLUIDICS CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE DOW JONES INDUSTRIAL TECHNOLOGY INDEX
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET DOW JONES INDUSTRIAL
FERROFLUIDICS CORPORATION (U.S.) TECHNOLOGY
------------------------- ------------------- --------------------
<S> <C> <C> <C>
6/94 $100.00 $100.00 $100.00
6/95 183.00 133.00 142.00
6/96 257.00 171.00 141.00
6/97 160.00 208.00 151.00
6/98 79.00 274.00 133.00
6/99 86.00 393.00 169.00
</TABLE>
* $100 INVESTED ON 6/30/94 IN STOCK OR INDEX--INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING JUNE 30.
S-8
<PAGE> 30
COMPENSATION COMMITTEE REPORT
GENERAL
The Compensation Committee currently consists of Messrs. Stone and Kamen,
each of whom are non-employee Directors. The Compensation Committee is generally
responsible for developing the Company's executive and management compensation
policies, including awards of equity-based compensation. The Company's executive
compensation program is designed to provide competitive levels of compensation,
reward above-average individual performance and assist the Company in attracting
and retaining qualified management. Where applicable, the Compensation Committee
takes into account employment agreements between an executive officer and the
Company. Mr. Avery, the President and Chief Executive Officer of the Company,
makes general recommendations to and reviews with the Compensation Committee
salary increases and bonus compensation of executive officers and employees
other than himself.
COMPENSATION POLICY REVIEW
From time to time, the Compensation Committee evaluates its objectives
regarding the Company's executive compensation policy. The Compensation
Committee's primary objectives in evaluating the Company's executive
compensation philosophy historically have been to (i) review base salaries, cash
bonuses and short-term and long-term incentives for executive officers based
upon a survey of compensation for executive officers in a group of comparable
high-technology companies, and (ii) to develop an appropriate methodology for
structuring long-term incentive awards to ensure that such awards more closely
align the interests of the executive officers with those of the Company's
stockholders.
The Compensation Committee also has from time to time sought and received
advice from an independent compensation consulting firm in its evaluation of the
Company's executive compensation policies. The last occasion on which the
Compensation Committee sought advice from a consultant was in 1995, at which
time the consultant conducted a survey of executive compensation levels and
practices of companies within a proxy peer group (the "Peer Group") of companies
of similar size to the Company. The Peer Group consisted of seven companies in
the specialty machinery industry having annual revenues of $30 million to $50
million.
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS
Base Salary. The annual base salary and base salary adjustments for
executive officers are determined by the Compensation Committee in its
discretion and are targeted according to the salaries of executives holding
similar offices and having similar responsibilities within the Company's
industry segment. The Compensation Committee also considers factors such as
industry experience and executive retention. Annual salary adjustments for
executive officers are determined by evaluating the competitive marketplace, the
performance of the Company, the performance of the executive officer and any
change in the responsibilities assumed by the executive officer. Salary
adjustments are normally determined and made on an annual basis. The base salary
of Paul F. Avery, Jr., the President and Chief Executive Officer of the Company,
was established pursuant to the Avery Employment Agreement, which is described
under "Agreements with Paul F. Avery, Jr." in Item 3(b) of the Schedule 14D-9,
and was based on the foregoing criteria. The base salary of William B. Ford,
Vice President and Chief Financial Officer of the Company, was established
pursuant the Ford Employment Agreement, which is described under "Agreements
with William B. Ford" in Item 3(b) of the Schedule 14D-9, and was also based on
the foregoing criteria.
Cash Bonuses. The Company has a cash incentive bonus plan (the "Cash
Incentive Plan") which became effective on July 1, 1995. The Cash Incentive Plan
is intended to encourage, recognize and reward performance by executives by
providing cash compensation based upon the achievement of a pre-determined
annual operating budget and a combination of quantitative and qualitative
measures (the relative weights of which are determined in the sole discretion of
the Compensation Committee when it performs its performance
S-9
<PAGE> 31
review), including orders received (for marketing managers), percent defect rate
(for production managers), timeliness and quality of monthly reporting (for
accounting managers) and effectiveness of improvement projects (for all
managers). The annual operating budget is determined by the Compensation
Committee and the Board of Directors prior to the beginning of the fiscal year
and the total pool from which cash incentives may be awarded under the plan is
formed based upon the achievement of the operating profits contained in the
annual operating budget. The Chief Executive Officer is eligible to receive up
to 35% of his respective base salary depending upon the extent to which the
operating profits contained in the annual operating budget are achieved, while
executive officers other than the Chief Executive Officer are eligible to
receive up to either 20% or 25% of their respective base salaries depending upon
the extent to which the operating profits contained in the annual operating
budget are achieved.
Although cash bonuses generally are awarded pursuant to the Cash Incentive
Plan, the Compensation Committee, in its discretion, may award a cash bonus to
an executive officer for outstanding performance based upon individual
performance reviews (which may or may not take into account specific performance
measures relative to that executive officer), retention considerations and
general industry practice. Based upon the foregoing criteria, no executive
officers of the Company received a cash bonus under the Cash Incentive Plan for
Fiscal 1999 performance and no discretionary cash bonuses were awarded.
Equity and Equity-Based Incentives. Equity and equity-based incentive
awards are designed to attract and retain executives who can make significant
contributions to the Company's success, reward executives for such significant
contributions and give executives a longer-term incentive to increase
shareholder value. The size and frequency of equity and equity-based incentive
awards are determined by the Compensation Committee in its discretion, taking
into account individual performance and responsibilities, but without any
specific performance measures. The Compensation Committee also may grant stock
options for executive retention purposes, taking into account, among other
things, general industry practice. To ensure that high levels of performance
occur over the long-term, stock options granted to executives typically vest
over a period of time. All outstanding options have been granted with an
exercise price equal to 100% of the fair market value of the Common Stock on the
grant date.
The 1995 Incentive Plan is the principal vehicle by which the Company
intends to achieve the executive compensation policy objective of providing
long-term incentives to executive officers that will more closely align the
interests of such executives with those of the Company's stockholders. Pursuant
to the 1995 Incentive Plan, the Compensation Committee may grant a variety of
long-term incentive awards based on the Common Stock, including stock options
(both incentive options and non-qualified options), SARs, restricted stock,
unrestricted stock, performance shares and dividend equivalent rights. In Fiscal
1999, each of Messrs. Avery, Ford, Chorney and Barton received an option to
purchase 83,000 Shares, 36,000 Shares, 34,000 Shares and 19,000 Shares,
respectively. Each of these options was fully vested upon grant.
At its discretion, under the Ferrofluidics Corporation Amended and Restated
1994 Restricted Stock Plan (the "1994 Restricted Stock Plan"), the Compensation
Committee may also award restricted stock bonuses to executive officers and
other key employees. Shares of restricted stock granted to executive officers
under the 1994 Restricted Stock Plan vest over a period of time and are subject
to forfeiture in the event an officer's employment with the Company terminates
prior to vesting. Shares of restricted stock are not transferable prior to
vesting. During Fiscal 1999, no executive officers of the Company received an
award of restricted stock.
Any value received by an executive officer from a stock option grant and
any increase in the value of stock received as a bonus depends entirely on
increases in the price of the Common Stock.
Other Compensation. The Company provides executive officers and management
with health, retirement and other benefits under plans that are generally
available to the Company's employees.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Avery's base salary was established pursuant to the criteria described
above in "Base Salary" in the Avery Employment Agreement which is described
under "Agreements with Paul F. Avery, Jr." in Item 3(b) of the Schedule 14D-9.
Based on the criteria set forth in the Cash Incentive Plan, Mr. Avery did not
receive a
S-10
<PAGE> 32
cash bonus for Fiscal 1999 and the Compensation Committee did not exercise its
discretion to award him a cash bonus. However, in consideration of Mr. Avery's
outstanding commitment to the Company, and in accordance with the other
objectives of the Compensation Committee's equity-based incentive philosophy,
Mr. Avery received an option to purchase 83,000 Shares on November 5, 1998,
which was fully vested upon grant.
FEDERAL TAX REGULATIONS APPLICABLE TO EXECUTIVE COMPENSATION
As a result of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company's deduction of executive compensation may be
limited to the extent that a "covered employee" (i.e., the chief executive
officer or one of the four highest compensated officers who is employed on the
last day of the Company's taxable year and whose compensation is reported in the
Summary Compensation Table) receives compensation in excess of $1,000,000 in
such taxable year of the Company (other than performance-based compensation that
otherwise meets the requirements of Section 162(m) of the Code). The Company
intends to take appropriate action to comply with such regulations, if
applicable, in the future.
Dennis R. Stone, Chairman
Dean Kamen
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Avery, the President and Chief Executive Officer of the Company, makes
general recommendations to and reviews with the Compensation Committee the
salary increases and bonus compensation of executives and management other than
himself.
S-11
<PAGE> 33
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth, to the best knowledge and belief of the
Company, certain information regarding the beneficial ownership of Common Stock
as of October 1, 1999 by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of
the Company's Directors and nominees, (iii) each of the named executive officers
in the Summary Compensation Table and (iv) all of the Company's executive
officers and Directors as a group. Except as otherwise indicated, each person
listed below has sole voting and investment power over the Shares shown as
beneficially owned.
<TABLE>
<CAPTION>
SHARES
DIRECTORS, EXECUTIVE OFFICERS BENEFICIALLY PERCENT OF
AND 5% STOCKHOLDERS OWNED(1) CLASS(2)
- ----------------------------- ------------ ----------
<S> <C> <C>
Paul F. Avery, Jr........................................... 331,900(3) 5.7%
Alvan F. Chorney............................................ 62,000(4) 1.1
William B. Ford............................................. 63,500(5) 1.1
Timothy Barton.............................................. 30,105(6) *
Howard F. Nichols........................................... 24,975(7) *
Dean Kamen.................................................. 18,100(8) *
Dennis R. Stone............................................. 16,350(9) *
All directors and executive officers as a group (7
persons).................................................. 546,930(10) 9.0
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial share ownership is determined pursuant to Rule 13d-3 under the
Exchange Act. Accordingly, a beneficial owner of a security includes any
person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares the power to vote
such security or the power to dispose of such security. The amounts set
forth above as beneficially owned include shares of Common Stock owned, if
any, by spouses and relatives living in the same home as to which
beneficial ownership may be disclaimed. The amounts set forth above as
beneficially owned also include Shares which such persons had the right to
acquire within 60 days of October 1, 1999 pursuant to stock options.
(2) Percentages are calculated on the basis of 5,574,177 Shares outstanding as
of October 1, 1999, together with applicable stock options for each
stockholder.
(3) Includes 288,000 Shares which Mr. Avery may acquire upon the exercise of
stock options, within 60 days of October 1, 1999.
(4) Includes 59,000 Shares which Mr. Chorney may acquire upon the exercise of
stock options, within 60 days of October 1, 1999.
(5) Includes 54,500 Shares which Mr. Ford may acquire upon the exercise of
stock options, within 60 days of October 1, 1999.
(6) Includes 26,625 Shares which Mr. Barton may acquire upon the exercise of
stock options, within 60 days of October 1, 1999.
(7) Includes 19,600 Shares which Mr. Nichols may acquire upon the exercise of
stock options, within 60 days of October 1, 1999.
(8) Includes 17,350 Shares which Mr. Kamen may acquire upon the exercise of
stock options, within 60 days of October 1, 1999.
(9) Includes 11,250 Shares which Mr. Stone may acquire upon the exercise of
stock options within 60 days of October 1, 1999.
(10) Includes 476,325 Shares which may be acquired by such persons upon the
exercise of stock options, within 60 days of October 1, 1999.
S-12
<PAGE> 34
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Commission and the Nasdaq National Market. Officers,
directors and greater than 10% stockholders are required by the Commission's
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on a review of the copies of reports furnished to the Company
and written representations that no other reports were required, the Company
believes that during Fiscal 1999 no person who was a Director, executive officer
or greater than 10% beneficial owner of the Common Stock failed to file on a
timely basis all reports required by Section 16(a).
S-13
<PAGE> 35
ANNEX I
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER AND PARENT
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employment and business addresses thereof for the past five years of each
director and executive officer of Parent. Unless otherwise indicated, the
current business address of each person is Ferrotec Corporation, Sumitomo
Building #6, 5-24-8, Higashi Ueno, Taito-ku, Tokyo 110-0015, Japan. Unless
otherwise indicated, each such person is a citizen of Japan and has held his or
her own present position as set forth below, or has been an executive officer at
Parent, for the past five years. Unless otherwise indicated, each occupation set
forth opposite an individual's name refers to employment with Parent.
<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY
- ---- -------------------------------------------------------------
<S> <C>
Akira Yamamura....................... Mr. Yamamura has been the President and Chief Executive
Officer of Parent for more than the past five years.
Nazomu Yamamoto...................... Mr. Yamamoto was the President of SecomCad, Inc. until June
1994. He was then appointed as Corporate Auditor of Parent
and has been employed by Parent as Director and Senior
Managing Director since that date.
Kimiyuki Kamino...................... Mr. Kamino was Chief Officer at Mitsubishi Seiko Co. Research
and Development Center until June 1995. He was then appointed
as Corporate Auditor of Parent and has been employed by
Parent as Corporate Auditor for four years and has been
employed by Parent as Director since June 1999.
Isao Tsubaki......................... Mr. Tsubaki was a Partner of Tohmatsu, LLP, a public
accounting firm until January 1997 and had been a principal
of Tsubaki Accounting Firm by June 1999. Since then, he has
been employed by Parent as Director.
Takeshi Arakawa...................... Mr. Arakawa has been employed by Parent as Director, Managing
Director, and Corporate Auditor for more than the past five
years.
Shuji Mamiya......................... Mr. Mamiya had been employed by Parent as General Manager
until June 1999. Since then, he has been employed by Parent
as Corporate Auditor.
Koichiro Nakamoro.................... Mr. Nakamoro had been a partner of a law firm, Anderson and
Mori, LLP until June 1999. Since then, he has been employed
by Parent as Corporate Auditor.
</TABLE>
S-14
<PAGE> 36
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets
forth the name, current business address, citizenship and present principal
occupation or employment, and material occupations, positions, offices or
employments and business addresses thereof for the past five years of each
director and executive officer of the Purchaser. Unless otherwise indicated, the
current business address of each person is Ferrotec Corporation, Sumitomo
Building #6, 5-24-8, Higashi Ueno, Taito-ku, Tokyo 110-0015, Japan. Unless
otherwise indicated, each such person is a citizen of Japan, and each occupation
set forth opposite an individual's name refers to employment with the Purchaser.
<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY
- ---- -------------------------------------------------------------
<S> <C>
Akira Yamamura....................... Treasurer, Clerk, and Director of Purchaser. Mr. Yamamura has
been the President and Chief Executive Officer of Parent for
more than the past five years.
Nozomu Yamamoto...................... Director of Purchaser. Mr. Yamamoto was the President of
SecomCad Inc., until June 1994. He was then appointed as
Corporate Auditor of Parent and has been employed by Parent
as Director and Senior Managing Director since that date.
Richard R. Cesati, II................ President and Director of Purchaser, Mr. Cesati had been
President of Amalfi Associate, Inc. until July 1999 and has
been employed as President of Ferrotec America since that
date. Mr. Cesati is a citizen of the United States.
</TABLE>
S-15
<PAGE> 1
FERROFLUIDICS CORPORATION
40 SIMON STREET
NASHUA, NEW HAMPSHIRE 03061
October 26, 1999
Dear Stockholder:
I am pleased to inform you that on October 20, 1999 Ferrofluidics
Corporation (the "Company") and Ferrotec Corporation ("Ferrotec") entered into
an Agreement and Plan of Merger pursuant to which Ferrotec Acquisition, Inc.
("Acquisition Sub"), a wholly owned subsidiary of Ferrotec, is commencing a cash
tender offer for all of the outstanding shares of common stock of the Company at
a price of $6.50 per share. Promptly following the completion of the tender
offer, Acquisition Sub will be merged into the Company, and each of the
outstanding shares of the Company's common stock (other than those owned by the
Company or Ferrotec or any of their respective affiliates, and other than those
owned by dissenting stockholders) will be converted into the right to receive
$6.50 in cash per share. Your Board of Directors has unanimously approved the
tender offer and the merger and declared each of them advisable and unanimously
recommends that the Company's stockholders tender their shares of common stock
in the tender offer. In arriving at this decision, the Board gave careful
consideration to a number of factors described in the attached Schedule 14D-9
that has been filed with the Securities and Exchange Commission. Among other
factors, the Board considered the opinion dated October 14, 1999 of Advest,
Inc., the Company's financial advisor, which provides that, based upon and
subject to the matters set forth in the opinion, the cash consideration to be
received by the Company's stockholders pursuant to the tender offer and the
merger is fair from a financial point of view to such stockholders.
Accompanying this letter, in addition to the attached Schedule 14D-9
relating to the tender offer, is Ferrotec's Offer to Purchase, dated October 26,
1999, together with related materials, including a Letter of Transmittal to be
used for tendering your shares. These documents set forth the terms and
conditions of the tender offer and the merger and provide instructions regarding
how to tender your shares. I urge you to read the enclosed materials carefully.
Your Board of Directors believes that the proposed acquisition of the
Company by Ferrotec is fair to and in the best interests of the Company's
stockholders.
Sincerely,
/s/ Paul F. Avery, Jr.
Paul F. Avery, Jr.
President and Chief Executive Officer
<PAGE> 1
Exhibit 2
JOINT PRESS RELEASE
CONTACT:
For Ferrofluidics Corporation
William B. Ford, Chief Financial Officer
Phone: (603) 883-9800 Fax: (603) 883-1213
For Ferrotec Corporation
Wakaki Hiroo, Assistant General Manager
President Office
Phone 81-3-3845-1027 Fax 81-3-3845-1019
or
Richard R. Cesati II, President
Ferrotec Acquisition Inc.
Phone: (603) 626-0700 Fax (603) 626-0777
FERROFLUIDICS ANNOUNCES MERGER AGREEMENT WITH FERROTEC
Nashua, New Hampshire and Tokyo, Japan...October 20, 1999...Ferrofluidics
Corporation (NASDAQ:FERO) and Ferrotec Corporation (JASDAQ 6890) today announced
that they have entered into a definitive agreement pursuant to which Ferrotec
Corporation will acquire Ferrofluidics Corporation for the cash consideration of
$6.50 per share. The transaction will take the form of a cash tender offer by a
wholly owned U.S. subsidiary of Ferrotec Corporation ("Ferrotec Acquisition,
Inc.") for all of the outstanding shares of Ferrofluidics Corporation. If the
tender offer is successful, Ferrotec will merge Ferrotec Acquisition, Inc. into
Ferrofluidics and pay $6.50 per share for the remaining untendered shares, if
any, subject to applicable appraisal rights. The tender offer is subject to
customary conditions.
The Boards of Directors of Ferrofluidics and Ferrotec have both unanimously
approved the transaction, and Ferrofluidics has received a fairness opinion from
its financial advisor.
Paul F. Avery, Jr., Chairman of the Board of Ferrofluidics, commented as
follows: "The combination of Ferrofluidics and Ferrotec will result in current
holders of Ferrofluidics stock receiving full liquidity and a premium of more
than 50% over recent market values for their stock. The merger is not expected
to result in employment reductions at Ferrofluidics other than changes in
executive management."
Akira Yamamura, President and CEO of Ferrotec commented as follows: "Since 1987,
Ferrotec has grown significantly mainly in the Asian region and generated
numerous technologically advanced products based on ferrofluid (magnetic fluid)
technology. By acquiring Ferrofluidics and integrating the operations, Ferrotec,
together with Ferrofluidics, will have a world-wide distribution and marketing
network for a broader range of products, which is expected to be a significant
benefit to our global customers."
Ferrotec, which was founded in 1980, had sales of more than 5.6 billion yen in
the fiscal year which ended on March 31, 1999. Ferrotec manufactures and markets
ferrofluids, components and products based on ferrofluid technology for the
electronic industry, and thermoelectric modules. Two major products based on
ferrofluid technology are computer seals utilized in hard disk drives and vacuum
seals for the
1
<PAGE> 2
semiconductor industry. The thermo-modules are small wafer like heat pumps,
which change temperature when charged with electricity. As the thermo-modules
are easily controlled at a precise temperature, currently their main
applications are in semiconductor components, while multi-industrial
applications are yet to be introduced. Ferrotec is headquartered in Tokyo,
Japan, and has various manufacturing facilities in Japan and the People's
Republic of China.
Ferrofluidics Corporation is a manufacturer of Ferrofluidic(R) rotary seals,
ferrofluids and ferrofluid-based products for a variety of applications. These
products combine proprietary Ferrofluidic(R) technology with innovative
engineering to commercialize applications primarily for original equipment
manufacturers, enabling these customers' products to operate more effectively
and efficiently. Ferrofluidics is an international company serving worldwide
markets. The Company is headquartered in Nashua, New Hampshire, where it
manufactures all its ferrofluids and Ferrofluidic(R) products. It has
established sales and technical support facilities at its headquarters in the
United States, as well as in Germany and the United Kingdom.
This press release is neither an offer to purchase nor a solicitation of an
offer to sell securities. The tender offer is made only through the Offer to
Purchase and the related Letter of Transmittal, which will be mailed to
stockholders upon commencement of the tender offer.
Statements made in this news release that state the Company's or management's
intentions, hopes, beliefs, expectations or predictions for the future are
forward looking statements that involve risk and uncertainties. It is important
to note that the Company's actual results could differ materially from those
projected in such forward-looking statements. In addition to the factors set
forth above, other important factors that could cause actual results to differ
materially include, but are not limited to, projected financial results and
industry-wide market factors.
2
<PAGE> 1
Exhibit 3
AGREEMENT AND PLAN OF MERGER
by and among
FERROTEC CORPORATION
(a Japanese corporation)
FERROTEC ACQUISITION, INC.
(a Massachusetts corporation)
and
FERROFLUIDICS CORPORATION
(a Massachusetts corporation)
October 20, 1999
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (collectively, this "Agreement"), dated as
of October 20, 1999, by and among FERROTEC CORPORATION, a Japanese corporation
("Ferrotec"), FERROTEC ACQUISITION, INC., a Massachusetts corporation (the
"Merger Sub"), and FERROFLUIDICS CORPORATION, a Massachusetts corporation (the
"Company").
WHEREAS, the Merger (as hereinafter defined) and this Agreement require
the affirmative vote of at least a majority of the issued and outstanding shares
of the Company's Common Stock, par value $.004 per share (the "Common Stock"),
for the approval thereof (the "Company Shareholder Approval");
WHEREAS, the respective Boards of Directors of the Merger Sub and the
Company have approved the merger of the Merger Sub with and into the Company, as
set forth below (the "Merger"), in accordance with the Massachusetts Business
Corporation Laws (the "MBCL"), and upon the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, it is proposed that the Merger Sub shall make a cash tender
offer (the "Offer") to acquire all of the issued and outstanding shares of
Common Stock of the Company for $6.50 per share of Common Stock (the "Per Share
Amount"), in accordance with the terms and subject to the conditions of this
Agreement;
WHEREAS, subsequent to the consummation of the Offer, the holders,
other than Merger Sub, of shares of Common Stock issued and outstanding
immediately prior to the Effective Time (as hereinafter defined) will be
entitled, subject to the terms hereof and other than as set forth herein, to
receive the Cash Consideration (as hereinafter defined) pursuant to the Merger;
WHEREAS, the Board of Directors of the Company (the "Company Board")
has, subject to the terms and conditions set forth herein, (i) determined that
the Offer and the Merger is in the best interests of the Company and its
shareholders, and (ii) resolved to approve and adopt this Agreement and the
transactions contemplated hereby and to recommend that the shareholders of the
Company accept the Offer, tender their shares of Common Stock pursuant to and in
accordance with the terms of the Offer and approve and adopt this Agreement; and
WHEREAS, Ferrotec, the Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger, and also to set forth various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein,
Ferrotec, the Merger Sub and the Company agree as follows:
1
<PAGE> 3
ARTICLE I
THE OFFER
Section 1.1 (a) Provided this Agreement shall not have been terminated
in accordance with the terms and conditions set forth herein, the Merger Sub
shall commence the Offer as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the initial public
announcement of the Merger Sub's intention to commence the Offer (treating the
business day on which such public announcement occurs as the first business
day). The obligation of the Merger Sub to accept for payment and pay for shares
of Common Stock (the "Shares") tendered pursuant to the Offer shall be subject
to the condition (the "Minimum Condition") that at least the number of Shares
that, when added to the Shares already owned by Ferrotec and Merger Sub, shall
constitute a majority of the then outstanding Shares on a fully diluted basis
(including, without limitation, all Shares issuable upon the conversion of any
convertible securities or upon the exercise of any outstanding options, warrants
or rights) shall have been validly tendered and not withdrawn prior to the
expiration of the Offer, which shall be 20 business days after the date the
Offer is commenced, unless so extended as provided for hereinafter (the
"Expiration Date"), and also shall be subject to the satisfaction of the other
conditions set forth in Annex A, attached hereto and incorporated herein by
reference. The Merger Sub expressly reserves the right to waive any such
condition, to increase the price per Share payable in the Offer, and to make any
other changes in the terms and conditions of the Offer; provided, however, that
without the prior written consent of the Company no change may be made which
decreases the price per Share payable in the Offer, which reduces the minimum
number of Shares to be purchased in the Offer, or which amends or imposes
conditions to the Offer in addition to those set forth in Annex A hereto. The
Per Share Amount shall, subject to applicable withholding of taxes, be net to
the seller in cash, upon the terms and subject to the conditions of the Offer.
Subject to the terms and conditions of the Offer (including, without limitation,
the Minimum Condition), the Merger Sub shall pay, as soon as practicable after
it is legally permitted to do so under applicable law after expiration of the
Offer, for all Shares validly tendered and not withdrawn. Notwithstanding the
foregoing, if on the initial Expiration Date (which shall be 20 business days
after the date the Offer is commenced) all conditions of the Offer shall have
been satisfied or waived other than the Minimum Condition, Merger Sub shall
extend the Expiration Date to the date that is ten (10) business days
immediately following such initial Expiration Date. In addition, and
notwithstanding the foregoing but subject to Section 8.1 hereof, if on such
initial Expiration Date or any other Expiration Date, the applicable waiting
period (and any extension thereof) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") in respect to the Offer shall not have
expired or been terminated and all other conditions to the Offer shall have been
satisfied or waived, Merger Sub shall be required to extend the Expiration Date
until such waiting period shall have expired or been terminated.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, Ferrotec and Merger Sub shall file with the
Securities and Exchange Commission (the "SEC") a Tender Offer Statement on
Schedule 14D-1 (together with all amendments and supplements thereto, the
"Schedule 14D-1") with respect to the Offer. The Schedule 14D-1 shall contain or
shall incorporate by reference an offer to purchase (the "Offer to Purchase")
and forms of the related letter of transmittal and any related summary
advertisement (the Schedule 14D-1, the
2
<PAGE> 4
Offer to Purchase and such other documents, together with all supplements and
amendments thereto, being referred to herein collectively as the "Offer
Documents"). Ferrotec, the Merger Sub and the Company agree to correct promptly
any information provided by any of them for use in the Offer Documents which
shall have become false or misleading, and Ferrotec and Merger Sub further agree
to take all steps necessary to cause the Schedule 14D-1 as so corrected to be
filed with the SEC and the other Offer Documents as so corrected to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. The Company and its counsel shall be given
the opportunity to review the Schedule 14D-1 before it is filed with the SEC. In
addition, Ferrotec and Merger Sub will give the Company and its counsel a
reasonable opportunity to review and comment upon the Offer Documents and all
amendments and supplements thereto prior to the filing thereof, and will provide
the Company and its counsel in writing with any comments, whether written or
oral, Ferrotec, the Merger Sub or their counsel may receive from time to time
from the SEC or its staff with respect to the Offer Documents promptly after the
receipt of such comments.
Section 1.2 Company Action.
(a) The Company hereby approves of and consents to the
Offer and represents that (i) the Company's Board, at a meeting duly called and
held on October 14, 1999, has unanimously (A) determined that this Agreement and
the transactions contemplated hereby, including each of the Offer and the
Merger, are fair to and in the best interests of the shareholders of the Company
(the "Shareholders"), (B) approved and adopted this Agreement and the
transactions contemplated hereby and (C) resolved to recommend that the
Shareholders of the Company accept the Offer and approve and adopt this
Agreement and the transactions contemplated hereby, subject to the Company's
rights under Section 6.4 hereof; and (ii) Advest, Inc. has delivered to the
Company's Board a written opinion that the consideration to be received by the
holders of Shares pursuant to each of the Offer and the Merger is fair to the
holders of Shares from a financial point of view. The Company hereby consents to
the inclusion in the Offer Documents the recommendation of the Company's Board
described above and the opinion obtained by the Company's investment bankers,
described above.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing the
recommendation of the Company's Board described in Section 1.2(a), subject to
the Company's rights under Section 6.4 hereof, and shall disseminate the
Schedule 14D-9 to the extent required by Rule 14d-9, promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"), and any other applicable
federal securities laws. The Company, Ferrotec, and the Merger Sub agree to
correct promptly any information provided by any of them for use in the Schedule
14D-9 which shall have become false or misleading, and the Company further
agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected
to be filed with the SEC and disseminated to holders of Shares, in each case as
and to the extent required by applicable federal securities laws. Ferrotec,
Merger Sub and their counsel shall be given the opportunity to review and
comment upon the Schedule 14D-9 before it is filed with the SEC. In addition,
the Company agrees to provide Ferrotec, the Merger Sub and their counsel in
writing with any comments, whether written or oral,
3
<PAGE> 5
that the Company or its counsel may receive from time to time from the SEC or
its staff with respect to the Schedule 14D-9 promptly after the receipt of such
comments or other communications.
(c) The Company shall promptly furnish the Merger Sub with
mailing labels containing the names and addresses of all record holders of
Shares and with security position listings of Shares held in stock depositories,
each as of a recent date, together with all other available listings and
computer files containing names, addresses and security position listings of
record holders and beneficial owners of Shares. In addition, the Company shall
furnish the Merger Sub with such additional information, including, without
limitation, updated listings and computer files of Shareholders, mailing labels
and security position listings, and such other assistance as the Merger Sub or
its agents may reasonably request.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the satisfaction
or waiver of the conditions hereof, and in accordance with the applicable
provisions of this Agreement and the MBCL, at the Effective Time, the Merger Sub
shall be merged with and into the Company. Following the Merger, the separate
corporate existence of the Merger Sub shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation").
Section 2.2 Effective Time. On the Closing Date, as hereinafter
defined, the Company shall execute, in the manner required by the MBCL, and
shall deliver to the Secretary of State of the Commonwealth of Massachusetts
Articles of Merger duly executed and verified by the appropriate parties hereto,
and the parties shall take such other and further actions as may be required by
law to make the Merger effective. The Merger shall become effective at such time
as the Articles of Merger ("Articles of Merger"), accompanied by payment of the
filing fee (as provided in Chapter 156B, Section 114 of the MBCL), have been
examined by and received the endorsed approval of the Secretary of State of the
Commonwealth of Massachusetts (the "Effective Time").
Section 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the applicable provisions of the MBCL and as set forth herein.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the properties, rights, privileges, powers and franchises of
the Company and the Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and the Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation. Immediately
following the Effective Time, the purpose of the Surviving Corporation shall be
to perform scientific research and development and to engage in the inventing,
manufacturing and selling of useful equipment, devices, processes, machinery and
products, and in the rendering of related services, and to conduct such other
business as may be lawful under the laws of the Commonwealth of Massachusetts.
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<PAGE> 6
Section 2.4 Articles of Organization and By-Laws of the Surviving
Corporation.
(a) The Articles of Organization of the Merger Sub (the
"Articles of Organization"), as in effect immediately prior to the Effective
Time, shall be the Articles of Organization of the Surviving Corporation until
thereafter amended in accordance with the provisions thereof and hereof and
applicable law, or as otherwise contemplated hereby.
(b) The By-Laws of the Merger Sub in effect at the
Effective Time shall be the By-Laws of the Surviving Corporation until
thereafter amended, in accordance with the provisions thereof, hereof and
applicable law.
Section 2.5 Directors and Officers. Subject to applicable law, the
directors of the Merger Sub shall be the initial directors of the Surviving
Corporation and the officers of the Company shall be the initial officers of the
Surviving Corporation and each shall hold office until their respective
successors are duly elected and qualified, or their earlier death, resignation
or removal.
Section 2.6 Closing. The closing of the Merger (the "Closing") shall
take place at 10:00 a.m. on a date to be specified by the parties, which shall
be no later than the second business day after satisfaction or waiver of all of
the conditions set forth in Article VII (the "Closing Date"), at the offices of
Akerman, Senterfitt & Eidson, P.A., One Southeast Third Avenue, 28th Floor,
Miami, Florida 33131, unless another date or place is agreed to in writing by
the parties hereto.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
Section 3.1 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Common Stock or any shares of capital stock of the Merger Sub:
(a) Common Stock of Merger Sub. All of the shares of common
stock, par value $.01 per share, of the Merger Sub (the "Merger Sub Common
Stock"), issued and outstanding immediately prior to the Effective Time shall be
converted into one-thousand shares of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of Common
Stock that is owned by any affiliate of the Merger Sub, the Company or by any
wholly-owned subsidiary of the Company shall automatically be canceled and
retired and shall cease to exist, and no cash or other consideration shall be
delivered or deliverable in exchange therefor.
(c) Retention or Exchange of Shares of Common Stock. Except
as otherwise provided herein and subject to Section 3.7 with respect to shares
of Common Stock as to which appraisal rights have been exercised, each share of
Common Stock issued and outstanding
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<PAGE> 7
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into a
non-transferrable right to receive $6.50 in cash per share (the "Cash
Consideration").
Section 3.2 Options and Warrants; Stock Plans.
(a) Except as set forth on Section 3.2 (a) of the Company
Disclosure Letter, each option and warrant held by an employee, officer or
director of the Company and other persons to acquire shares of Common Stock
("Company Option" and "Company Warrant", respectively) that is outstanding
immediately prior to the Acceptance Date (as hereinafter defined), whether or
not then vested or exercisable, shall, simultaneously with the Acceptance Date,
be canceled in exchange for, and the Merger Sub shall pay to the holder thereof,
a single lump sum cash payment equal to the product of (1) the number of shares
of Common Stock subject to such Company Option or Company Warrant and (2) the
excess, if any, of the Cash Consideration over the exercise price per share of
such Company Option or Company Warrant, subject to any required withholding of
taxes, provided that with respect to Company Warrants, the parties hereto hereby
agree and acknowledge that such Company Warrants may only be cancelled with the
consent of the holders of such Warrants.
(b) Prior to the Acceptance Date, if necessary, and through
the Effective Time, if also necessary, the Company shall use all reasonable
efforts to (i) obtain consents from appropriate holders of Company Warrants and
(ii) make any amendments to the terms of such Company Options, Company Warrants
or the compensation plans or arrangements related thereto that are necessary to
give effect to the transactions contemplated by Section 3.2(a), provided,
however, that no consent shall be necessary with respect to all of the
outstanding Company Options which have been issued under stock option plans
maintained by the Company. Notwithstanding any other provision of this Section,
payment pursuant to this Section 3.2 may be withheld in respect of any Company
Warrant until necessary or appropriate consents are obtained.
Section 3.3 Exchange and Retention of Common Stock.
(a) Immediately following the Effective Time, Ferrotec and
the Merger Sub shall take all steps necessary to cause to be deposited on a
timely basis with the bank or trust company as shall be mutually acceptable to
the Merger Sub and the Company, acting as the exchange agent (the "Exchange
Agent") in an account (the "Exchange Fund") the aggregate Cash Consideration to
which holders of shares of Common Stock shall be entitled at the Effective Time
pursuant to Section 3.l(c).
(b) Promptly after the Effective Time, Merger Sub shall
cause the Exchange Agent to mail to each record holder of certificates (the
"Certificates") that immediately prior to the Effective Time represented shares
of Common Stock, a form of letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to the Exchange Agent and
instructions for use in surrendering such Certificates and receiving the Cash
Consideration in respect thereof.
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<PAGE> 8
(c) In effecting the payment of the Cash Consideration in
respect of shares of Common Stock represented by Certificates entitled to
payment of the Cash Consideration pursuant to Section 3.l(c), upon the surrender
of each such Certificate, the Exchange Agent at the time of such surrender shall
pay the holder of such Certificate the Cash Consideration multiplied by the
number of shares of Common Stock represented by such Certificate, in
consideration therefor. Upon such payment, such Certificate shall forthwith be
canceled.
(d) Until surrendered in accordance with paragraph (c)
above, each Certificate (other than Certificates representing Dissenting Shares
(as hereinafter defined) or shares of Common Stock held by any affiliate of the
Merger Sub, in the treasury of the Company or by any wholly-owned subsidiary of
the Company) shall represent solely the right to receive the aggregate Cash
Consideration relating thereto. No interest shall be paid or accrued on the Cash
Consideration. If the Cash Consideration (or any portion thereof) is to be
delivered to any person other than the person in whose name the Certificate
formerly representing shares of Common Stock surrendered therefor is registered,
it shall be a condition to such right to receive such Cash Consideration that
the Certificate so surrendered shall be properly endorsed (with signatures
medallion guaranteed) or otherwise be in proper form for transfer and that the
person surrendering such shares of Common Stock shall pay to the Exchange Agent
any transfer or other taxes required by reason of the payment of the Cash
Consideration to a person other than the registered holder of the Certificate
surrendered, or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not applicable.
(e) Promptly following the date which is six months after
the Effective Time, the Exchange Agent shall deliver to the Surviving
Corporation all cash, plus accrued interest thereon, if any, and other documents
in its possession relating to the transactions described in this Agreement, and
the Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing a share of Common Stock entitled to the
payment of Cash Consideration may surrender such Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in consideration therefor the applicable aggregate Cash
Consideration relating thereto, without any interest thereon.
(f) After the Effective Time, there shall be no transfers
on the stock transfer books of the Surviving Corporation of any shares of Common
Stock which were outstanding immediately prior to the Effective Time and which
are entitled to the payment of Cash Consideration. In addition, after the
Effective Time, holders of Certificates shall not be entitled to any voting
rights or other rights attributable to the ownership of an equity interest in
the Company, except as otherwise specifically set forth herein.
Section 3.4 Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to shares of Common Stock entitled
to the payment of Cash Consideration with a record date after the Effective Time
shall be paid to the holder of any such unsurrendered Certificate with respect
to the shares of Common Stock represented thereby. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificate representing whole shares of Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the Cash Consideration.
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<PAGE> 9
Section 3.5 No Liability. None of Ferrotec, the Merger Sub, the
Company, the Surviving Corporation, or the Exchange Agent shall be liable to any
person in respect of any Cash Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to seven years after the
Effective Time (or immediately prior to such earlier date on which the Cash
Consideration would otherwise escheat to or become the property of any
Governmental Entity (as hereinafter defined)) any such distributions or cash in
respect of such Certificate shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
Section 3.6 Lost Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Company and/or the Surviving Corporation, the posting by such
person of a bond in such reasonable amount as the Company and/or the Surviving
Corporation may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed Certificate the amount to which such person
is entitled pursuant to this Agreement.
Section 3.7 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, any Shares ("Dissenting Shares") which are issued and
outstanding immediately prior to the Effective Time and which are held by
Shareholders of the Company who have filed with the Company, before the taking
of the vote of the Shareholders of the Company to approve the Merger, written
objections to such approval stating their intention to demand payment for such
Shares, and who have not voted such Shares in favor of the adoption of the
Merger will not be converted as described in Section 3.1(c) hereof, but will
thereafter constitute only the right to receive payment of the fair value of
such Shares in accordance with the applicable provisions of Chapter 156B of the
MBCL (the "Appraisal Rights Provisions"); provided, however, that all Shares
held by Shareholders who shall have failed to perfect or who effectively shall
have withdrawn or lost their rights to appraisal of such Shares under the
Appraisal Rights Provisions shall thereupon be deemed to have been canceled and
retired and to have been converted, as of the Effective Time, into the right to
receive the Cash Consideration, without interest, in the manner provided in
Section 3.1(c). Persons who have perfected statutory rights with respect to
Dissenting Shares as aforesaid will not be paid by the Surviving Corporation as
provided in this Agreement and will have only such rights as are provided by the
Appraisal Rights Provisions with respect to such Dissenting Shares.
Notwithstanding anything in this Agreement to the contrary, if the Merger Sub
abandons or is finally enjoined or prevented from carrying out, or the
Shareholders rescind their adoption of, the Merger, the right of each holder of
Dissenting Shares to receive the fair value of such Dissenting Shares in
accordance with the Appraisal Rights Provisions will terminate, effective as of
the time of such abandonment, injunction, prevention or rescission.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed to Ferrotec and the Merger Sub in a
letter delivered to it at or prior to the execution of this Agreement (the
"Company Disclosure Letter"), the Company represents and warrants to Ferrotec
and the Merger Sub as follows:
Section 4.1 Organization.
(a) Each of the Company and the Company Subsidiaries (as
hereafter defined) is a corporation or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where failure to be so existing and in good
standing or to have such power and authority would not have a material adverse
effect on the current business, results of operations or financial condition of
the Company and the Company Subsidiaries taken as a whole (a "Company Material
Adverse Effect"). Each of the Company and the Company Subsidiaries is duly
qualified or licensed to do business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so duly qualified, licensed and in good standing would not have a Company
Material Adverse Effect. The Company has heretofore delivered to Merger Sub a
complete and correct copy of each of its Articles of Organization and By-Laws,
as currently in effect.
(b) Section 4.1(b)(i) to the Company Disclosure Letter
lists all of the operational subsidiaries of the Company through which the
Company currently conducts its businesses or has conducted its businesses during
the two years preceding the date of this Agreement (individually, a "Company
Subsidiary,"and collectively, the "Company Subsidiaries"), and their states of
incorporation or country of incorporation or organization. Section 4.1(b)(ii) to
the Company Disclosure Letter lists all of the non-operational subsidiaries of
the Company which have not conducted any operations during the two years
preceding the date of this Agreement (the "Non- Operational Subsidiaries"), and
their states of incorporation or country of incorporation or organization.
Except as set forth in Section 4.1(b)(ii) to the Company Disclosure Letter, the
Company does not own an equity interest in or control, directly or indirectly,
any other corporation, association, partnership or business organization other
than the Company Subsidiaries and the Non- Operational Subsidiaries.
Section 4.2 Capitalization.
(a) As of the date hereof, the authorized capital stock of
the Company consists of 12,500,000 shares of Common Stock and 100,000 shares of
preferred stock, par value $.001 per share (the "Preferred Stock"), of which
100,000 shares have been designated as Series A Junior Participating Cumulative
Preferred Stock (the "Series A Preferred Stock"). Section 4.2(a) of the Company
Disclosure Letter sets forth a description of the Common Stock, the Preferred
Stock and the Series A Preferred Stock. As of October 1, 1999 (i) 6,226,280
shares of Common Stock
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were issued and outstanding, (ii) 652,498 shares of Common Stock were issued and
held in the treasury of the Company, and (iii) no shares of Preferred Stock were
issued and outstanding. Since such date, no additional shares of capital stock
have been issued except shares issued upon the exercise of the Company Options
pursuant to the Company's stock option plans, pension plans and other similar
employee benefit plans, all as described in the Company Disclosure Letter (the
"Company Stock Plans"). All the outstanding shares of the Company's capital
stock are duly authorized, validly issued, fully paid and nonassessable. Except
as provided herein or as disclosed in Section 4.2(a) of the Company Disclosure
Letter and, except for the Company Stock Plans or the Company Rights Agreement
(defined in Section 6.11 of this Agreement), as of the date hereof, there are no
existing (i) options, warrants, dividend entitlement rights, stock appreciation
rights, stock depreciation rights, calls, subscriptions or other rights,
convertible securities, agreements or commitments of any character obligating
the Company or any of the Company Subsidiaries to issue, transfer or sell any
shares of capital stock or other equity interest in, the Company or any of the
Company Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests, (ii) contractual obligations of the Company or any
of the Company Subsidiaries to repurchase, redeem or otherwise acquire any
capital stock of the Company or any of the Company Subsidiaries, or (iii) voting
trusts or similar agreements to which the Company or a Company Subsidiary is a
party with respect to the voting of the capital stock of the Company and/or a
Company Subsidiary.
(b) Except as set forth in Section 4.2(b) of the Company
Disclosure Letter, all of the outstanding shares of capital stock (or equivalent
equity interests of entities other than corporations) of each of the Company
Subsidiaries are beneficially owned, directly or indirectly, by the Company,
free and clear of all liens, pledge, security interests, claims or other
encumbrances.
Section 4.3 Authorization; Validity of Agreement; Necessary Action. The
Company has the requisite corporate power and authority to execute and deliver
this Agreement and, subject to obtaining any necessary approval of its
Shareholders, to consummate the transactions contemplated hereby. The execution,
delivery and performance by the Company of this Agreement, and the consummation
by it of the transactions contemplated hereby, have been duly authorized by the
Company Board and, except for the approval of its Shareholders, no other
corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and the consummation by
it of the transactions contemplated hereby. This Agreement has been duly
executed and delivered by the Company and, subject to approval and adoption of
the Merger by the Company's Shareholders (and assuming due and valid
authorization, execution and delivery hereof by Ferrotec and Merger Sub) is a
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except that (i) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, affecting creditors' rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 4.4 Consents and Approvals; No Violations. Except as disclosed
in Section 4.4 of the Company Disclosure Letter and except (a) for filings
pursuant to HSR Act, applicable requirements under the Securities Act of 1933,
as amended ("Securities Act") and the Exchange Act,
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(b) for the filing of the Articles of Merger, (c) for applicable requirements
under corporation or "blue sky" laws of various states or (d) as otherwise
specifically provided for in this Agreement, neither the execution, delivery or
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby will (i) violate any provision of the
Articles of Organization, as amended, or By-Laws, as amended, of the Company or
the Company Subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement, Benefit Plan (as hereinafter defined, and with respect to
any Benefit Plan, no liability or increased expense will be incurred as a
consequence of the execution of this Agreement or the consummation of the
transactions contemplated herein), or other instrument or obligation to which
the Company or any of the Company Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound (the "Company
Agreements"), (iii) to the best knowledge of the Company, violate any order,
writ, judgment, injunction, decree, law, statute, rule or regulation applicable
to the Company or any Company Subsidiary, any of the Company Subsidiaries or any
of their properties or assets, or (iv) require on the part of the Company or any
Company Subsidiary any filing or registration with, notification to, or
authorization, consent or approval of, any court, legislative, executive or
regulatory authority or agency (a "Governmental Entity") or any third party;
except in the case of clauses (ii), (iii) or (iv) for such violations, breaches
or defaults which, or filings, registrations, notifications, authorizations,
consents or approvals the failure of which to obtain would not have,
individually and/or in the aggregate, a Company Material Adverse Effect or would
have become applicable as a result of any acts or omissions by, or the status of
facts pertaining to, solely Ferrotec or the Merger Sub.
Section 4.5 SEC Reports and Financial Statements. The Company has filed
all reports required to be filed by it with the SEC pursuant to the Exchange Act
and the Securities Act since June 30, 1997 (as such documents have been amended
since the date of their filing, collectively, the "Company SEC Documents"). The
Company SEC Documents, as of their respective filing dates, or if amended, as of
the date of the last such amendment, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets (including the related notes) included in the Company SEC Documents
fairly presents in all material respects the financial position of the Company
and its consolidated subsidiaries as of the respective dates thereof, and the
other related statements (including the related notes) included therein fairly
present in all material respects the results of operations and cash flows of the
Company and its consolidated subsidiaries for the respective periods or as of
the respective dates set forth therein. Each of the financial statements
(including the related notes) included in the Company SEC Documents has been
prepared in all material respects in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved, except as otherwise noted therein and subject, in the case of
unaudited interim financial statements, to normal year-end adjustments. The
consolidated balance sheet of the Company and its consolidated subsidiaries at
July 3, 1999, together with the Notes thereto is herein sometimes referred to as
the "Company Balance Sheet." The Company's and Company Subsidiaries' accounts
receivables, as set forth in the Company Balance Sheet, have arisen from
bona-fide transactions in the ordinary course of business consistent with past
practice, and since
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July 3, 1999, have not been materially diminished in any manner other than by
cash collections, establishment of reserves and write-offs, all in the ordinary
course of business and consistent with past practice. The Company's and Company
Subsidiaries' inventory, as set forth on the Company Balance Sheet, represents
bona-fide inventory, and since July 3, 1999, has not been materially diminished
in any manner other than the sale in the ordinary course of business consistent
with past practice. Said inventory, as reflected on the Company Balance Sheet,
does not include any material amount of inventory that is obsolete.
Section 4.6 No Undisclosed Liabilities. Except (a) for liabilities
incurred in the ordinary course of business since July 3, 1999, (b) for
liabilities disclosed in the Company Balance Sheet (c) for liabilities incurred
in connection with the Merger or otherwise as contemplated by this Agreement and
(d) as disclosed in Section 4.6 of the Company Disclosure Letter, since July 3,
1999, neither the Company nor any of the Company Subsidiaries has incurred any
liabilities that would be required to be reflected or reserved against in a
consolidated balance sheet of the Company and its consolidated subsidiaries
prepared in accordance with GAAP as applied in preparing the consolidated
balance sheet of the Company and its consolidated subsidiaries as of July 3,
1999, except for liabilities that would, individually and/or in the aggregate,
not have a Company Material Adverse Effect.
Section 4.7 Absence of Certain Changes. Except as (a) disclosed in
Section 4.7 of the Company Disclosure Letter or (b) contemplated by this
Agreement, between July 3, 1999 and the date of this Agreement nothing has
occurred hereunder which would be considered to constitute a Company Material
Adverse Effect.
Section 4.8 Disclosure Documents. Neither the Schedule 14D-9 nor any
information supplied by the Company for inclusion in the Offer Documents, in
each case except for information supplied by Ferrotec or Merger Sub for
inclusion therein, shall, at the respective times the Schedule 14D-9, the Offer
Documents or any amendments or supplements thereto are filed with the SEC or are
first published, sent or given to Shareholders of the Company, as the case may
be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. None of the information supplied or to be supplied by the
Company for inclusion in the proxy statement relating to the meeting of the
Company's Shareholders (the "Special Meeting") to be held in connection with the
Merger, as the same may be amended or supplemented from time to time (the "Proxy
Statement"), if such Proxy Statement is required by law to be filed, will,
either at the time of mailing of the Proxy Statement to Shareholders of the
Company or at the time of the Special Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement, if
any, and Schedule 14D-9 will comply as to form in all material respects with the
provisions of the Exchange Act.
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Section 4.9 Employee Benefit Plans; ERISA.
(a) Section 4.9(a) of the Company Disclosure Letter sets
forth a list of all employee benefit plans and all amendments thereto (including
but not limited to plans described in Section 3 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") maintained by the Company or
the Company Subsidiaries or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with the Company and the
Company Subsidiaries would be deemed a "single employer" within the meaning of
Section 4001(b)(15) of ERISA other than benefit plans or arrangements mandated
by law ("Benefit Plans") and all material employment and severance agreements
with employees of the Company and the Company Subsidiaries ("Employee
Agreements"), including, without limitation, any supplemental employee
retirement plans (SERP's).
(b) With respect to each Benefit Plan, except as disclosed
in Section 4.9(b) of the Company Disclosure Letter: (i) if intended to qualify
under Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), such plan has received a determination letter from the Internal Revenue
Service stating that it so qualifies and that its trust is exempt from taxation
under Section 501(a) of the Code; (ii) such plan has been administered in all
material respects in accordance with its terms and applicable law; (iii) no
breaches of fiduciary duty have occurred which might reasonably be expected to
give rise to material liability on the part of the Company and/or the Company
Subsidiaries; (iv) no disputes are pending, or, to the knowledge of the Company,
threatened that might reasonably be expected to give rise to material liability
on the part of the Company and/or the Company Subsidiaries (other than routine
claims for benefits); (v) no prohibited transaction (within the meaning of
Section 406 of ERISA) has occurred that might reasonably be expected to give
rise to material liability on the part of the Company and/or the Company
Subsidiaries; and (vi) all contributions required to be made to such plan as of
the date hereof (taking into account any extensions for the making of such
contributions) have been made in full.
(c) No Benefit Plan is a "multiemployer pension plan,"as
defined in Section 3(37) of ERISA, nor is any Benefit Plan a plan described in
Section 4063(a) of ERISA.
(d) No liability under Title IV of ERISA has been incurred
by the Company or any ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a material risk to the Company or the Company
Subsidiaries or any ERISA Affiliate of incurring a material liability under such
Title.
(e) No Benefit Plan has incurred an accumulated funding
deficiency, as defined in Section 302 of ERISA or section 412 of the Code,
whether or not waived.
(f) With respect to each Benefit Plan that is a "welfare
plan" (as defined in Section 3(1) of ERISA), except as set forth in Section
4.9(f) of the Company Disclosure Letter, no such plan provides medical or death
benefits with respect to current or former employees of the Company or any of
the Company Subsidiaries beyond their termination of employment (other than to
the extent required by applicable law).
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Section 4.10 Litigation. Except as disclosed in Section 4.10 of the
Company Disclosure Letter or as would otherwise not have a Company Material
Adverse Effect, as of the date hereof, there is no action, suit, proceeding
(other than any action, suit or proceeding resulting from or arising out of this
Agreement or the transactions contemplated hereby) or, to the best knowledge of
the Company, investigation pending or, to the best knowledge of the Company,
action, suit, proceeding, audit or investigation threatened, involving the
Company or any of the Company Subsidiaries, by or before any court, governmental
or regulatory authority or arbitrator, irrespective of whether such action or
proceeding is in the United States or abroad, or by any third party.
Section 4.11 Compliance with Applicable Laws. Neither the Company nor
any of the Company Subsidiaries is in default or violation of any term,
condition or provision of any statute, law, rule, regulation, judgment, decree,
order, concession, grant, franchise, permit or license or other governmental
authorization or approval applicable to the Company or any of the Company
Subsidiaries, except for any such defaults or violations that would not have a
Company Material Adverse Effect.
Section 4.12 Taxes.
(a) Except as disclosed in Section 4.12 of the Company
Disclosure Letter, the Company and each of the Company Subsidiaries have (i)
timely filed all material Tax Returns, as defined below, required to be filed by
any of them for tax years ended prior to the date of this Agreement or requests
for extensions have been timely filed and any such request shall have been
granted and not expired and all such returns are complete in all material
respects, (ii) paid or accrued all Taxes, as defined below, shown to be due and
payable on such returns other than such Taxes as are being contested in good
faith by the Company or the Company Subsidiaries, and (iii) to the knowledge of
the Company and except as set forth in the audited financial statements
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
July 3, 1999, properly accrued in all material respects all such Taxes for such
periods subsequent to the periods covered by such returns.
(b) Except as disclosed in Section 4.12 of the Company
Disclosure Letter, the Company is not aware of any ongoing federal, state or
local audits or examinations of any Tax Return of the Company or the Company
Subsidiaries.
(c) Except as disclosed in Section 4.12 of the Company
Disclosure Letter, there are no outstanding written requests, agreements,
consents or waivers to extend the statutory period of limitations applicable to
the assessment of any material Taxes or deficiencies against the Company or any
of the Company Subsidiaries, and to the Company's knowledge no power of attorney
granted by either the Company or any of the Company Subsidiaries with respect to
any Taxes is currently in force.
(d) Except as disclosed in Section 4.12 of the Company
Disclosure Letter, neither the Company nor any of the Company's Subsidiaries is
a party to any agreement providing for the allocation or sharing of material
Taxes.
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(e) "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States Internal Revenue Service or any taxing authority (whether domestic or
foreign including, without limitation, any state, county, local or foreign
government or any subdivision or taxing agency thereof (including a United
States possession)), whether computed on a separate, consolidated, unitary,
combined or any other basis; and such term shall include any interest, penalties
or additional amounts attributable to, or imposed upon, or with respect to, any
such taxes, charges, fees, levies or other assessments. "Tax Return" shall mean
any report, return, document, declaration or other information or filing
required to be supplied to any taxing authority or jurisdiction (foreign or
domestic) with respect to Taxes.
Section 4.13 Real Property. Except as set forth in Section 4.13 of the
Company Disclosure Letter, the Company (including, as applicable, the Company
Subsidiaries) owns all of the real and personal property included in the Company
Balance Sheet (except assets recorded under capital lease obligations and such
property as has been disposed of during the ordinary course of the Company's
business since the date of the Company Balance Sheet), free and clear of any
liens, claims, charges, exceptions or encumbrances ("Encumbrances"), except, in
each case, for (a) Encumbrances reflected in the Company Balance Sheet, (b)
Encumbrances or imperfections of title which are not, individually or in the
aggregate, material in character, amount or extent and which do not materially
detract from the value or materially interfere with the present or presently
contemplated use of the assets subject thereto or affected thereby, and (c)
Encumbrances for current Taxes not yet due and payable. All the real property
owned and/or leased by the Company is set forth on Section 4.13 to the Company
Disclosure Letter. Section 4.13 of the Company Disclosure Letter sets forth a
Fixed Asset Listing for the Company, Ferrofluidics, GmbH and Ferrofluidics, Ltd.
Such Fixed Assets Listings are true and accurate in all material respects.
Section 4.14 Intellectual Property. Except as disclosed in Section 4.14
of the Company Disclosure Letter or as would not have a Company Material Adverse
Effect, as of the date hereof, there are no pending or threatened claims of
which the Company or the Company Subsidiaries have been given written notice, by
any person against their use of any material trademarks, trade names, service
marks, service names, mark registrations, logos, assumed names and copyright
registrations, patents and all applications therefore which are owned by the
Company or the Company Subsidiaries and used in their respective operations as
currently conducted (collectively, the "Company Intellectual Property"). The
Company and the Company Subsidiaries have such ownership of or such rights by
license, lease or other agreement to the Company Intellectual Property as are
necessary to permit them to conduct their respective operations as currently
conducted. In addition, a list of the patents, patents pending, and registered
trademarks of the Company is set forth on Section 4.14 to the Company Disclosure
Letter.
Section 4.15 Contracts. Except as set forth in Section 4.15 of the
Company Disclosure Letter, each agreement, contract, understanding and/or
commitment to which the Company and/or the Company Subsidiaries is a party which
is material to the Company's or the Company Subsidiaries' businesses (the
"Material Contracts"), as further defined below, is in full force and
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effect and, to the knowledge of the Company, is valid and enforceable by the
Company or a Company Subsidiary, as the case may be, in accordance with its
terms except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. Except as set forth in Section 4.15 of
the Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is in default in the observance or the performance of any term or
obligation to be performed by it under any such Material Contract. To the
knowledge of the Company, no other person is in material default in the
observance or the performance of any term or obligation to be performed by it
under any of the Material Contracts. For purposes of this Section 4.15, Material
Contracts shall mean all agreements, contracts, understandings and/or
commitments to which the Company or any Company Subsidiary is a party which
either provide for the payment or receipt of payment for goods and/or services
having a value equal to or in excess of $50,000 per annum, or which during the
term thereof provide for the payment or receipt of payment for goods and/or
services having a value in excess of $250,000. In addition, with respect to
agreements, contracts, understandings and/or commitments to which the Company or
the Company Subsidiaries is a party and which are not deemed Material Contracts
hereunder (the "Other Contracts"), there is no breach or default by the Company
and/or the Company Subsidiaries under any of the Other Contracts that would have
a Company Material Adverse Effect; and the Other Contracts were entered into in
the ordinary course of business of the Company and/or the Company Subsidiaries.
Section 4.16 Environmental Laws and Regulations. Except as set forth in
Section 4.16 of the Company Disclosure Letter or as would otherwise not have a
Company Material Adverse Effect, (a) the Company and each of the Company
Subsidiaries is in material compliance with all applicable federal, state, local
and foreign laws and regulations relating to protection of the environment
(collectively, "Environmental Laws"), which compliance includes, but is not
limited to, the possession by the Company and the Company Subsidiaries of
material permits and other governmental authorizations required under applicable
Environmental Laws, and material compliance with the terms and conditions
thereof; (b) neither the Company nor any of the Company Subsidiaries has
received written notice of, or to the knowledge of the Company, is the subject
of, any actions, causes of action, claims, investigations, demands, notices, or
threats of any actions by any person and/or governmental and/or regulatory
agency or body alleging liability under or non-compliance with any Environmental
Law ("Environmental Claims"); and (c) the Company is not aware of and has not
received written notice of any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably likely to interfere with
or prevent continued compliance with or which is reasonably likely to give rise
to any statutory liability, or otherwise form the basis of any claim, action,
suit or proceeding under any Environmental Laws.
Section 4.17 Labor Matters. Except as set forth in Section 4.17 of the
Company Disclosure Letter, (a) neither the Company nor any of the Company
Subsidiaries is a party to, or bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, and (b) there is no unfair labor practice or labor arbitration
proceeding pending
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or, to the knowledge of the Company, threatened against the Company or the
Company Subsidiaries that would have a Company Material Adverse Effect.
Section 4.18 Brokers or Finders. The Company represents, as to itself,
the Company Subsidiaries and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
brokers' or finder' s fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement.
Section 4.19 Opinion of Financial Advisors. The Company has received
the opinion of Advest, Inc. to the effect that, as of the date thereof, the Cash
Consideration is fair, from a financial point of view, to the Shareholders of
the Company, and such opinion has been supplied to Merger Sub.
Section 4.20 Board Recommendation. The Company Board, at a meeting duly
called and held, has (a) determined that this Agreement and the transactions
contemplated hereby, taken together, are advisable and in the best interests of
the Company and its Shareholders, and (b) subject to the other provisions
hereof, resolved to recommend that the holders of the shares of Common Stock
approve this Agreement and the transactions contemplated hereby, including the
Merger.
Section 4.21 Insurance. The Company and the Company Subsidiaries have
obtained and maintained in full force and effect insurance with responsible and
reputable insurance companies or associations in such amounts, on such terms and
covering such risks, as is customarily carried by reasonably prudent persons
conducting businesses or owning or leasing assets similar to those conducted,
owned or leased by the Company or any of the Company Subsidiaries. A list of all
insurance policies and insurance coverage maintained for and on behalf of the
Company and the Company Subsidiaries (other than Ferrofluidics, S.A.R.L. and
Ferrofluidics, S.A.) is set forth in Section 4.21 of the Company Disclosure
Letter.
Section 4.22 Permits. The Company and the Company Subsidiaries are in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any court, governmental or regulatory authority necessary for the Company and
the Company Subsidiaries to own, lease and operate its properties or to carry on
its business as it is now being conducted (the "Company Permits"), and, as of
the date hereof, no suspension or cancellation of any of the Company Permits is
pending or, to the knowledge of the Company threatened, except, in each case,
where the failure to possess any such Company Permits or the existence or threat
of any such cancellation would not have a Company Material Adverse Effect.
Section 4.23 Customer Relationships; Warranties. Except as set forth on
Section 4.23 of the Company Disclosure Letter, to the best of the Company's
knowledge, the Company's and the Company's Subsidiaries' relationships with its
customers, vendors, employees, licensees, and sublicensees are in all material
respects satisfactory. Section 4.23 of the Company Disclosure Letter sets forth
the approximate amount of warranty expense of the Company for each of the last
three fiscal years.
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Section 4.24 Year 2000. Except as disclosed in Section 4.24 of the
Company Disclosure Letter and as otherwise would not have a Company Material
Adverse Effect, the Company has assessed, evaluated and reviewed all areas of
the Company's and the Company Subsidiaries' business and operations that could
be adversely affected in any material respect by date sensitive functions and
has taken or will have taken prior to January 1, 2000 such action as the Company
deemed or deems necessary to assess, evaluate and correct in all material
respects all of the hardware, software, embedded microchips and other processing
capabilities and capacities, directly or indirectly involving date sensitive
functions, to ensure that its business and operations, including those of the
Company Subsidiaries, will continue accurately and without material interruption
or ambiguity using date information before, during and after January 1, 2000.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Except as otherwise disclosed to the Company in a letter delivered to
it at or prior to the execution of this Agreement (the "Merger Sub Disclosure
Letter"), Ferrotec and the Merger Sub represent and warrant to the Company as
follows:
Section 5.1 Organization. Ferrotec and the Merger Sub are corporations
duly organized, validly existing and in good standing under the laws of Japan
and the Commonwealth of Massachusetts, respectively, and each, respectively, has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
and authority would not have a material adverse effect on the current business,
results of operations or financial condition of the Ferrotec and its
subsidiaries, taken as a whole (a "Ferrotec Material Adverse Effect"). Each of
Ferrotec and the Merger Sub is duly qualified or licensed to do business and in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a Ferrotec Material
Adverse Effect. Merger Sub has heretofore delivered to Company a complete and
correct copy of each of its Articles of Organization and By-Laws, as currently
in effect.
Section 5.2 Authorization: Validity of Agreement: Necessary Action.
Each of Ferrotec and the Merger Sub has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Ferrotec and the
Merger Sub of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly authorized by their respective Board of
Directors and no other corporate action on the part of Ferrotec or Merger Sub is
necessary to authorize the execution and delivery by Ferrotec or Merger Sub of
this Agreement and the consummation by it of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Ferrotec and the
Merger Sub and, assuming due and valid authorization, execution and delivery
hereof by the Company, is a valid and binding obligation of each of Ferrotec and
the Merger Sub, enforceable against it in accordance with its terms, except that
(i) such enforcement may be subject
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to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws, now or hereafter in effect, affecting creditors' rights generally,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 5.3 Consents and Approvals: No Violations. Except as disclosed
in Section 5.3 of the Merger Sub Disclosure Letter and except for (a) filings
pursuant to the HSR Act, applicable requirements under the Securities Act and
the Exchange Act, (b) the filing of the Articles of Merger, (c) applicable
requirements under corporation or "blue sky" laws of various states or (d) as
contemplated by this Agreement, neither the execution, delivery or performance
of this Agreement by either Ferrotec or Merger Sub nor the consummation by
either Ferrotec or Merger Sub of the transactions contemplated hereby will (i)
violate any provision of the Articles of Organization or By-Laws of Merger Sub
or the equivalent organizational documents of Ferrotec, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which either Ferrotec or Merger Sub is a party or by
which it or any of its properties or assets may be bound (the "Ferrotec
Agreements"), (iii) to the best knowledge of either Ferrotec or Merger Sub,
violate any order, writ, judgment, injunction, decree, law, statute, rule or
regulation applicable to either Ferrotec or Merger Sub or any of their
respective properties or assets, or (iv) require on the part of either Ferrotec
or Merger Sub any filing or registration with, notification to, or
authorization, consent or approval of, any Governmental Entity; except in the
case of clauses (ii), (iii) or (iv) for such violations, breaches or defaults
which, or filings, registrations, notifications, authorizations, consents or
approvals the failure of which to obtain would not have, individually and/or in
the aggregate, a Ferrotec Material Adverse Effect and would not materially
adversely affect the ability of either Ferrotec or Merger Sub to consummate the
transactions contemplated by this Agreement or would have become applicable as a
result of any acts or omissions by, or the status of facts pertaining to, solely
the Company.
Section 5.4 Interim Operations of the Merger Sub. The Merger Sub was
formed solely for the purpose of engaging in the transactions contemplated
hereby, has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
Section 5.5 Capitalization of the Merger Sub: Interests in the Company.
The authorized capital stock of the Merger Sub consists of 100,000 shares of
common stock, $.01 par value per share. As of the close of business on October
14, 1999, 1,000 shares of Merger Sub Common Stock were issued and outstanding,
all of which are entitled to vote, and no shares of Merger Sub Common Stock were
held in the Merger Sub's treasury. All the outstanding shares of the Merger
Sub's capital stock are duly authorized, validly issued, fully paid and
non-assessable. Except as set forth above, there will be, at the Effective Time,
(a) no other shares of capital stock or other voting securities of the Merger
Sub outstanding, (b) no securities of the Merger Sub convertible into or
exchangeable for shares of capital stock or voting securities of the Merger Sub
and (c) no outstanding options or other rights to acquire from the Merger Sub,
and no obligation of the Merger Sub to issue any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Merger Sub (the items referred to in clauses (a), (b)
and (c) being referred to
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collectively as the "Merger Sub Securities"). There are no outstanding
obligations of the Merger Sub to repurchase, redeem or otherwise acquire any
Merger Sub Securities. As of the date hereof, neither Ferrotec nor the Merger
Sub nor any of their respective affiliates or associates (as those terms are
defined in the Exchange Act), beneficially own any shares of Common Stock of the
Company, except as set forth in Section 5.5 of the Merger Sub Disclosure Letter.
Section 5.6 Disclosure Documents. The Offer Documents will not, at the
time the Offer Documents are filed with the SEC or are first published, sent or
given to the Shareholders of the Company, as the case may be, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, Ferrotec and Merger Sub make no representation or
warranty with respect to any information supplied by the Company or any of its
representatives in writing, expressly for inclusion in the Offer Documents,
which is contained in any of the foregoing documents or the Offer Documents.
None of the information supplied or to be supplied by Ferrotec or Merger Sub for
inclusion in the Proxy Statement will, either at the time of mailing of the
Proxy Statement to Shareholders of the Company, or at the time of the Special
Meeting, contain any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading.
Section 5.7 Required Financing. Ferrotec and Merger Sub (i) have
commitments or credit facilities in place which, either alone or with cash
presently on hand, will provide sufficient funds to purchase and pay for the
Shares pursuant to the Offer and the Merger in accordance with the terms of this
Agreement and to consummate the transactions contemplated hereby and (ii) will
have on the Expiration Date, and at the Effective Time, sufficient funds to
purchase and pay for the Shares pursuant to the Offer and the Merger,
respectively, in accordance with the terms of this Agreement. Ferrotec's credit
facilities permit Ferrotec to borrow money under such facilities and use such
funds to purchase and pay for the Shares pursuant to the Offer and the Merger in
accordance with the terms of this Agreement and to consummate the transactions
contemplated hereby.
ARTICLE VI
COVENANTS
Section 6.1 Interim Operations of the Company. The Company covenants
and agrees that the Company shall use its reasonable best efforts to, and shall
cause each of the Company Subsidiaries to use its reasonable best efforts to,
conduct its operations in the ordinary and usual course of business consistent
with past practice and use its reasonable best efforts to preserve intact their
respective business organizations' goodwill, keep available the services of
their respective present officers and key employees, and preserve the goodwill
and business relationships with suppliers, distributors, customers and others
having business relationships with them. Without limiting the generality of the
foregoing, and except as otherwise permitted by this Agreement or as
specifically disclosed in the Company Disclosure Letter, or as required by
applicable law, rule or
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regulation prior to the Effective Time, without the consent of Merger Sub, which
consent shall not be unreasonably withheld, the Company will not, and will cause
each of the Company Subsidiaries not to:
(a) amend or propose to amend their respective charters or
bylaws; or split, combine or reclassify their outstanding capital stock or
declare, set aside or pay any dividend or distribution in respect of any capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
except for dividends and distributions paid by Company Subsidiaries to other
Company Subsidiaries or to the Company;
(b) (i) issue or authorize or propose the issuance of,
sell, pledge or dispose of, or agree to issue or authorize or propose the
issuance of, sell, pledge or dispose of, any additional shares of, or any
options, warrants, dividend entitlement rights, or rights of any kind to acquire
any shares of, their capital stock of any class, any debt or equity securities
convertible into or exchangeable for such capital stock or any other equity
related right (including any phantom stock or SAR rights), other than any such
issuance pursuant to options, warrants, rights or convertible securities
outstanding as of the date hereof, and which derivative securities are set forth
in the Company Disclosure Letter; (ii) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets in each
case which are material, individually or in the aggregate, to the Company and
the Company Subsidiaries taken as a whole; (iii) sell (including by
sale-leaseback), lease, pledge, dispose of or encumber any assets or interests
therein, which are material, individually or in the aggregate, to the Company
and the Company Subsidiaries taken as a whole, other than in the ordinary course
of business and consistent with past practice; (iv) incur or become contingently
liable with respect to any material indebtedness for borrowed money or guarantee
any such indebtedness or issue any debt securities or otherwise incur any
material obligation or liability (absolute or contingent) other than short-term
indebtedness in the ordinary course of business and consistent with past
practice or otherwise pursuant to credit facilities set forth in Section 6.1(b)
of the Company Disclosure Letter; (v) redeem, purchase, acquire or offer to
purchase or acquire any (x) shares of its capital stock or (y) long term debt
other than as required by governing instruments relating thereto; or (vi) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing;
(c) enter into or amend any employment, severance, special
pay arrangement with respect to termination of employment or other arrangements
or agreements with any directors, officers or key employee except for (i) normal
salary increases and merit bonuses, (ii) arrangements in connection with
employee transfers or (iii) agreements with new employees, in each case, in the
ordinary course of business consistent with past practice; or agree or implement
an across the board increase in employee compensation except in the ordinary
course of business consistent with past practice;
(d) except as set forth in Section 6.1(d) of the Company
Disclosure Letter, adopt, enter into or amend any, or become obligated under any
new bonus, profit sharing,
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compensation, stock option, pension, retirement, deferred compensation,
healthcare, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law occurring after the date
hereof;
(e) except as may be required as a result of a change in
law or in GAAP, change any of the accounting principles or practices used by it;
(f) otherwise than pursuant to credit facilities set forth
in Section 6.1(b) of the Company Disclosure Letter, pay, discharge or satisfy
any material claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in, or contemplated by, the financial statements (or the notes
thereto) of the Company incurred in the ordinary course of business consistent
with past practice;
(g) except as set forth in Section 6.1(g) of the Company
Disclosure Letter, authorize, commit to or make any equipment purchases or
capital expenditures other than in the ordinary course of business and
consistent with past practice (provided, that such purchases and/or expenditures
shall, individually, be no more than $50,000, and, in the aggregate, be no more
than $250,000); or
(h) except as otherwise permitted by the terms of this
Agreement, take or agree to take any of the foregoing actions or any action that
would, or is reasonably likely to, result in any of its representations and
warranties set forth in this Agreement becoming untrue, or in any of the
conditions to the Merger set forth in Article VII not being satisfied.
Section 6.2 Access to Information. Upon reasonable notice, the Company
shall (and shall cause each of the Company Subsidiaries to) afford to Merger Sub
and its officers, employees, accountants, counsel, financing sources and other
representatives, access, during normal business hours during the period prior to
the earlier of the Effective Time or the date of termination of this Agreement,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall (and shall cause each of the Company Subsidiaries
to) furnish promptly to Merger Sub (a) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws and (b) all other
information concerning its business, properties and personnel as Merger Sub may
reasonably request; provided, however, that nothing herein shall require the
Company or any of the Company Subsidiaries to disclose any information to Merger
Sub if such disclosure would be in violation of applicable laws or regulations
of any Governmental Entity or the provisions of any confidentiality agreement to
which the Company is a party. Notwithstanding the foregoing, (x) the Company may
withhold any information if the Company determines in its sole discretion that
the disclosure of such information would adversely effect the Company's
competitive position within the industries which it conducts its business and
(y) if information is not being disclosed to Merger Sub, then Company shall
inform Merger Sub that such information is not being disclosed, the reasons for
such non- disclosure, and a general description of the information not so
disclosed, to the extent such description does not violate or contravene any
law, regulation or confidentiality agreement. Unless
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otherwise required by law and until the Effective Time, Ferrotec, Merger Sub and
their representatives will hold any such information which is non-public in
confidence in accordance with the provisions of the Confidentiality Agreement
between the Company and Ferrotec Corporation, dated as of August 16, 1999 (the
"Confidentiality Agreement").
Section 6.3 Employee Benefit Matters.
(a) After the Effective Time, Ferrotec shall cause the
Company to honor all obligations under (i) the existing terms of the employment
and severance agreements to which the Company or any Company Subsidiary is
presently a party, and which are set forth in the Company Disclosure Letter,
except as may otherwise be agreed to by the parties thereto and (ii) the
Company's and any Company Subsidiary's general severance policy as set forth in
Section 6.3 of the Company Disclosure Letter. For a period of one year following
the Effective Time (the "Transition Period"), the Company Employees, as defined
below, will continue to participate in the Benefit Plans (other than stock
option or stock purchase plans) on substantially similar terms to those in
effect on the date hereof. Following the Transition Period, the Company
Employees will be permitted to participate in the employee benefit plans of
Merger Sub or the Surviving Corporation as in effect on the date thereof on
terms substantially similar to those provided to employees of Merger Sub or the
Surviving Corporation.
(b) If any Company Employee becomes a participant in any
employee benefit plan, practice or policy of Merger Sub, any of its affiliates
or the Surviving Corporation, such Company Employee shall be given credit under
such plan for all service prior to the Effective Time with the Company and the
Company Subsidiaries and prior to the time such Company Employee becomes such a
participant, for purpose of eligibility (including, without limitation, waiting
periods) and vesting but not for any other purposes for which such service is
either taken into account or recognized (including, without limitation, benefit
accrual); provided, however, that such Company Employees will be given credit
for such service for purposes of any vacation policy. In addition, if any
Company Employees employed as of the Effective Time become covered by a medical
plan of Merger Sub or the Surviving Corporation, such medical plan shall not
impose any exclusion on coverage for preexisting medical conditions with respect
to these Company Employees, except as otherwise required by the insurance
carrier for such plans.
(c) All benefits described in Section 6.3(c) of the Company
Disclosure Letter shall be deemed fully vested as of the Effective Time.
(d) For purposes of this Section 6.3, the term "Company
Employees" shall mean all employees of the Company and the Company Subsidiaries
immediately prior to the Effective Time, including those on lay-off, disability
or leave of absence, paid or unpaid.
Section 6.4 No Solicitation.
(a) The Company will not, and will use its best efforts to
cause any officers, directors, employees and investment bankers, attorneys or
other agents retained by the Company or any of the Company Subsidiaries not to,
(i) initiate or solicit, directly or indirectly, any
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inquiries or the making of any Acquisition Proposal (as hereinafter defined), or
(ii) except as permitted below, engage in negotiations or discussions with, or
furnish any information or data to any third party relating to an Acquisition
Proposal (other than the transactions contemplated hereby). Notwithstanding
anything to the contrary contained in this Section 6.4 or in any other provision
of this Agreement, the Company, and its officers, directors, investment bankers,
attorneys or agents, may:
(i) participate in discussions or negotiations
(including, as a part thereof, making any counterproposal) with or
furnish information or data to any third party making an unsolicited
Acquisition Proposal (a "Potential Acquiror") if either: (A) the
Company Board determines in good faith, after consultation with its
financial advisor, that such third party is reasonably likely to submit
an Acquisition Proposal which is a Superior Proposal (as hereinafter
defined), or (B) the Company Board determines in good faith, after
consultation with its outside legal counsel, that the failure to
participate in such discussions or negotiations or to furnish such
information or data may be inconsistent with the Company Board's
fiduciary duties under applicable law, or
(ii) following receipt of an Acquisition Proposal,
disclose to its Shareholders the Company's position contemplated by
Rules 14d-9 and 14e-2 under the Exchange Act or otherwise make any
other necessary or advisable disclosure to its shareholders related to
an Acquisition Proposal.
The Company agrees that any non-public information furnished to a
Potential Acquiror was or will be pursuant to a confidentiality agreement
substantially similar to the confidentiality provisions of the Confidentiality
Agreement.
(b) For purposes of this Agreement, "Acquisition Proposal"
shall mean any bona fide proposal made by a third party to acquire (i)
beneficial ownership (as defined under Rule 13(d) of the Exchange Act) of a 51%
or greater equity interest in the Company pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock, tender offer or
exchange offer or similar transaction involving the Company including, without
limitation, any single or multi-step transaction or series of related
transactions which is structured in good faith to permit such third party to
acquire beneficial ownership of a 51 % or greater equity interest in the Company
or (ii) all or substantially all of the business or assets of the Company (other
than the transactions contemplated by this Agreement).
(c) The term "Superior Proposal" shall mean any Acquisition
Proposal which the Company Board by resolution duly adopted, determines, after
consultation with its financial advisor, to be more favorable to the Company and
its Shareholders than the transactions contemplated hereby.
(d) The Company shall immediately cease and cause to be
terminated any discussions or negotiations existing as of the date hereof with
any parties (other than Ferrotec and the Merger Sub) conducted heretofore with
respect to any of the foregoing. The Company agrees not to release any third
party from the confidentiality obligations of such third party under any
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confidentiality agreement or the standstill obligations of such third party
under any standstill agreement to which the Company is a party, provided,
however, that the Company can release any third party from any such standstill
agreement if the Company Board determines in good faith, after consultation with
its outside legal counsel, that the failure to so release such party from said
standstill agreement may be inconsistent with the Company Board's fiduciary
duties under applicable law.
Section 6.5 Publicity. The initial press release with respect to the
execution of this Agreement shall be a joint press release acceptable to
Ferrotec and its affiliates and the Company. Thereafter, so long as this
Agreement is in effect, neither the Company, Ferrotec nor any of their
respective affiliates shall issue or cause the publication of any press release
or other announcement with respect to the Merger, this Agreement or the other
transactions contemplated hereby without the prior consultation of the other
party, except as may be required by law or by any securities exchange or
inter-quotation system.
Section 6.6 Directors' and Officers' Insurance and Indemnification.
(a) In the event of any threatened or actual claim, action,
suit, proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date hereof (except for Ronald Moskowitz and Jan R. Kirk), or any person who
becomes prior to the Effective Time, a director, officer, employee, fiduciary or
agent of the Company or any of the Company Subsidiaries (the "Indemnified
Parties") is, or is threatened to be, made a party based in whole or in part on,
or arising in whole or in part out of, or pertaining to (i) the fact that he is
or was a director, officer, employee, fiduciary or agent of the Company or any
of the Company Subsidiaries, or is or was serving at the request of the Company
or any of the Company Subsidiaries, or is or was serving at the request of the
Company or any of the Company Subsidiaries as a director, officer, employee,
fiduciary or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (ii) the negotiation, execution or performance of this
Agreement or any of the transactions contemplated hereby, whether in any case
asserted or arising before or after the Effective Time, the parties hereto agree
to cooperate and use their reasonable best efforts to defend against and respond
thereto. It is understood and agreed that the Company shall indemnify and hold
harmless, and after the Effective Time Surviving Corporation and Merger Sub
shall indemnify and hold harmless, as and to the full extent permitted by
applicable law, each Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement ("Losses") in
connection with any such threatened or actual claim, action, suit, proceeding or
investigation, and in the event of any such threatened or actual claim, action,
suit, proceeding or investigation (whether asserted or arising before or after
the Effective Time), (A) the Company, and the Surviving Corporation and Merger
Sub after the Effective Time, shall promptly pay expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the full extent permitted by law, (B) the Indemnified
Parties shall retain Goodwin, Procter & Hoar LLP (provided that no policy for
D&O Insurance, as defined below, requires that counsel be chosen from an
approved list, or if any such policy requires counsel to be chosen from an
approved list, Goodwin, Procter & Hoar LLP is so named on the approved list) or
other counsel to
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represent them in such matter, provided that such choice of other counsel is
consented to by Merger Sub or the Surviving Corporation (and/or the applicable
insurance carriers), and which consent shall not be unreasonably withheld, and
the Company, and the Surviving Corporation and Merger Sub after the Effective
Time, shall pay all reasonable fees and expenses of such counsel within 30 days
after statements therefor are received, and (C) the Company, the Surviving
Corporation and Merger Sub will use their respective reasonable best efforts to
assist in the vigorous defense of any such matter; provided that none of the
Company, the Surviving Corporation or Merger Sub shall be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided further that the Surviving Corporation
and Merger Sub shall have no obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim indemnification under
this Section 6.6, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Company and, after the Effective Time,
the Surviving Corporation and Merger Sub, thereof; provided that the failure to
so notify shall not affect the obligations of the Company, the Surviving
Corporation and Merger Sub except (i) to the extent such failure to notify
materially prejudices such party, or (ii) in the event such failure to notify
results in any insurance coverage being denied, to the extent such denial
materially prejudices such party.
(b) Merger Sub agrees that all rights to indemnification
existing in favor of, and all limitations on the personal liability of, the
directors, officers, employees and agents of the Company and the Company
Subsidiaries provided for in this Agreement and provided for in the Articles of
Organization or By-Laws of the Company as in effect as of the date hereof with
respect to matters occurring prior to or at the Effective Time, including the
Offer, the Merger and the other transactions contemplated thereby, shall
continue in full force and effect for a period of six (6) years from the
Effective Time; provided, however, that all rights to indemnification in respect
of any claims (each a "Claim") asserted or made within such period shall
continue until the final disposition of such Claim. Prior to the Effective Time,
the Company shall purchase an extended reporting period endorsement under the
Company's existing directors' and officers' liability insurance coverage and/or
coverage under new policies from one or more other insurers (the "D & O
Insurance") for the Company's directors and officers in a form acceptable to the
Company which shall provide such directors and officers with coverage for six
(6) years following the Effective Time of not less than $20,000,000, and have
other terms not materially less favorable to, the insured persons than the
directors' and officers' liability insurance coverage presently maintained or
currently contemplated by the Company. To the extent the Company, Merger Sub
and/or Ferrotec advances or pays any expenses or damages related hereunder to a
Claim in advance of any reimbursement thereof by an insurance carrier, the
Company, Merger Sub and/or Ferrotec shall be entitled to any such reimbursement
thereof by such insurance carrier; and in the event of any claim against an
insurance carrier hereunder for reimbursement for or payment of any of said
expenses or damages, Company, Merger Sub and/or Ferrotec shall have the right to
proceed against such carrier on behalf of themselves and the Indemnified Parties
hereunder. Notwithstanding anything contained herein to the contrary, any
payments for indemnification provided hereunder shall be limited in the
aggregate with all other payments for indemnification (except as further limited
below) to a maximum of $20,000,000. Ferrotec agrees hereunder to pay and to be
responsible only for the
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payment obligations of the Surviving Corporation and the Merger Sub under this
Section 6.6, provided that Ferrotec's obligation hereunder is subject to the
limitations set forth below. Notwithstanding anything contained herein to the
contrary, Ferrotec shall only pay and be responsible for the payment obligations
of the Surviving Corporation and the Merger Sub under this Section 6.6 with
respect to all Losses in connection with Claims arising within the two-year
period following the Effective Time (including any Losses arising after such
two-year period relating to such Claims and any Losses arising from Claims made
after such two-year period that (i) are joined in a judicial proceeding with any
Claim that arose within such two-year period, or (ii) arise from actions of an
Indemnified Party upon which actions a Claim that is filed within such two-year
period is based), up to an aggregate $10,000,000. With respect only to such
Claims described in the preceding sentence such responsibility of Ferrotec shall
continue until the final disposition of such Claims. In addition, if an
Indemnified Party shall seek indemnification for a specific amount of Losses
under this Section 6.6 with respect to a Claim, such Indemnified Party shall
give written notice thereof (an "Indemnification Notice") to the Company and to
any applicable insurance carrier (if prior to the Effective Time) and to
Ferrotec and the Surviving Corporation (if after the Effective Time) and to the
carriers of the D&O Insurance. In the event that after the Effective Time an
Indemnified Party does not receive payment for any such Losses from the
Surviving Corporation or the carrier(s) of the D&O Insurance within ninety (90)
days after the giving of an Indemnification Notice, Ferrotec shall be obligated
to pay to such Indemnified Party an amount or amounts equal to such Losses
(subject to the $10,000,000 limit described above for all Losses incurred by the
Indemnified Parties). In addition, pursuant to and in accordance with the
Article IV of the Company's By-Laws, Merger Sub and/or Ferrotec may require an
unsecured undertaking in form and content reasonably satisfactory to Merger Sub
and/or Ferrotec, from the Indemnified Parties, to reimburse any and all advance
payments to Merger Sub and/or Ferrotec made hereunder upon final disposition of
any action, suit or proceeding for which indemnification was sought, in the
event that upon such final disposition of such action, suit or proceeding such
Indemnified Party shall not be entitled to indemnification under this Section.
(c) This Section 6.6 is intended for the irrevocable
benefit of, and to grant third party rights to, the Indemnified Parties and
shall be binding on all successors and assigns of the Merger Sub, Ferrotec, the
Company and the Surviving Corporation. Each of the Indemnified Parties shall be
entitled to enforce the covenants contained in this Section 6.6.
(d) In the event that Ferrotec or the Surviving Corporation
or any of its successors or assigns (i) consolidates with or merges into any
other person or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) transfers or conveys all or
substantially all of its properties and assets to any person or entity, then,
and in each such case, proper provision shall be made so that the successors and
assigns of Ferrotec or the Surviving Corporation, as the case may be, assume its
obligations set forth in this Section 6.6.
Section 6.7 Proxy Statement.
(a) The Company and Ferrotec shall prepare as soon as
practicable, following the consummation of the Offer (the "Acceptance Date"),
and shall file with the SEC the Proxy Statement. The respective parties will
cause the Proxy Statement to comply as to form in all
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material respects with the applicable provisions of the Exchange Act and the
rules and regulations thereunder.
(b) The Proxy Statement will be mailed to the Shareholders
of the Company as promptly as practicable after the Acceptance Date and
subsequent to the date on which the SEC has indicated that it has no comments or
no additional comments with respect to the Proxy Statement. The Company shall
include in the Proxy Statement the recommendation of the Company Board that its
Shareholders vote in favor of the approval of the Merger and the adoption of
this Agreement.
(c) The Company and Ferrotec agree that at the time that
the Proxy Statement is mailed to the Shareholders of the Company, the Proxy
Statement will 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
statements therein, in light of the circumstances under which they were made,
not misleading.
(d) No amendment or supplement to the Proxy Statement will
be made without the approval of each of the Company and Ferrotec, which approval
will not be unreasonably withheld or delayed.
Section 6.8 Shareholders' Meetings. As soon as practicable after the
consummation of the Offer, the Company, acting through the Company Board, shall,
in accordance with applicable law and its Articles of Organization, as amended,
and for the purpose of considering and taking action upon this Agreement and the
Merger contemplated hereby, duly call, give notice of, convene and hold a
Special Meeting of the Shareholders of the Company. Ferrotec and the Merger Sub
agree to vote or use their reasonable best efforts to cause all of the Shares
owned beneficially or of record by them and their affiliates as of the record
date for the Special Meeting in favor of the Merger at the Special Meeting.
Section 6.9 Approvals and Consents: Cooperation.
(a) The parties hereto shall use all reasonable best
efforts, and cooperate with each other, to obtain as promptly as practicable all
governmental and third party authorizations, approvals, consents or waivers
required in order to consummate the transactions contemplated by this Agreement,
including, without limitation, the Merger.
(b) The Company, Merger Sub and Ferrotec shall take all
actions necessary to file as soon as practicable all notifications, filings and
other documents required to obtain all governmental authorizations, approvals,
consents or waivers and to respond as promptly as practicable to any inquiries
and requests received from the Federal Trade Commission, the Antitrust Division
of the Department of Justice and any other Governmental Entity for additional
information or documentation in connection therewith.
(c) The Company, Merger Sub and Ferrotec shall keep the
other apprised of the status of matters relating to the completion of the
transactions contemplated hereby and work
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cooperatively in connection with obtaining governmental consents, including,
without limitation: (i) promptly notifying the other of, and if in writing,
furnishing the other with copies of (or, in the case of material oral
communication, advise the other orally of) any communications from or with any
Governmental Entity with respect to the Merger or any of the other transactions
contemplated by this Agreement, (ii) permitting the other party to review and
discuss in advance, and considering in good faith the views of one another in
connection with, any proposed written (or any material proposed oral)
communication with any Governmental Entity, (iii) not participating in any
meeting with any Governmental Entity unless it consults with the other party in
advance and to the extent permitted by such Governmental Entity gives the other
party the opportunity to attend and participate thereat, (iv) furnishing the
other party with copies of all correspondence, filings and communications (and
memoranda setting forth the substance thereof) between it and any Governmental
Entity with respect to this Agreement and the Merger, and (v) furnishing the
other party with such necessary information and reasonable assistance as such
other party may reasonably request in connection with its preparation of
necessary filings or submissions of information to any Governmental Entity. The
Company and Ferrotec may, as each deems advisable and necessary, reasonably
designate any competitively sensitive material provided to the other under this
Section as "outside counsel only." Such materials and the information contained
therein shall be given only to the outside legal counsel of the recipient and
will not be disclosed by such outside counsel to employees, officers, or
directors of the recipient unless express permission is obtained in advance from
the source of the materials (the Company or Ferrotec, as the case may be) or its
legal counsel. Notwithstanding the foregoing, in the event such outside counsel
deems that any such material so disclosed to outside counsel has caused or will
cause the failure of the condition set forth in paragraph (e) of Annex A hereto,
such outside counsel shall so notify the disclosing party of such material as to
the foregoing and shall also notify the other parties hereto, without disclosing
the specific information concerning the material so designated as to the
foregoing.
(d) The Company shall give prompt notice to Ferrotec of the
forgoing occurrence of any Company Material Adverse Effect, and Ferrotec shall
give prompt notice to the Company of the occurrence of any Ferrotec Material
Adverse Effect. Each of the Company and Ferrotec shall give prompt notice to the
other of the occurrence or failure to occur of an event that would, or, with the
lapse of time would, cause any condition contained in Article VII not to be
satisfied.
Section 6.10 Further Assurances. Each of the parties hereto agrees to
use its best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, the Offer and the
Merger, which efforts shall include, without limitation, (a) Company, the Merger
Sub and Ferrotec using their best efforts to prevent any preliminary or
permanent injunction or other order by a court of competent jurisdiction or
Governmental Entity relating to consummating the transactions contemplated by
this Agreement, including, without limitation, under the antitrust laws, and, if
issued, to appeal any such injunction or order through the appellate court or
body for the relevant jurisdiction and (b) Company and the Merger Sub and
Ferrotec using their best efforts to satisfy any objections of, and accept any
conditions imposed by, any Governmental Entity, except where such objection or
condition would have a Company Material Adverse Effect. If at any time after the
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Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the parties hereto shall take or cause to be taken
all such necessary action, including, without limitation, the execution and
delivery of such further instruments and documents as may be reasonably
requested by the other party for such purposes or otherwise to consummate and
make effective the transactions contemplated hereby.
Section 6.11 Rights Agreement; Stock Options, Foreign Subsidiaries.
(a) The Company shall take all necessary action prior to
the Acceptance Date to cause the dilution provisions of the Rights Agreement,
dated August 3, 1994, between the Company and American Stock Transfer and Trust
Company (the "Company Rights Agreement") to be inapplicable to the transactions
contemplated by this Agreement, without any payment to holders of preferred
stock purchase rights ("Rights") issued pursuant to such Company Rights
Agreement.
(b) Subject to the provisions of Section 3.2 hereof, the
Company shall have taken all necessary actions to cause all outstanding Company
Options to be canceled as of the Acceptance Date, against payment therefor as
provided hereunder.
(c) The Company shall use its reasonable efforts to cause
all of its foreign subsidiaries as to which the Company does not own of record
all such entity's equity to have entered into agreements as of the Acceptance
Date to transfer such equity owned by any other person directly to a designee of
Merger Sub.
Section 6.12 Company Board Representation; Section 14(f).
(a) Promptly upon the purchase by the Merger Sub of Shares
pursuant to the Offer, and from time to time thereafter, the Merger Sub shall be
entitled to designate up to such number of directors, rounded up to the next
whole number, on the Company Board as shall give the Merger Sub representation
on the Company Board equal to the product of the total number of directors on
the Company Board (giving effect to the directors elected pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by the Merger Sub or any affiliate of the Merger Sub
following such purchase bears to the total number of Shares then outstanding,
and the Company shall, at such time, promptly take all actions necessary to
cause the Merger Sub's designees to be elected as directors of the Company,
including increasing the size of the Company Board or securing the resignations
of incumbent directors or both, provided that the number of directors
constituting the Company Board shall be no less than five. At such times, the
Company shall use its best efforts to cause persons designated by the Merger Sub
to constitute the same percentage as is on the Company's Board of (i) each
committee of the Company Board, (ii) each board of directors of each Company
Subsidiary and (iii) each committee of each such board, in each case only to the
extent permitted by applicable law. Notwithstanding the foregoing, in the event
that Merger Sub's designees are elected to the Company Board, until the
Effective Time, the Company Board shall have at least two directors who are
directors on the date hereof (the "Independent Directors"); provided that, in
such events, if the number of Independent Directors shall be reduced below two
for any reason whatsoever, any remaining Independent Directors (or
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Independent Director, if there be only one remaining) shall be entitled to
designate persons to fill such vacancies who shall be deemed to be Independent
Directors for purposes of this Agreement or, if no Independent Director then
remains, the other directors shall designate two persons to fill such vacancies
who shall not be shareholders, affiliates or associates of Merger Sub and such
persons shall be deemed to be Independent Directors for purposes of this
Agreement. Notwithstanding anything in this Agreement to the contrary, in the
event that Merger Sub's designees are elected to the Company Board, after the
acceptance for payment of Shares pursuant to the Offer and prior to the
Effective Time, the affirmative vote of a majority of the Independent Directors
shall be required to (a) amend or terminate this Agreement by the Company, (b)
extend the time for performance of Ferrotec's or Merger Sub's obligations
hereunder, or (c) exercise or waive any of the Company's rights, benefits or
remedies hereunder.
(b) The Company shall promptly take all actions required
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations under this Section 6.12 and shall
include in the Schedule 14D-9 such information with respect to the Company and
its officers and directors as is required under Section 14(f) and Rule 14f-1 to
fulfill such obligations. Ferrotec and the Merger Sub shall supply to the
Company and be solely responsible for any information with respect to either of
them and their nominees, officers, directors and affiliates required by such
Section 14(f) and Rule 14f-1.
(c) The Company further agrees and acknowledges that the
current staggered Company Board and the agreement that the Company maintain such
Board under its charter documents, shall not prevent the Company from causing
the election to the Company's Board of the number of directors of Merger Sub
provided in this Section 6.12.
ARTICLE VII
CONDITIONS
Section 7.1 Conditions to Each Party's Obligations. The respective
obligation of each party to effect the Merger shall be subject to the
satisfaction (or, if permissible, waiver by the party for whose benefit such
conditions exist) at or prior to the Effective Time of the following conditions:
(a) this Agreement and the Merger shall have been approved
and adopted by the requisite majority vote of the Shareholders of the Company in
accordance with applicable law and regulatory requirements and the Company's
Articles of Organization;
(b) the waiting period applicable under HSR shall have
expired or terminated;
(c) no order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger or any of the other transactions
contemplated by this Agreement shall be in effect, and no statute, rule,
regulation, order, injunction or decree shall have been enacted, entered,
promulgated
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or enforced by any Governmental Entity which prohibits, restricts or makes
illegal the consummation of the Merger, provided, however, that the parties
shall have used their best efforts to prevent any such rule, regulation,
injunction, decree or other order, and to appeal as promptly as possible any
injunction, decree or other order that may be entered;
(d) all authorizations, approvals or consents required to
permit the consummation of the Merger shall have been obtained and be in full
force and effect, except where the failure to have obtained any such
authorizations, approvals or consents would not, individually and/or in the
aggregate, have a Company Material Adverse Effect;
(e) The Merger Sub or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the Offer
and the Minimum Condition to the Offer has been satisfied.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. Anything herein or elsewhere to the contrary
notwithstanding, this Agreement may be terminated and the Offer (if not then
already consummated) and/or the Merger contemplated herein may be abandoned at
any time (the "Termination Date") prior to the Effective Time, whether before or
after Shareholder approval thereof:
(a) By the mutual consent of the Company, Ferrotec and the
Merger Sub.
(b) By either of the Company, on the one hand, or Ferrotec
and the Merger Sub, on the other hand:
(i) if, without any material breach by the
terminating party of its obligations under this Agreement, Merger Sub
shall not have purchased Shares pursuant to the Offer on or prior to
sixty (60) days after the commencement of the Offer (the "Final
Expiration Date"), provided, however, that neither Merger Sub nor the
Company shall terminate this Agreement prior to February 29, 2000, if
all conditions to the Offer set forth in Annex A have been satisfied
or, to the extent permitted, waived, except that Shares shall not have
been purchased by Merger Sub by reason of any applicable waiting period
(and any extension thereof) under the HSR Act in respect to the Offer
not having expired or been terminated;
(ii) if any Governmental Entity shall have issued
an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their
respective reasonable best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and
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non-appealable; provided, however, that the party seeking termination
shall have complied fully with its obligations under Section 6.9;
(iii) if the Minimum Condition shall not have been
satisfied, in which case neither Ferrotec, Merger Sub nor any of their
affiliates shall be permitted to accept for payment or pay for any
Shares unless and until the Company shall have provided Merger Sub with
written notice stating that the Company is not exercising its right to
terminate this Agreement pursuant to this Section 8.1(b)(iii);
(c) By the Company:
(i) if the Company Board shall have (A) withdrawn,
or modified or changed in a manner adverse to Merger Sub its approval
or recommendation of this Agreement or the Merger and (B) either (x)
determined in good faith, after consultation with its financial
advisor, that a third party has submitted to the Company an Acquisition
Proposal which is a Superior Proposal, or (y) determined in good faith,
after consultation with its outside legal counsel, that the failure to
take such action as set forth in the preceding clause (A) may be
inconsistent with the Company Board's fiduciary duties under applicable
law; or
(ii) if Ferrotec or Merger Sub (x) breaches or
fails in any material respect to perform or comply with any of their
material covenants and agreements contained herein or (y) breaches
their representations and warranties in any material respect and such
breach would have a Ferrotec Material Adverse Effect, in each case in
connection with the termination of this Agreement only after the
Acceptance Date such that the conditions set forth in Section 7.1 would
not be satisfied; provided, however, that after the Acceptance Date if
any such breach is curable by the breaching party, the Company may
terminate this Agreement pursuant to this Section 8. l(c)(ii) only
after the passage of thirty (30) calendar days from written
notification to Ferrotec and Merger Sub by the Company of such breach,
and provided further that such breach has not been so cured within said
thirty-day period, provided however, that the Termination Date shall be
so delayed (if the Termination Date will have occurred prior to the end
of said thirty-day period) in order to give such breaching party the
opportunity to cure during said thirty-day period.
(d) By Ferrotec and the Merger Sub:
(i) if the Company (x) breaches or fails in any
material respect to perform or comply with any of its material
covenants and agreements contained herein or (y) breaches its
representations and warranties and such breach would have a Company
Material Adverse Effect, in each case in connection with the
termination of this Agreement only after the Acceptance Date such that
the conditions set forth in Section 7.1 would not be satisfied;
provided, however, that after the Acceptance Date if any such breach is
curable by the Company, then Ferrotec or Merger Sub may terminate this
Agreement pursuant to this Section 8. l(d)(i) only after the passage of
thirty (30) calendar days from notification to the Company by Ferrotec
or Merger Sub of such breach and provided further that such breach
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has not been so cured within said thirty-day period, provided, however,
that the Termination Date shall be so delayed (if the Termination Date
will have occurred prior to the end of said thirty-day period) in order
to give such breaching party the opportunity to cure during said
thirty-day period; or
(ii) if the Company Board shall have withdrawn,
modified or changed in any manner adverse to Merger Sub its approval or
recommendation of this Agreement or the Merger or shall have
recommended an Acquisition Proposal involving the Company or shall have
executed an agreement in principle or definitive agreement relating to
an Acquisition Proposal involving the Company or similar business
combination with a person or entity other than Merger Sub or its
affiliates (or the Company Board resolves to do any of the foregoing),
provided, however, that prior to terminating this Agreement as a result
of a third party Acquisition Proposal, the Company shall give the
Merger Sub telephonic notice of at least forty-eight hours in advance
of such termination, specifying the terms of such Acquisition Proposal
by a third party; or
(iii) if for any five consecutive trading days
prior to the Effective Time the Dow Jones Industrial Average shall be
less than 6,500 on each of such days; or
(iv) if due to an occurrence or circumstance that
would result in a failure to satisfy any condition set forth in Annex A
hereto, the Merger Sub shall have failed to commence the Offer on or
prior to five days following the initial public announcement of this
Agreement.
Section 8.2 Effect of Termination.
(a) In the event of the termination of this Agreement as
provided in Section 8.1, written notice thereof shall forthwith be given to the
other party or parties specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become null and void,
and there shall be no liability on the part of Ferrotec, Merger Sub or the
Company or their respective directors, officers, employees, shareholders,
representatives, agents or advisors, other than, with respect to Ferrotec,
Merger Sub and the Company, the obligations pursuant to this Section 8.2,
Article IX and the last sentence of Section 6.2. Nothing contained in this
Section 8.2 shall relieve Ferrotec, Merger Sub or the Company from liability for
fraud or willful breach of this Agreement.
(b) If this Agreement is terminated:
(A) by the Company pursuant to Section 8.
l(c)(i), or
(B) by Ferrotec and Merger Sub pursuant to
Section 8.1(d)(ii),
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then at the time of termination with respect to (A) or (B) above, the Company
shall pay the Merger Sub an amount equal to $3,000,000 in cash (the "Liquidated
Amount"). The parties hereto hereby agree that, in light of the difficulty of
accurately determining actual damages with respect to any termination of this
Agreement pursuant to Sections 8.1(c)(i) or 8.1(d)(ii), said Liquidated Amount
represents the parties reasonable estimate of said damages. Said Liquidated
Amount is not meant nor should it be deemed as a penalty, but rather as an
attempt by the parties to quantify the amount of damages sustained by Ferrotec
and Merger Sub if the transaction is not contemplated. Ferrotec and Merger Sub
hereto expressly acknowledges and agrees that, with respect to any termination
of this Agreement pursuant to Sections 8.1(c)(i) or 8.1(d)(ii) hereof, the
Liquidated Amount shall constitute the sole and exclusive remedy available to
Ferrotec and Merger Sub. Except for nonpayment of the Liquidated Amount,
Ferrotec, Merger Sub and the Company hereby agree that, upon any termination of
this Agreement pursuant to Sections 8.1(c)(i) or 8.1(d)(ii) hereof, in no event
shall Ferrotec or Merger Sub be entitled to seek or to obtain any recovery or
judgment against the Company or any of the Company Subsidiaries or any of their
respective assets, or against any of their respective directors, officers,
employees, partners, managers, members or shareholders, and in no event shall
Ferrotec or Merger Sub be entitled to seek or obtain any other damages of any
kind, including, without limitation, consequential, indirect or punitive
damages.
(c) The obligations of the Company, Ferrotec, and Merger
Sub under this Section 8.2 shall survive any termination of this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the Shareholders of the Company contemplated
hereby, by written agreement of the parties hereto, by action taken by their
respective Boards of Directors, at any time prior to the Closing Date with
respect to any of the terms contained herein; provided, however, that after the
approval of this Agreement by the Shareholders of the Company, no such
amendment, modification or supplement shall reduce or change the Cash
Consideration or adversely affect the rights of the Company's Shareholders
hereunder without the approval of such shareholders.
Section 9.2 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time or the termination of this Agreement. This Section 9.2 shall not
limit any covenant or agreement contained in this Agreement which by its terms
contemplates performance after the Effective Time, including, without
limitation, those made in Sections 6.3, 6.6, 8.2, the last sentence of Section
6.2 and this Article IX.
Section 9.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or one business day after being sent by an
overnight courier service, such as Federal Express, for next day delivery,
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to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Ferrotec, to:
Ferrotec Corporation
5-24-8, Higashi-Ueno
Taito-ku
Tokyo, Japan 110-0015
Telephone No.: 011-81-33-845-1032
Telecopy No.: 011-81-33-845-1019
Attention: Mr. Akira Yamamura, President
and Chief Executive Officer
with a copy to:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue
28th Floor
Miami, Florida 33131-1714
Telephone No.: (305) 374-5600
Telecopy No.: (305) 374-5095
Attention: Alan H. Aronson, Esquire
(b) if to Merger Sub, to:
c/o Ferrotec Corporation
5-24-8, Higashi-Ueno
Taito-ku
Tokyo, Japan 110-0015
Telephone No.: 011-81-33-845-1032
Telecopy No.: 011-81-33-845-1019
Attention: Mr. Akira Yamamura, President
and Chief Executive Officer
with a copy to:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue
28th Floor
Miami, Florida 33131-1714
Telephone No.: (305) 374-5600
Telecopy No.: (305) 374-5095
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Attention: Alan H. Aronson, Esquire
and
(c) if to the Company, to:
Ferrofluidics Corporation
40 Simon Street
Nashua, New Hampshire 03061
Telephone No.: (603) 883-9800
Telecopy No.: (603) 883-1213
Attention: Paul F. Avery, Jr., Chief Executive
Officer
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Telephone No.: (617) 570-1000
Telecopy No.: (617) 523-1231
Attention: Stuart M. Cable, P.C.
James A. Matarese, Esq.
Section 9.4 Interpretation. The words "hereof", "herein" and "herewith"
and words of similar import shall, unless otherwise stated, be construed to
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, paragraph, exhibit and schedule references are
to the articles, sections, paragraphs, exhibits and schedules of this Agreement
unless otherwise specified. The word "or" shall be construed to refer to
"and/or." Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation". The word describing the singular number shall include the plural
and vice versa, and words denoting any gender shall include all genders and
words denoting natural persons shall include corporations and partnerships and
vice versa. The phrase "to the knowledge of" or "to the best knowledge of" or
any similar phrase shall mean such facts and other information which as of the
date of this Agreement are actually known by any officer of the referenced party
who currently files Forms 4 pursuant to Section 16(b) of the Exchange Act. The
phrase "made available" in this Agreement shall mean that the information
referred to has been made available to the other party. The phrases "the date of
this Agreement", "the date hereof" and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to October 20, 1999. As
used in this Agreement, the term "affiliate(s)"shall have the meaning set forth
in Rule 12b-2 of the Exchange Act. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
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Section 9.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 9.6 Entire Agreement: Third Party Beneficiaries. This
Agreement, the Annex and Exhibits hereto (including the Company Disclosure
Letter and the Merger Sub Disclosure Letter), and the Confidentiality Agreement
(including the documents and the instruments referred to herein and therein)
constitute the entire agreement and supersede all prior agreements and
understandings, including, without limitation, all representations and
warranties made by the parties in connection herewith, both written and oral,
among the parties with respect to the subject matter hereof. This Agreement
shall be binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended or shall confer upon
any other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement, except that Sections 6.3 and 6.6 hereof are
intended to be for the benefit of those persons described therein and the
covenants and agreements contained therein may be enforced by such persons.
Section 9.7 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 9.8 Governing Law.
(a) This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof or of any other jurisdiction.
(b) Each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of any Federal court located in the State of
Delaware or the Commonwealth of Massachusetts or any Delaware or Massachusetts
state court in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) agrees that it will not attempt to deny
or defeat such personal jurisdiction by motion or other request for leave from
any such court and (iii) agrees that it will not bring any action relating to
this Agreement or any of the transactions contemplated hereby in any court other
than a Federal or state court sitting in the Commonwealth of Massachusetts or
State of Delaware.
Section 9.9 Specific Performance. Each of the parties hereto
acknowledges and agrees that in the event of any breach of this Agreement, each
non-breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties hereto
(a) will waive, in any action for specific performance, the defense of adequacy
of a remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in a court of competent jurisdiction.
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<PAGE> 40
Section 9.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law. or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
Section 9.11 Expenses. Except as set forth in Section 8.2, all costs
and expenses incurred in connection with this Agreement and the consummation of
the transactions contemplated hereby shall be paid by the party incurring such
costs and expenses, whether or not any of the transactions contemplated hereby
is consummated.
Section 9.12 Headings. Headings of the Articles and Sections of this
Agreement are for convenience of the parties only, and shall be given no
substantive or interpretative effect whatsoever.
Section 9.13 Waivers. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant,
agreement or condition herein may be waived by the party or parties entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
Section 9.14 No Agreement Until Executed. Irrespective of negotiations
among the parties or the exchanging of drafts of this Agreement, this Agreement
shall not constitute or be deemed to evidence a contract, agreement, arrangement
or understanding among the parties hereto unless and until (i) the Company Board
has approved, for purposes of Chapter 110F of the MBCL and any applicable
provision of the Articles of Organization, the terms of this Agreement, (ii) the
Board of Directors of Ferrotec has approved the terms of this Agreement, and
(iii) this Agreement is executed by the parties thereto.
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<PAGE> 41
IN WITNESS WHEREOF, Ferrotec, the Merger Sub and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
FERROFLUIDICS CORPORATION
By: /s/ Paul F. Avery, Jr.
-----------------------
Name: Paul F. Avery, Jr.
-----------------
Title:President and CEO
-----------------
By: /s/ William B. Ford
---------------
Name: William B. Ford
---------------
Title: Treasurer
---------
FERROTEC ACQUISITION, INC.
By: /s/ Richard R. Cesati II
------------------------
Name: Richard R. Cesati II
--------------------
Title: President
---------
By: /s/ Akira Yamamura
--------------
Name: Akira Yamamura
--------------
Title: Treasurer
---------
FERROTEC CORPORATION
By: /s/ Nozomu Yamamoto
---------------
Name: Nozomu Yamamoto
---------------
Title: Executive Director
------------------
40
<PAGE> 42
ANNEX A
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer and subject to Rule
14e-1(c) of the Exchange Act and Section 1.1 of the Agreement, the Merger Sub
shall not be required to accept for payment or pay for any Shares tendered
pursuant to the Offer, and may (A) postpone the acceptance for payment of and
payment for Shares tendered, if (i) the Minimum Condition shall not have been
satisfied as of the Expiration Date or Final Expiration Date, or (ii) any
applicable waiting period under HSR shall not have expired or been terminated
prior to the Expiration Date or Final Expiration Date, or (B) terminate or amend
the Offer or postpone the acceptance for payment of and payment for Shares
tendered if at any time on or after the date of this Agreement, and prior to the
Expiration Date or Final Expiration Date, any of the following conditions shall
exist which, in the sole judgment of the Merger Sub in any such case, and
regardless of the circumstances (including any action or inaction by Merger Sub
or any of its affiliates) giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment:
(a) there shall have been instituted or be pending any action or
proceeding before any court or governmental, administrative or regulatory
authority or agency, domestic or foreign, (i) challenging or seeking to make
illegal, materially delaying or otherwise directly or indirectly restraining or
prohibiting the making of the Offer, the acceptance for payment of, or payment
for, any Shares by Ferrotec, the Merger Sub or any other affiliate of Ferrotec
or the Merger Sub or the consummation of any other transaction contemplated
hereby or thereby, or seeking to obtain material damages in connection with any
transaction contemplated hereby or thereby; (ii) seeking to prohibit or limit
materially the ownership or operation by the Company, Ferrotec, Merger Sub or
any of their subsidiaries of all or any material portion of the business or
assets of the Company, Ferrotec, Merger Sub or any of their subsidiaries, or to
compel the Company, Merger Sub or any of their subsidiaries to dispose of or
hold separate all or any material portion of the business or assets of the
Company, Ferrotec, Merger Sub or any of their subsidiaries, as a result of the
transactions contemplated hereby; (iii) seeking to impose or confirm limitations
on the ability of Ferrotec, the Merger Sub or any other affiliate of Merger Sub
to exercise effectively full rights of ownership of any Shares, including,
without limitation, the right to vote any Shares acquired by the Merger Sub
pursuant to the Offer or otherwise on all matters properly presented to the
Company's Shareholders, including, without limitation, the approval and adoption
of this Agreement and the transactions contemplated hereby; (iv) seeking to
require divestiture by the Ferrotec, Merger Sub or any other affiliate of Merger
Sub of any Shares; or (v) with respect to any such action or proceeding relating
to this Agreement, the Merger, the transactions contemplated by this Agreement
or the announcement thereof, which otherwise has a Company Material Adverse
Effect or Ferrotec Material Adverse Effect; or
(b) there shall have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction enacted,
entered, enforced, promulgated, amended, issued or deemed applicable to (i)
Ferrotec, Merger Sub, the Company or any subsidiary or affiliate of the Merger
Sub or the Company or (ii) any transaction contemplated hereby, by any
legislative body, court, government or governmental, administrative or
regulatory authority or agency,
41
<PAGE> 43
domestic or foreign, other than the routine application of the waiting period
provisions of HSR to the Offer or the Merger, which is reasonably likely to
result, directly or indirectly, in any of the consequences referred to in
clauses (i) through (v) of paragraph (a) above; or
(c) there shall have occurred after the date of the Agreement any
change, condition, event or development that has had a Company Material Adverse
Effect, provided, however, that (i) no event, change or effect that primarily
results from this Agreement, the Merger, the Offer and the transactions
contemplated thereby or the announcement thereof, (ii) no event, change or
effect generally affecting the industries in which the Company operates, or
(iii) no event, change or effect related to a general drop in stock prices in
the United States resulting from political or economic turmoil, shall be deemed
to cause either individually or in the aggregate a Company Material Adverse
Effect; or
(d) there shall have occurred after the date of the Agreement (i) any
general suspension of, trading in securities on NASDAQ for the Company for a
period in excess of 24 hours (excluding suspensions or limitations resulting
solely from physical damage or interference with such exchange not related to
market conditions), (ii) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States, Japan, or Canada, (iii)
any limitation (whether or not mandatory) by any government or governmental,
administrative or regulatory authority or agency, domestic or foreign, on, or
other event that, in the reasonable judgment of the Merger Sub, is reasonably
likely to materially adversely affect the extension of credit by banks or other
lending institutions, (iv) a declaration of war or armed hostilities by either
the United States or Japan or (v) in the case of any of the foregoing existing
on the date hereof, a material acceleration or worsening thereof; or
(e) the Company (x) breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements contained in
the Agreement or (y) breaches its representations and warranties and such breach
would have a Company Material Adverse Effect; or
(f) the Company Board shall have withdrawn, modified or changed in any
manner adverse to Ferrotec or Merger Sub its approval or recommendation of this
Agreement or the Merger or shall have recommended an Acquisition Proposal
involving the Company or shall have executed an agreement in principle or
definitive agreement relating to an Acquisition Proposal involving the Company
or similar business combination with a person or entity other than Ferrotec,
Merger Sub or its affiliates (or the Company Board resolves to do any of the
foregoing); or
(g) this Agreement shall have been terminated in accordance with its
terms; or
(h) Ferrotec, the Merger Sub and the Company shall have agreed in
writing that the Merger Sub shall terminate the Offer or postpone the acceptance
for payment of or payment for Shares thereunder.
Except as provided below, the foregoing conditions are for the sole
benefit of the Ferrotec and Merger Sub and may be asserted by Ferrotec and the
Merger Sub regardless of the circumstances giving rise to any such condition or
may be waived by Ferrotec and the Merger Sub in whole or in
42
<PAGE> 44
part at any time and from time to time in its sole discretion. The failure by
Ferrotec or Merger Sub at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right; the waiver of any such right with
respect to particular facts and other circumstances shall not be deemed a waiver
with respect to any other facts and circumstances; and each such right shall be
deemed an ongoing right that may be asserted at any time and from time to time.
Notwithstanding anything to the contrary provided in the Agreement or this Annex
A, neither Ferrotec nor Merger Sub shall be permitted to waive the Minimum
Condition without the written consent of the Company.
43
<PAGE> 1
Exhibit 4
[Ferrofluidics Corporation Letterhead]
August 10, 1999
Ferrotec Corporation
5-24-8
Higashi-Ueno
Taito-ku
Tokyo, Japan 110-0015
Attn: Akira Yamamura
Ladies and Gentlemen:
In connection with our mutual consideration of a potential transaction
involving a business combination or a strategic alliance (the "Proposed
Transaction") between Ferrofluidics Corporation, a Massachusetts corporation
("FFC"), on the one hand, and Ferrotec Corporation, a corporation formed under
the laws of Japan ("Ferrotec"), on the other hand, Ferrotec has requested
certain information concerning FFC, and FFC, in turn, has requested certain
information concerning Ferrotec. This information is confidential and
proprietary to the respective parties and not otherwise available. Each party
agrees that, in consideration of, and as a condition to, furnishing such
information, it will abide by the following:
1. Confidentiality Agreement. Each of FFC and Ferrotec, as applicable
(each, a "Receiving Party"), hereby agrees to treat all information, whether
written or oral, concerning Ferrotec or FFC, as applicable (each a "Disclosing
Party"), or any of their respective affiliates, subsidiaries or divisions, which
the Disclosing Party or any directors, officers, employees, partners, agents or
representatives (collectively, the "Representatives") of the Disclosing Party
furnishes, whether before or after the date of this agreement, to the Receiving
Party or its Representatives, together with all originals or copies of all
reports, analyses, compilations, data, studies and other materials which contain
or otherwise reflect or are generated from such information (collectively, the
"Evaluation Material"), confidential and in accordance with the provisions of
this agreement. Notwithstanding the foregoing, the term "Evaluation Material"
shall not for the purposes of this agreement include any information which (a)
at the time of disclosure or thereafter is generally available to and known by
the public other than as a result of a disclosure by the Receiving Party or its
Representatives, (b) was or becomes available to the Receiving Party on a
nonconfidential basis from a source other than the Disclosing Party or any of
its Representatives, provided that such source is not bound by a confidentiality
agreement with, or other contractual, legal or fiduciary obligation to, the
Disclosing Party, or (c) has been independently acquired by the Receiving Party
without violating any of the obligations of the Receiving Party or its
Representatives under this agreement or any other confidentiality agreement, or
under any other contractual, legal or fiduciary obligations of the Receiving
Party or its Representatives. The fact that information
<PAGE> 2
included in the Evaluation Material is or becomes otherwise available to the
Receiving Party or its Representatives under clauses (a), (b) or (c) above shall
not relieve the Receiving Party or its Representatives of the prohibitions or
other confidentiality provisions of this agreement.
2. Use of Evaluation Material and Confidentiality.
(a) Subject to paragraph (b) below, the Evaluation Material will be
kept confidential by the Receiving Party and its Representatives and will not,
without the prior written consent of the Disclosing Party, be disclosed, in
whole or in part, to any third party by the Receiving Party or any of its
Representatives in any manner whatsoever, and will not be used by the Receiving
Party or any of its Representatives, directly or indirectly, for any purpose
other than in connection with the Receiving Party's evaluation of the Proposed
Transaction or in any way directly or indirectly detrimental to the Disclosing
Party or any of its subsidiaries. In addition, the Receiving Party hereby agrees
to disclose that the Receiving Party is evaluating the Proposed Transaction and
to transmit Evaluation Material to only those of its Representatives who need to
know the information for the purpose of evaluating the Proposed Transaction and
are informed by the Receiving Party of the confidential nature of the
information. The Receiving Party agrees not to make any such disclosure or
transmission unless the Receiving Party is satisfied that its Representatives
will act in accordance herewith. The Receiving Party agrees that it will be
responsible for any breach of any of the provisions of this agreement by any of
its Representatives and the Receiving Party agrees to take, at its sole expense,
all necessary measures to restrain its Representatives from prohibited or
unauthorized disclosure or use of the Evaluation Material (including, without
limitation, the initiation of court proceedings).
(b) In the event that the Receiving Party or any of its
Representatives are requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process) to disclose (a) any Evaluation Material, (b) any information
relating to the opinion, judgment or recommendation of any such person
concerning the Disclosing Party, its affiliates or subsidiaries, or (c) any
other information supplied to the Receiving Party in the course of the Receiving
Party's, or its Representatives', dealings with the Disclosing Party, the
Receiving Party will promptly notify the Disclosing Party of such request or
requirement so that the Disclosing Party may seek an appropriate protective
order or waive compliance with the provisions of this agreement, and/or take any
other mutually agreed action. If, in the absence of a protective order or the
receipt of a waiver hereunder, the Receiving Party or any of its Representatives
are, in the reasonable written opinion of such person's counsel, compelled to
disclose information or else stand liable for contempt or suffer other censure
or significant penalty, the Receiving Party or such Representative may disclose
that portion of the requested information which such person's counsel advises
such person in writing that such person is compelled to disclose. In any event,
the Receiving Party and its Representatives will furnish only that portion of
the information which is legally required and will exercise its best efforts to
obtain reliable assurance that confidential treatment will be accorded the
information. In addition, neither the Receiving Party nor any of its
Representatives will oppose action by the Disclosing Party to obtain an
2
<PAGE> 3
appropriate protective order or other reliable assurance that such confidential
treatment will be so accorded and the Receiving Party and its Representatives
shall cooperate with the Disclosing Party to obtain such order or other
assurance.
3. Nondisclosure of Negotiations. Except as otherwise expressly permitted
hereby, without the prior written consent of the Disclosing Party, the Receiving
Party will not, and will direct its Representatives not to, disclose to any
person the fact that any discussions (or any other discussions between or
involving the Receiving Party and the Disclosing Party) with respect to the
matters contemplated hereby are taking, have taken or are proposed to take place
or other facts with respect to such discussions, including the status thereof,
or the fact (if such becomes the case) that any Evaluation Material has been
made available to the Receiving Party, nor otherwise make any public disclosure,
whether written or oral, with respect to this agreement or the actions or
transactions contemplated hereby; provided, however, that a party may, without
the prior consent of the other party, issue such press release or make such
public statement as may be required by law or the applicable rules of any stock
exchange or Nasdaq if it has used its reasonable best efforts to consult with
the other party prior to issuing such release or making such public statement
and to obtain such party's prior consent, but has been unable to do so in a
timely manner. Subject to the second to last paragraph of Section 6, no request
or proposal to amend, modify or waive any provision of this agreement shall be
made or solicited except in a non-public and confidential manner. The term
"person" as used in this agreement shall be broadly interpreted to include,
without limitation, any corporation, company, partnership or individual.
4. Access to Employees; No Solicitation. For two years from the date of
this agreement, the Receiving Party agrees not to initiate or maintain contact
(except for those contacts made in the ordinary course of business) with any
officer, director or employee of the Disclosing Party regarding the business,
operations, prospects or finances of the Disclosing Party, except with the
express permission of the Disclosing Party, or as contemplated in this
agreement. Unless otherwise agreed to by FFC in writing, all (a) communications
regarding any possible transaction, (b) requests for additional information, (c)
requests for facility tours or management meetings and (d) discussions or
questions regarding procedures, timing and terms, will be submitted or directed
to Paul F. Avery, Jr. Unless otherwise agreed to by Ferrotec in writing, all (a)
communications regarding any possible transaction, (b) requests for additional
information, (c) requests for facility tours or management meetings and (d)
discussions or questions regarding procedures, timing and terms, will be
submitted or directed to Akira Yamamura of Ferrotec or Hide Takahashi of Knox &
Co. The Receiving Party agrees that, for a period of one year from the date
hereof, it will not solicit for employment any individual currently serving as a
director, officer, employee or agent of the Disclosing Party without obtaining
the prior written consent of the Disclosing Party.
5. Federal Securities Laws. The Receiving Party hereby acknowledges that
it and its Representatives (a) are aware that the United States securities laws
and the Japanese securities laws prohibit any person who has material,
non-public information concerning a company from purchasing or selling
securities of such company or from communicating such
3
<PAGE> 4
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities, (b)
are familiar with the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder (collectively, the "Exchange Act"), and
that it and its Representatives will neither use, nor cause any third party to
use, any Evaluation Material in contravention of such Exchange Act, including,
without limitation, Rule 10b-5 thereunder, and (c) will neither use, nor cause
any third party to use, any Evaluation Material in contravention of such
Japanese securities laws, including, without limitation, any applicable rules
and regulations promulgated thereunder.
6. Standstill. The Receiving Party hereby acknowledges that the Evaluation
Material is being furnished to it in consideration of its agreement that neither
it nor any person or entity directly or indirectly, through one or more
intermediaries, controlling it or controlled by it or under common control with
it, acting alone or as part of any group, will, for a period of two years from
the date of this agreement, directly or indirectly, unless specifically
requested to do so in writing in advance by the Disclosing Party:
(a) acquire or agree, offer, seek or propose to acquire, or cause to
be acquired, ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-1 under the Exchange Act) of any of the
assets or businesses of the Disclosing Party or any of its subsidiaries or
of any securities of the Disclosing Party or any of its subsidiaries, or
any rights or options to acquire any such ownership (including from a
third party), or
(b) make, or in any way participate in, any "solicitation" of
"proxies" (as such terms are used in the Exchange Act) to vote or seek to
advise or influence in any manner whatsoever any person or entity with
respect to the voting of any securities of the Disclosing Party or any of
its subsidiaries, or
(c) form, join, or in any way participate in a "group" (within the
meaning of Section 13d(3) of the Exchange Act) with respect to any voting
securities of the Disclosing Party or any of its subsidiaries, or
(d) arrange, or in any way participate in, any financing for the
purchase of any voting securities or securities convertible or
exchangeable into or exercisable for any voting securities or assets of
the Disclosing Party or any of its subsidiaries, or
(e) otherwise act, whether alone or in concert with others, to seek
to propose to the Disclosing Party or any of its stockholders any merger,
business combination, restructuring, recapitalization or similar
transaction to or with the Disclosing Party or any of its subsidiaries or
otherwise act, whether alone or in concert with others, to seek to
control, change or influence the management, Board of Directors or
policies of the Disclosing Party, or nominate any person as a Director of
the Disclosing Party who is not nominated by the then incumbent Directors,
or propose any matter to be voted upon by the stockholders of the
Disclosing Party, or
4
<PAGE> 5
(f) solicit, negotiate with, or provide any information to, any
person with respect to a merger, exchange offer or liquidation of the
Disclosing Party or any of its subsidiaries or any other acquisition of
the Disclosing Party or any of its subsidiaries, any acquisition or voting
securities of or all or any portion of the assets of the Disclosing Party
or any of its subsidiaries, or any other similar transaction, or
(g) announce an intention to, or enter into any discussion,
negotiations, arrangements or understandings with any third party with
respect to, any of the foregoing, or
(h) disclose any intention, plan or arrangement inconsistent with
the foregoing, or
(i) advise, assist or encourage any other person in connection with
any of the foregoing.
In addition, the Receiving Party also agrees during such two-year period
not to (i) request the Disclosing Party (or any of its Representatives),
directly or indirectly, to amend or waive any provision of this Paragraph 6
(including this sentence) or (ii) take any action that might require the
Disclosing Party to make a public announcement regarding a possible transaction.
If at any time during such two-year period the Receiving Party is
approached by any third party concerning its or their participation in a
transaction involving the assets or businesses of the Disclosing Party or any of
its subsidiaries or securities issued by the Disclosing Party or any of its
subsidiaries, the Receiving Party will promptly inform the Disclosing Party of
the nature of such transaction and the parties thereto.
7. Return of Evaluation Material. The Receiving Party and its
Representatives will keep a written record of the location of the Evaluation
Material and will, promptly upon the request of the Disclosing Party and, in any
event, if the Receiving Party and the Disclosing Party do not enter into an
agreement with respect to the Proposed Transaction within 90 days of the date
hereof (or such longer time period as may be mutually agreed to by the parties
hereto), will return to the Disclosing Party all copies of the Evaluation
Material furnished to the Receiving Party and in its possession or in the
possession of its Representatives, without retaining a copy thereof. The
Receiving Party and its Representatives will destroy any analyses, compilations,
studies or other documents prepared by or for the Receiving Party's, or its
Representatives', internal use which include, utilize or reflect the Evaluation
Material. Such destruction will be confirmed by the Receiving Party upon
request, in writing. Notwithstanding the return or destruction of the Evaluation
Material, the Receiving Party and its Representatives will continue to be bound
by its obligations of confidentiality hereunder.
8. No Definitive Agreement/Freedom to Change Process. The Receiving Party
agrees that unless and until a definite agreement between the Disclosing Party
and the
5
<PAGE> 6
Receiving Party with respect to the Proposed Transaction has been executed and
delivered, neither the Disclosing Party nor the Receiving Party will be under
any legal obligation of any kind whatsoever with respect to any such transaction
by virtue of this or any written or oral expression with respect to such a
transaction by any of the Receiving Party's or the Disclosing Party's respective
Representatives except, in the case of this agreement, for the matters
specifically agreed to herein. Ferrotec further acknowledges and agrees that FFC
reserves the right, in its sole discretion, to reject any and all proposals made
by Ferrotec or any of its Representatives with regard to the Proposed
Transaction, and to terminate discussions and negotiations with Ferrotec at any
time. Ferrotec further understands that (a) FFC and its Representatives shall be
free to conduct any process for any transaction involving FFC, if and as if in
its sole discretion shall determine (including, without limitation, negotiating
with any other interested parties and entering into a definitive agreement
without prior notice to Ferrotec or any other person), (b) FFC may change any
procedures relating to such process or transaction at any time without notice to
Ferrotec or any other person, and (c) as a consequence of any actions taken by
FFC pursuant to the foregoing clauses (a) and (b), Ferrotec shall have no claims
whatsoever against FFC, its Representatives or any of their respective
directors, officers, stockholders, owners, affiliates or agents arising out of
or relating to any such transaction involving FFC.
9. Accuracy of Evaluation Material. The Receiving Party hereby
acknowledges that although the Disclosing Party has endeavored to include in the
Evaluation Material information known to the Disclosing Party and that it
believes to be relevant to the Receiving Party's evaluation, the Receiving Party
understands that neither the Disclosing Party nor any of its Representatives
makes any representation or warranty as to the accuracy or completeness of the
Evaluation Material. The Receiving Party agrees that it shall assume full
responsibility for all conclusions it derives from the Evaluation Material and
that neither the Disclosing Party nor any of its Representatives shall have any
liability with respect to the Evaluation Material or any use thereof. The
Receiving Party further acknowledges that it is not entitled to rely on the
accuracy or completeness of the Evaluation Material.
10. Remedies. The Receiving Party agrees that money damages would not be a
sufficient remedy for any breach of this agreement by the Receiving Party or any
of its Representatives, and that in addition to all other remedies, the
Disclosing Party shall be entitled to specific performance and injunctive or
other equitable relief as a remedy for any such breach, and the Receiving Party
further agrees waive and to use its best efforts to cause its Representatives to
waive, any requirement for the securing or posting of any bond in connection
with any such remedy. In the event of litigation relating to this agreement, if
a court of competent jurisdiction determines that the Receiving Party or any of
its Representatives has breached this agreement, it shall be liable for and pay
to the Disclosing Party on demand the legal fees and expenses incurred by the
Disclosing Party in connection with such litigation, including any appeal
therefrom.
11. Waiver and Amendment. The Receiving Party understands and agrees that
no failure or delay by the Disclosing Party or any of its Representatives in
exercising any right,
6
<PAGE> 7
power or privilege hereunder will operate as a waiver thereof, nor will any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege hereunder. The
agreements set forth herein may only be waived or modified by an agreement in
writing signed on behalf of the parties hereto.
12. Successors and Assigns. This agreement shall inure to the benefit of
and by enforceable by the Disclosing Party and its successors.
13. Severability. In case provisions of this agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of the agreement shall not in any way be affected or
impaired thereby.
14. Governing Law; Venue. The validity, interpretation, performance and
enforcement of this agreement shall be governed by the laws the Commonwealth of
Massachusetts. The parties hereto hereby irrevocably and unconditionally consent
to the exclusive jurisdiction of the courts of the Commonwealth of Massachusetts
and the United States District Court for the District of Massachusetts for any
action, suit or proceeding arising out of or relating to this agreement or the
Proposed Transaction, and agree not to commence any action, suit or proceeding
related thereto except in such courts. The parties hereto further hereby
irrevocably and unconditionally waive any objection to the laying of venue of
any action, suit or proceeding arising out of or relating to this agreement in
the courts of the Commonwealth of Massachusetts or the United States District
Court for the District Massachusetts, and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such action, suit or proceeding brought in any such court has been brought in an
inconvenient forum. Each of the parties hereto further agrees that service of
any process, summons, notice or document by U.S. registered mail to its address
set forth above shall be effective service of process for any action, suit or
proceeding brought against it in any such court.
15. Counterparts. This agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute the same agreement.
[signature page to follow]
7
<PAGE> 8
Please acknowledge your agreement to the foregoing by countersigning this
agreement in the place provided below and returning it to the undersigned.
Very truly yours,
FERROFLUIDICS CORPORATION
By: /s/ Paul F. Avery, Jr.
-------------------------
Name: Paul F. Avery, Jr.
Title: President and CEO
Accepted and Agreed to,
this 16th day of August, 1999
FERROTEC CORPORATION
By: /s/ Akira Yamamura
--------------------
Name: Akira Yamamura
Title: President
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EXHIBIT 5
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), dated June 3, 1998 (the
"Effective Date"), is entered into by and between Ferrofluidics Corporation (the
"Company"), a Massachusetts corporation with its principal place of business at
40 Simon Street, Nashua, New Hampshire, and Paul F. Avery, Jr. ("Avery"), of 178
Drinkwater Road, Kensington, New Hampshire.
WHEREAS, the operations of the Company are a complex matter requiring
direction and leadership in a variety of areas;
WHEREAS, Avery possesses the experience and expertise to provide the
direction and leadership required by the Company; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Company, therefore, wishes to establish the terms of employment of Avery as its
President, Chief Executive Officer and Chairman of the Board of Directors, and
Avery agrees to so establish such terms of this employment;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises, terms, provisions and conditions set forth in this Agreement,
the parties hereby agree:
1. Employment. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and Avery hereby accepts employment on the
terms and conditions set forth in this Agreement.
2. Effective Date and Term. The commencement date (the "Commencement
Date") of this Agreement shall be date first set forth above. Subject to the
provisions of Section 5, the initial term (the "Initial Term") of Avery's
employment hereunder shall be from the Commencement Date to the first
anniversary of the Commencement Date (the "Initial Expiration Date"); provided,
however, that this Agreement may, by written consent of the Company and Mr.
Avery, be extended for a subsequent term not to exceed one (1) year commencing
on the Initial Expiration Date (such subsequent period being referred to as the
"Subsequent Term").
3. Capacity and Performance.
a. Avery shall be employed by the Company as its President,
Chief Executive Officer and Chairman of the Board of Directors, and shall have
all powers and duties consistent with those positions, subject to the direction
of the Company's Board of Directors.
<PAGE> 2
b. Avery shall devote his best efforts, business judgment,
skill and knowledge to the advancement of the business and interests of the
Company and its affiliates, and to the discharge of his duties and
responsibilities hereunder. In accordance with the foregoing, Avery shall not
engage in any other business activity, except as may be approved by the Board of
Directors; provided, however, that nothing herein shall be construed as
preventing Avery from:
(1) devoting a portion of his efforts, from time
to time, to certain other business interests
with which he is involved, provided that
such activity does not materially impair
Avery's ability to discharge his obligations
and responsibilities as President, Chief
Executive Officer and Chairman of the Board
of the Company hereunder;
(2) investing his assets in a manner not
otherwise prohibited by this Agreement, and
in such form or manner as shall not require
any material services on his part in the
operations or affairs of the companies or
other entities in which such investments are
made;
(3) subject to subparagraph (1) above, serving
on the board of directors of any company,
provided that he shall not be required to
render any material services with respect to
the operations or affairs of any such
company; or
(4) engaging in religious, charitable or other
community or non-profit activities which do
not impair his ability to fulfill his duties
and responsibilities under this Agreement.
c. Except for required travel on the Company's business and
except for attendance at meetings of the Board of Directors of the Company
and/or its affiliates, Avery shall not be required to work on a regular basis at
any location outside of Hillsborough County in the State of New Hampshire.
4. Compensation and Benefits.
a. Base Salary. For the Initial Term and any Subsequent Term,
the Company shall pay Avery a base salary at an annual rate (the "Base Salary")
equal to $250,000 per year, payable in accordance with the payroll practices of
the Company for its executives.
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b. Matters Concerning Equity Compensation.
(1) The Company acknowledges that Avery holds certain
options to purchase shares of Common Stock of the Company and holds shares of
Common Stock of the Company, in each case previously granted or awarded to him
by the Company in connection with his prior service to the Company. The Company
and Avery each acknowledge and agree that the Company's and Avery's rights and
obligations, if any, in respect of such options and shares of Common Stock shall
not be affected, altered or changed in any way as a result of the execution or
terms and conditions of this Agreement.
(2) On the Effective Date, Avery shall be awarded an
option to purchase 75,000 shares of Common Stock of the Company under the
Company's 1995 Stock Option and Incentive Plan (the "1995 Plan") to be
immediately vested and exercisable in its entirety as of the date hereof. As
provided in Section 15 of the 1995 Plan, all of the shares subject to the option
described above shall vest upon the occurrence of a "Change of Control" as such
term is defined in the 1995 Plan.
(3) Notwithstanding any provision to the contrary
contained in any other agreement, the restricted stock and the options described
in this Section 4b shall be subject to the following termination provisions:
(i) Termination Due to Death. If Avery's employment
terminates by reason of death, the option granted to Avery pursuant to Section
4b(2) above may thereafter be exercised by Avery's legal representative or
legatee until the expiration date of such option.
(ii) Termination for Cause. If Avery's employment
terminates for Cause (as defined in the 1995 Plan), the option granted to Avery
pursuant to Section 4b(2) above shall immediately terminate and be of no further
force and effect.
(iii) Other Termination. If Avery's employment
terminates for any reason other than death or for Cause but including without
limitation by reason of Disability, Retirement or without Cause (as such terms
are defined in the 1995 Plan), the option granted to Avery pursuant to Section
4b(2) above may thereafter be exercised by Avery until the expiration date of
such option.
c. Life Insurance. During the period from the Commencement
Date through the Initial Expiration Date and through the last day of any
Subsequent Term, the Company shall maintain a life insurance policy on the life
of Avery in the amount of one million dollars ($1,000,000) payable as directed
by Avery; provided, however, that the Company shall have no obligation to
maintain such policy at any time following the termination of Avery's employment
pursuant to Section 5d hereunder.
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<PAGE> 4
d. Vacations. Avery shall be entitled to four (4) weeks of
paid vacation, to be taken at such times and intervals as shall be determined by
Avery, subject to the reasonable business needs of the Company.
e. Retirement Plans. Avery shall be entitled to participate in
and enjoy the benefit of the Company's retirement, supplementary retirement,
deferred compensation or similar plans, programs or arrangements as available to
the Company's management from time to time.
f. Health, Welfare and Fringe Benefit Plans, Etc. Avery shall
be entitled to participate in and enjoy the benefit of all the health, medical,
dental, cafeteria, reimbursement, death (including life insurance), accident,
travel insurance, long-term disability, short-term disability, sick leave, other
leaves of absence, holidays and other similar welfare, fringe-benefit or
employment-related plans, programs, arrangements, policies or perquisites
available to the Company's management from time to time. Participation shall be
subject to the terms of the applicable plan documents and the discretion of the
Board or any administrative or other committee provided for in or contemplated
by such plan. The Company may alter, modify, add to or delete its employee
benefit plans as they apply to the Company's management at such times and in
such manner as the Company determines to be appropriate, without recourse by
Avery.
g. Business Expenses. The Company shall pay or reimburse Avery
for all reasonable business expenses incurred or paid by him in the performance
of his duties and responsibilities hereunder, subject to any restrictions on
such expenses set by the Board and to such reasonable substantiation and
documentation as may be specified by the Company from time to time.
h. Auto Lease. The Company shall furnish Avery, during the
Initial Term and any Subsequent Term, with an automobile for his use, and the
Company shall pay or reimburse all costs incurred in connection therewith
including, without limitation, any leasing fees, insurance, operating or repairs
costs, tax obligations, etc. In the event that Avery's employment hereunder is
terminated pursuant to Section 5 hereof, he shall surrender the automobile to
the Company not later than thirty (30) days following the termination of such
employment.
5. Termination of Employment and Severance Benefits.
a. General Severance Benefits. If terminated for reasons other
than as set forth under Section 5b, 5d or 5f hereof, Avery shall be entitled to
receive as a severance payment an amount equal to (i) the aggregate Base Salary
which Avery would have received had he been employed by the Company through the
last day of the Initial Term if such termination occurs during the Initial Term,
or (ii) the aggregate Base Salary which Avery
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<PAGE> 5
would have received had he been employed by the Company through the last day of
the Subsequent Term if such termination occurs during the Subsequent Term.
b. Change of Control Benefits.
(1) If the Company undergoes a Change of Control (as
defined below) during the Initial Term or any Subsequent Term, and a Terminating
Event (as defined below) occurs, then, notwithstanding any other provision of
this Agreement, Avery shall be entitled to receive the amount set forth in
Section 5a hereof.
(2) "Change of Control" shall mean the occurrence of
any one of the following events:
(i) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Act")) becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the Act) (other than the
Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), directly or indirectly, of securities of the Company
representing 15% or more of the combined voting power of the Company's
then outstanding securities; or
(ii) persons who, as of the Commencement
Date, constituted the Company's Board of Directors (the "Incumbent
Board") cease for any reason, including without limitation as a result
of a tender offer, proxy contest, merger or similar transaction, to
constitute at least a majority of the Board, provided that any person
becoming a director of the Company subsequent to the Commencement Date
whose election was approved by at least a majority of the directors
then comprising the Incumbent Board shall, for purposes of this
Agreement, be considered a member of the Incumbent Board; or
(iii) the stockholders of the Company
approve a merger or consolidation of the Company with any other
corporation or other entity, other than (a) a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (b) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as hereinabove defined)
acquires more than 50% of the combined voting power of the Company's
then outstanding securities; or
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<PAGE> 6
(iv) the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the
Company's assets.
(3) A "Terminating Event" shall mean any voluntary or
involuntary termination of Avery's employment occurring subsequent to a Change
in Control, other than the termination of Avery's employment pursuant to Section
5d hereunder.
c. Death or Disability. In the event Avery dies or becomes
disabled during the Initial Term or any Subsequent Term of this Agreement, his
employment hereunder shall automatically terminate. In such case, the Company
shall pay to Avery or his beneficiary, as the case may be, any earned but unpaid
salary as of the date of his death or disability. For the purpose of this
Agreement, "disability" shall refer to a situation in which Avery is totally
disabled from performing his duties for the Company during a period of thirteen
(13) consecutive weeks.
If any question shall arise as to whether during any period Avery has
suffered disability, Avery may, and at the request of the Company will, submit
to the Company a certification in reasonable detail by a physician selected by
Avery or his guardian to whom the Company has no reasonable objection as to
whether Avery was so disabled and such certification shall for the purposes of
this Agreement be conclusive of the issue. If such question shall arise and
Avery shall fail to submit such certification, the Company's determination of
such issue shall be binding on Avery.
d. By the Company for Cause. The Company may terminate Avery's
employment hereunder for cause at any time upon notice to Avery setting forth in
reasonable detail the nature of such case. The following, as determined by the
Board in its reasonable judgment, shall constitute "cause" for termination:
(1) Avery's falsification of the accounts of the
Company, embezzlement of funds of the Company or other material
dishonesty with respect to the Company or any of its affiliates; or
(2) Conviction of, or plea of nolo contendere to, a
felony or other crime involving moral turpitude (it being understood
that violation of a motor vehicle code does not constitute such a
crime); or
(3) Conduct engaged in or action taken or omitted to
be taken by Avery which is in material breach of this Agreement; or
(4) Material failure to perform a substantial portion
of Avery's duties and responsibilities hereunder, which failure
continues for more than thirty (30) days
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<PAGE> 7
after written notice given to Avery pursuant to a vote of the Board of
Directors, such vote to set forth in reasonable detail the nature of
such failure; or
(5) Gross or willful misconduct of Avery with respect
to the Company or any subsidiary or affiliate thereof.
Upon the giving of notice of termination of Avery's employment
hereunder for cause, the Company shall have no further obligation or liability
to Avery, other than the payment of salary earned and unpaid at the date of
termination and the contribution by the Company to the cost of Avery's
participation (subject to any required employee contribution by Avery under the
terms of the applicable plans) in the Company's group medical and dental
insurance plans as the same are in effect from time to time for so long as Avery
is entitled to continue such participation under applicable law and plan terms.
e. By the Company Other Than for Cause. The Company may
terminate Avery's employment hereunder other than for cause at any time upon
sixty (60) days' written notice to Avery.
f. By Avery. Avery may terminate his employment hereunder at
any time upon sixty (60) days' written notice to the Company.
g. Limitation of Benefits. It is the intention of Avery and of
the Company that no payments by the Company to or for the benefit of Avery under
this Agreement or any other agreement or plan pursuant to which he is entitled
to receive payments or benefits shall be non-deductible to the Company by reason
of the operation of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") relating to parachute payments. Accordingly, and
notwithstanding any other provision of this Agreement or any such agreement or
plan, if by reason of the operation of said Section 280G, any such payments
exceed the amount which can be deducted by the Company, the payments which Avery
is entitled to receive under this Agreement shall be reduced by that amount
which exceeds the maximum amount deductible by the Company under Section 280G.
To the extent that payments exceeding such maximum deductible amount have been
made to or for the benefit of Avery, such excess payments shall be refunded to
the Company with interest thereon at the applicable federal rate determined
under Section 1274(d) of the Code, compounded annually, or at such other rate as
may be required in order that no such payments shall be non-deductible to the
Company by reason of the operation of said Section 280G.
h. Consulting Services. The Company and Avery agree that
following the termination of this Agreement pursuant to Section 5e hereof or the
expiration of the Initial Term (or Subsequent Term, if any), the Company and
Avery shall immediately thereafter enter into an agreement pursuant to which
Avery shall be engaged as a consultant to the Company. The terms and conditions
of such consultancy shall be identical to those set forth in the Consulting
Agreement dated May 1, 1997 between the Company and Avery (the "Consulting
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<PAGE> 8
Agreement"). Notwithstanding the foregoing, upon the engagement of Avery as a
consultant as provided by the foregoing, the Company may also request that Avery
continue to serve as the Chairman of the Board of Directors. If the Company so
requests, and if Avery agrees to so serve, the Company shall pay Avery an annual
retainer of $50,000 for such service for so long as Avery serves in such
position. Such retainer shall be in addition to any and all payments to be made
to Avery under the consulting arrangement discussed above.
6. Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
7. Assignment. Neither the Company nor Avery may make any assignment of
this Agreement or any interest herein, by operation of law or otherwise, without
the prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
Avery in the event that the Company shall hereafter affect a reorganization,
consolidate with, or merge into, any other person or entity or transfer all of
its properties or assets to any other person or entity. This Agreement shall
insure to the benefit of and be binding upon the Company and Avery, their
respective successors, executors, administrators, heirs and permitted assigns.
8. Severability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
9. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
10. Notices. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed given when delivered by hand, telex or facsimile, or if mailed, five days
after mailing (two business days in the case of courier service), to the parties
as follows: to Avery at the address set forth herein or at his last known
address on the books of the Company and, in the case of the Company, to its
principal place of business, attention of Clerk or to such other address as
either party may specify by notice to the other.
11. Entire Agreement. This Agreement [and the
Non-Disclosure/Non-Compete Agreement executed by Avery] constitute the entire
agreement between the parties and
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<PAGE> 9
supersede all prior communications, agreements and understandings, written or
oral, with respect to the terms and conditions of Avery's employment, including
without limitation, the Consulting Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument signed by Avery and by an expressly authorized representative
of the Company.
13. Headings. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope of or content of any
provision of this Agreement.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
15. Governing Law. This is a Massachusetts contract and shall be
construed and enforced under and be governed in all respects by the laws of The
Commonwealth of Massachusetts, without regard to the conflict of laws principles
thereof.
[END OF TEXT]
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IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by Avery,
as of the date first above written.
FERROFLUIDICS CORPORATION
/s/ Paul F. Avery, Jr. By: /s/ Robert P. Rittereiser
- ---------------------- -----------------------------
Paul F. Avery, Jr. Robert P. Rittereiser
Chairman, Compensation Committee
of the Board of Directors
10
<PAGE> 11
This AGREEMENT, dated as of June 3, 1999, is entered into by and
between Ferrofluidics Corporation (the "Company"), a Massachusetts corporation
with its principal place of business at 40 Simon Street, Nashua, New Hampshire,
and Paul F. Avery, Jr. ("Avery").
WHEREAS, the Company and Avery entered into that certain Employment
Agreement, dated as of June 3, 1998 (the "Employment Agreement"); and
WHEREAS, the parties hereto desire to set forth certain additional
matters relating to Avery's employment with the Company as President, Chief
Executive Officer and Chairman of the Board as governed by the Employment
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises, terms, provisions and conditions set forth herein, the parties
hereby agree:
1. The parties hereby consent, pursuant to Section 2 of the Employment
Agreement and effective as of June 3, 1999, to extend the term of the Employment
Agreement for a subsequent period of one (1) year, commencing June 3, 1999.
2. The parties hereby agree and acknowledge that, notwithstanding
anything contained in the Employment Agreement to the contrary, following any
termination of the Employment Agreement pursuant to Section 5 thereof
(termination by Avery of his employment at any time upon sixty (60) days'
written notice to the Company), the Company and Avery shall immediately
thereafter enter into an agreement pursuant to which Avery shall be engaged as a
consultant to the Company. The terms and conditions of such consultancy shall be
identical to those set forth in the Consulting Agreement, dated May 1, 1997,
between the Company and Avery. Notwithstanding the foregoing, upon the
engagement of Avery as a consultant as provided by the foregoing, the Company
may also request that Avery continue to serve as the Chairman of the Board of
Directors. If the Company so requests, and if Avery agrees to so serve, the
Company shall pay Avery an annual retainer of $50,000 for such service for so
long as Avery serves in such position. Such retainer shall be in addition to any
and all payments to be made to Avery under the consulting arrangement discussed
above.
<PAGE> 12
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by Avery,
as of the date first above written.
FERROFLUIDICS CORPORATION
/s/ Paul F. Avery, Jr. By: /s/ Robert P. Rittereiser
- ------------------------- ------------------------------
Paul F. Avery, Jr. Robert P. Rittereiser
Chairman, Compensation
Committee of the Board of
Directors
<PAGE> 13
AGREEMENT
This AGREEMENT, dated as of September 9, 1999, is entered into by and
between Ferrofluidics Corporation (the "Company"), a Massachusetts corporation
with its principal place of business at 40 Simon Street, Nashua, New Hampshire,
and Paul F. Avery, Jr. ("Avery").
WHEREAS, the Company and Avery entered into that certain Employment
Agreement, dated as of June 3, 1998, as amended on June 3, 1999 (the "Employment
Agreement"); and
WHEREAS, the parties hereto desire to set forth certain additional
matters relating to Avery's employment with the Company as President, Chief
Executive Officer and Chairman of the Board as governed by the Employment
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual promises, terms, provisions and conditions set forth herein, the parties
hereby agree:
1. For clarification purposes, the parties hereby agree and acknowledge
that, notwithstanding anything contained in the Employment Agreement to the
contrary, in the event that a Terminating Event (as defined in the Employment
Agreement) shall occur following a Change in Control (as defined in the
Employment Agreement), in addition to any payments to which Mr. Avery may be
entitled pursuant to Section 5b of the Employment Agreement, the Company and
Avery shall immediately thereafter enter into an agreement pursuant to which
Avery shall be engaged as a consultant to the Company. The terms and conditions
of such consultancy shall be identical to those set forth in the Consulting
Agreement, dated May 1, 1997, between the Company and Avery, and shall provide,
among other things, that Mr. Avery shall be engaged as a consultant to the
Company for a period of three (3) years and shall receive consulting fees at a
rate of $10,000 per month. Notwithstanding the foregoing, upon the engagement of
Avery as a consultant as provided by the foregoing, the Company may also request
that Avery continue to serve as the Chairman of the Board of Directors. If the
Company so requests, and if Avery agrees to so serve, the Company shall pay
Avery an annual retainer of $50,000 for such service for so long as Avery serves
in such position. Such retainer shall be in addition to any and all payments to
be made to Avery under the consulting arrangement discussed above.
<PAGE> 14
IN WITNESS WHEREOF, this Arrangement has been executed as a sealed
instrument by the Company, by its duly authorized representative, and by Avery,
as of the date first above written.
FERROFLUIDICS CORPORATION
/s/ Paul F. Avery, Jr. By: /s/ Dennis R. Stone
- --------------------------- ------------------------------
Paul F. Avery, Jr. Dennis R. Stone
Chairman, Compensation
Committee of the Board of
Directors
<PAGE> 1
Exhibit 6
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made as of October 20,
1999, by and among Ferrofluidics Corporation (the "Company"), a Massachusetts
corporation with its principal place of business at 40 Simon Street, Nashua, New
Hampshire, Ferrotec Corporation ("Ferrotec"), a corporation organized under the
laws of Japan and having its principal place of business at Sumitomo Bldg. #6,
5-24-8 Higashi Ueno, Taito-Ku, Tokyo 110-0015, Japan, Ferrotec Acquisition,
Inc., a Massachusetts corporation and a wholly-owned subsidiary of Ferrotec
("Merger Sub" and, together with Ferrotec, the "Acquiror"), and Paul F. Avery,
Jr. ("Consultant") of 178 Drinkwater Road, Kensington, New Hampshire.
WHEREAS, Consultant has been employed by the Company as its Chairman of
the Board of Directors, Chief Executive Officer and President pursuant to that
certain Employment Agreement dated as of June 3, 1998, as amended and
supplemented by those certain agreements dated as of June 3, 1999 and September
9, 1999 by and between the Company and Consultant (the "Employment Agreement");
WHEREAS, the Company is a party to that certain Agreement and Plan of
Merger (the "Merger Agreement") with Ferrotec and Merger Sub, pursuant to which
Merger Sub will be merged (the "Merger") with and into the Company upon the
terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, in connection with the Merger, Merger Sub will make a cash tender
offer (the "Offer") to acquire all of the issued and outstanding common stock,
par value $.004 per share, of the Company (the "Common Stock") in accordance
with the terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, the parties desire to terminate the Employment Agreement and the
Consultant's employment with the Company effective as of the Acceptance Date (as
hereinafter defined);
WHEREAS, the Company desires to retain Consultant to render consulting and
advisory services to the Company on an independent contractor basis and on the
terms and conditions set forth herein;
WHEREAS, Consultant desires to furnish such consulting and advisory
services to the Company on an independent contractor basis and on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. Termination of Employment; Engagement of Consultant. The parties
acknowledge and agree that Consultant's employment with the Company pursuant to
the
<PAGE> 2
Employment Agreement and any other agreement or understanding pursuant to which
Consultant is providing services to or on behalf of the Company and/or its
subsidiaries (other than the letter agreement referred to in Section 11 hereof)
shall be terminated effective as of the Acceptance Date (as such term is defined
in the Merger Agreement); and that the Employment Agreement and any of such
other agreements or understandings pursuant to which Consultant is providing
services to or on behalf of the Company and/or its subsidiaries (other than the
letter agreement referred to in Section 11 hereof) shall be deemed to have been
terminated as of the Acceptance Date and shall be of no further force or effect
thereafter. Subject to the terms and conditions set forth in this Agreement, the
Company hereby retains Consultant for the term set forth in Section 2 as a
consultant and advisor to the Company.
2. Term. This Agreement shall commence as of the Acceptance Date and shall
continue for a period of three (3) years thereafter (such period being referred
to as the "Consultation Period"), unless sooner terminated in accordance with
the provisions of Section 5. The parties hereto may extend the Consultation
Period upon mutual written agreement.
3. Services. Consultant agrees to perform such consulting, advisory and
related services for the Company as may be reasonably requested from time to
time by the Company (the "Services"). During the Consultation Period, Consultant
shall perform the Services under the direction and restriction of the Company.
4. Compensation.
a. Consulting and Advisory Fees. During the Consultation Period, the
Company shall pay to Consultant consulting fees at a rate of $10,000 per month,
payable in arrears on the last day of each month; payment for any partial month
shall be prorated.
b. Auto Lease. The Company shall promptly pay all monthly lease
payments of Consultant or promptly reimburse Consultant for such lease payments
in connection with Consultant's current automobile lease for the remaining term
of such lease which expires on May 25, 2001.
c. Certain Severance Benefits. The parties agree and acknowledge
that Consultant will receive from the Company an amount equal to $250,000 as of
the Acceptance Date. At Consultant's option, payment of such amount may be made
over the thirty-six (36) month term of the Consultation Period at a rate of
$6,944.44 per month, payable in arrears on the last day of each month.
Consultant hereby agrees to release the Company, Ferrotec and Merger Sub and
their respective officers, directors, shareholders and affiliates from any and
all claims and/or liabilities arising under the Employment Agreement or arising
from Consultant's employment or retention by the Company and/or its subsidiaries
prior to the Acceptance Date; provided, however, that nothing herein shall in
any way limit Consultant's indemnification rights under Section 6.6 of the
Merger Agreement or under the Articles of Organization or
2
<PAGE> 3
Bylaws of the Company.
d. Life Insurance. The Company agrees that it shall pay all premiums
that become due or payable for the two years following the Acceptance Date
relating to that certain term life insurance policy (Policy # 41019258) on the
life of Consultant in the amount of $1,000,000 (the "Life Insurance Policy")
such that the Life Insurance Policy remains in full force and effect through the
second anniversary of the Acceptance Date (the "Second Anniversary Date"),
subject to Consultant's continued eligibility to be so covered by such policy.
The parties agree that after the Second Anniversary Date the Company shall have
no obligation to maintain such policy; provided, however, that Consultant shall
be entitled to assume the Company's obligations under the Life Insurance Policy
and continue to maintain such policy in accordance with its terms following the
Second Anniversary Date. Each of the Company and Consultant shall use its or his
best efforts to arrange for the assumption by Consultant on the Second
Anniversary Date of the Company's obligations under the Life Insurance Policy,
subject to any restrictions under the policy on assignment and subject to
Consultant's continued eligibility to be so covered by such policy.
e. Retirement Plans. In connection with the termination of
Consultant's employment with the Company at the Acceptance Date, Consultant
shall be entitled to participate in and enjoy the benefit of the Company's
retirement, supplementary retirement, deferred compensation or similar plans,
programs or arrangements as available to the Company's management as of the
Acceptance Date, subject to Consultant's eligibility to so participate based on
his consultant and/or independent contractor status.
f. Health, Medical and Welfare Plans. The Company shall continue
Consultant's group health insurance and shall pay all of the premiums to
properly maintain such insurance for a period of ninety (90) days following the
Acceptance Date. Thereafter, Consultant may, at his sole expense, elect to
continue his group health insurance pursuant to COBRA.
g. 401(k) Plan. The Company shall use its best efforts to assist
Consultant in the roll over or withdrawal of his interest in the Company's Tax
Savings and Deposit and Investment Plan (the "401(k) Plan"), all in accordance
with and subject to applicable law and the terms of the 401(k) Plan.
h. Reimbursement of Expenses. The Company shall reimburse Consultant
for all reasonable and necessary expenses incurred or paid by Consultant in
connection with, or related to, the performance of the Services under this
Agreement; provided, however, that the Company shall provide all airline tickets
to Consultant on a prepaid basis in connection with all travel by Consultant for
purposes of performance of the Services hereunder. Consultant shall submit to
the Company itemized monthly statements, in a form reasonably satisfactory to
the Company, of such expenses incurred in the previous month. The Company shall
pay to Consultant amounts shown on each such statement within thirty (30) days
after receipt thereof.
3
<PAGE> 4
i. Accrued Vacation. The Company shall, on the Acceptance Date, pay
Consultant for all accrued vacation time as of the Acceptance Date in accordance
with Company policy.
5. Termination of Consultancy and Termination Compensation.
a. General Termination Compensation. If Consultant's consultancy is
terminated pursuant to Sections 5b or 5d, the Company shall continue to make all
payments to Consultant (or, if applicable, to Consultant's beneficiary) provided
for in Section 4 for the balance of the Consultation Period.
b. Death or Disability. In the event Consultant dies or becomes
disabled during the Consultation Period, his consultancy hereunder shall
automatically terminate. For the purpose of this Agreement, "disability" shall
refer to a situation in which Consultant is totally disabled from performing
Services for the Company during a period of thirteen (13) consecutive weeks.
If any question shall arise as to whether during any period Consultant has
suffered a disability, Consultant may, and at the request of the Company will,
submit to the Company a certification in reasonable detail by a physician
selected by Consultant or his guardian to whom the Company has no reasonable
objection as to whether Consultant was so disabled and such certification shall
for the purposes of this Agreement be conclusive of the issue. If such question
shall arise and Consultant shall fail to submit such certification, the
Company's determination of such issue shall be binding on Consultant.
c. By the Company for Cause. The Company may terminate Consultant's
consultancy hereunder for cause at any time upon notice to Consultant setting
forth in reasonable detail the nature of such cause. The following, as
determined by the Board of Directors of the Company in its good faith and
reasonable judgment, shall constitute "cause" for termination:
(1) Consultant's embezzlement of funds of or theft from the
Company or other material dishonesty with respect to the Company, Acquiror
or any of their respective affiliates; or
(2) Conviction of, or plea of nolo contendere to, a felony or
other crime involving moral turpitude (it being understood that violation
of a motor vehicle code does not constitute such a crime); or
(3) Conduct engaged in or action taken or omitted to be taken
by Consultant which is in material breach of this Agreement, in which case
where such breach is incapable of being cured and remains uncured after
written notice by the Company to Consultant; or
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<PAGE> 5
(4) Gross or willful misconduct of Consultant with respect to
the Company, Acquiror or any subsidiary or affiliate thereof.
Upon the giving of notice of termination of Consultant's consultancy
hereunder for cause, the Company shall have no further obligation or liability
to Consultant, other than the payment of consulting fees earned and unpaid at
the date of termination and the remaining payments under Section 4c hereof.
d. By the Company Other Than for Cause. The Company may terminate
Consultant's consultancy hereunder other than for cause at any time upon sixty
(60) days' written notice to Consultant.
e. By Consultant. Consultant may terminate his consultancy hereunder
at any time upon sixty (60) days' written notice to the Company.
6. Independent Contractor Status. Consultant shall perform all services
under this Agreement as an "independent contractor" and not as an employee or
agent of the Company. Consultant is not authorized to assume or create any
obligation or responsibility, express or implied, on behalf of, or in the name
of, the Company or to bind the Company in any manner.
7. Covenant of Non-Disclosure and Non-Competition.
(a) The Consultant acknowledges that the success of the business of
the Company depends upon both the absence of competition from Consultant and the
continued preservation of the confidentiality of certain information possessed
by Consultant, that an absence of such competition and the preservation of the
confidentiality of such information is an essential term of this Agreement, and
that the Company would be unwilling to enter into this Agreement in the absence
of this Section. Accordingly, Consultant hereby agrees with the Company as
follows:
(a) Consultant will not, at any time, directly or indirectly,
without the prior written consent of the Company, disclose or use, in any way
harmful to the business, operations, assets, prospects or condition, financial
or otherwise, of the Company, or otherwise contrary to the interests of the
Company, any proprietary or Confidential Information (as defined below)
involving or relating to the Company past, present or future, actual or
prospective; provided, however, that such information shall not include any
information known generally to the public (other than as a result of disclosure
in violation hereof by the Consultant); and provided, further, that the
provisions of this Section shall not prohibit any disclosure required by law in
connection with any judicial or administrative proceeding or inquiry.
"Confidential Information" includes, but is not limited to, information relating
to the Company which is not generally known to those outside of the Company
relating to (i) the business, conduct or operations of the Company, (ii) any
materials, apparatus,
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<PAGE> 6
processes, methods, ways of business, programs, formulae, technology, research,
development, or intellectual property, (iii) any customer lists, or customer
requirements and preferences, (iv) any supplier lists or supplier requirements
and preferences, (v) financial information or business plans, or (vi) any other
information about or generated by the Company which could, if disclosed, be
useful to any competitors of the Company.
(b) During the term hereof and for a period of two (2) years
thereafter (or, if Consultant's consultancy hereunder is terminated, two (2)
years from the date of such termination), irrespective of the reasons for any
such termination (the "Non-Competition Term"), the Consultant shall not,
directly or indirectly, (i) acquire, own, manage, operate, control or
participate directly or indirectly in any manner in the acquisition, ownership,
management, operation or control of, or be connected as an officer, employee,
partner, director, principal, consultant, agent or otherwise with, or have any
financial interest in (other than solely as an owner for investment purposes of
not more than 5% of the outstanding capital stock of any company engaged in the
same business as that of the Company), or aid or assist anyone else in the
conduct of, any business, venture or activity whose activities, products or
services are competitive with the current activities, products or services of
the Company or Ferrotec or the contemplated activities, products or services set
forth in the Company's Annual Operating Plan for Fiscal 2000, (ii) recruit or
otherwise seek to induce any employee or consultant of the Company to terminate
his or her employment or consulting relationship with the Company, (iii) solicit
or encourage any person who is a customer or supplier of the Company to
terminate its relationship with the Company, or (iv) encourage any of the
Company employees or consultants to become engaged or retained by or on behalf
of any person whose activities, products or services are competitive with the
current activities, products or services of the Company or Ferrotec or the
contemplated activities, products or services set forth in the Company's Annual
Operating Plan for Fiscal 2000.
(c) The Consultant acknowledges and agrees that, because the
legal remedies of the Company may be inadequate in the event of a breach of, or
other failure to perform, any of the covenants and obligations set forth in this
Section, the Company may, in addition to obtaining any other remedy or relief
available to it (including without limitation, consequential and other damages
at law), enforce this Section by injunction and other equitable remedies.
(d) The parties agree that the provisions set forth in this
Section, including without limitation as to duration and geographic scope, are
reasonable to protect the legitimate interests of the Company. The provisions of
this Section are severable, and in the event that any provision hereof should,
for any reason, be held invalid or unenforceable in any respect, it shall not
invalidate, render unenforceable or otherwise affect any other provision hereof,
and such invalid or unenforceable provision shall be construed by limiting it so
as to be valid and enforceable to the maximum extent compatible with, and
possible under, applicable law.
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<PAGE> 7
8. Assignment. Neither the Company nor Consultant may make any assignment
of this Agreement or any interest herein, by operation of law or otherwise,
without the prior written consent of the other party; provided, however, that
(i) the Company may assign its rights and obligations under this Agreement
without the consent of Consultant in the event that the Company shall hereafter
effect a reorganization, consolidate with, or merge into, any other person or
entity or transfer all of its properties or assets to any other person or
entity, and (ii) Consultant may assign its rights and obligations under this
Agreement without the consent of the Company to P.F. Avery Corporation. This
Agreement shall inure to the benefit of and be binding upon the Company and
Consultant, their respective successors, executors, administrators, heirs and
permitted assigns.
9. Severability. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
10. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
11. Notices. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed given when delivered by hand, telex or facsimile, or if mailed, five days
after mailing (two business days in the case of courier service), to the parties
as follows:
If to Consultant: Paul F. Avery, Jr.
178 Drinkwater Road
Kensington, NH 03833
If to the Company:Ferrofluidics Corporation
40 Simon Street
Nashua, NH 03061
Attn: William B. Ford
If to Acquiror: Ferrotec Corporation
Sumitomo Bldg. #6
5-24-8 Higashi Ueno
Taito-Ku, Tokyo 110-0015, Japan
Attn: Akira Yamamura
7
<PAGE> 8
12. Entire Agreement. This Agreement and the letter agreement of even date
herewith by and among the Company, Ferrotec, Merger Sub and Consultant
constitute the entire agreement between the parties and supersede all prior
communications, agreements and understandings, written or oral, with respect to
the terms and conditions of Consultant's consultancy and prior employment with
the Company.
13. Amendment. This Agreement may be amended or modified only by a written
instrument signed by Consultant and by an expressly authorized representative of
the Company.
14. Headings. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope of or content of any
provision of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
16. Governing Law. This is a Massachusetts contract and shall be construed
and enforced under and be governed in all respects by the laws of the
Commonwealth of Massachusetts , without regard to the conflict of laws
principles thereof.
17. Effectiveness. This Agreement is conditioned upon and shall become
effective only upon the occurrence of the Acceptance Date, and shall not become
effective in the event that the Offer is terminated or abandoned or the Merger
Agreement is terminated in accordance with its terms.
[END OF TEXT]
8
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company, Ferrotec and Merger Sub, by their respective duly
authorized representatives, and by Consultant, as of the date first above
written.
CONSULTANT FERROFLUIDICS CORPORATION
/s/ Paul F. Avery, Jr. By: /s/ William B. Ford
- ------------------------- --------------------------------
Paul F. Avery, Jr. Name: William B. Ford
Title: Chief Financial Officer
FERROTEC CORPORATION
By: /s/ Paul Yamamoto
--------------------------------
Name: Paul Yamamoto
Title: Executive Director
FERROTEC ACQUISITION, INC.
By: /s/ Richard R. Cesati, II
--------------------------------
Name: Richard R. Cesati, II
Title: President
<PAGE> 1
Exhibit 7
Ferrofluidics Corporation
40 Simon Street
Nashua, NH 03061
October 20, 1999
Ferrotec Corporation
5-24-8
Higashi-Ueno
Taito-ku
Tokyo, Japan 110-0015
Attn: Akira Yamamura
Ladies and Gentlemen:
In connection with and as a condition to entering into the transactions
contemplated by the Agreement and Plan of Merger (the "Merger Agreement") by and
between Ferrofluidics Corporation (the "Company"), a Massachusetts corporation,
Ferrotec Corporation ("Ferrotec"), a corporation organized under the laws of
Japan, and Ferrotec Acquisition, Inc., a Massachusetts corporation and a
wholly-owned subsidiary of Ferrotec ("Merger Sub"), the Company, Ferrotec,
Merger Sub and the undersigned individual, Paul F. Avery, Jr. ("Avery"), hereby
agree that, notwithstanding any other arrangement between any of the foregoing
parties, from and after the Acceptance Date (as defined in the Merger
Agreement), Avery shall perform such advisory and related services for the
Company as may be reasonably requested from time to time by the Company (the
"Services"). Avery shall perform the Services under the direction and
restriction of the Company. The Company shall pay to Avery an advisory fee of
$50,000 per annum payable monthly in arrears commencing on the first day of the
next month after the date first set forth above. The parties further agree that
the Company or Avery may terminate Avery's engagement as an advisor hereunder at
any time upon thirty (30) days' written notice to the other parties hereto,
whereupon upon such termination all payments due hereunder shall cease.
[signature page to follow]
<PAGE> 2
Please acknowledge your agreement to the foregoing by countersigning
this agreement in the place provided below and returning it to the undersigned.
Very truly yours,
/s/ Paul F. Avery, Jr.
-----------------------
Paul F. Avery, Jr.
Accepted and Agreed to,
this 20th day of October, 1999
FERROTEC CORPORATION
By: /s/ Paul Yamamoto
----------------------------------------
Name: Paul Yamamoto
Title: Executive Director
FERROTEC ACQUISITION, INC.
By: /s/ Richard Cesati II
----------------------------------------
Name: Richard Cesati II
Title: President
FERROFLUIDICS CORPORATION
By: /s/ William B. Ford
----------------------------------------
Name: William B. Ford
Title: Chief Financial Officer
2
<PAGE> 1
EXHIBIT 8
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement"), dated September 23, 1996, is
entered into by and between Ferrofluidics Corporation (the "Company"), a
Massachusetts corporation with its principal place of business at 40 Simon
Street, Nashua, New Hampshire, and William B. Ford ("Employee"), of 3 Bruce
Road, Winchester, Massachusetts 01890.
WHEREAS, the financial operations of the Company are a complex matter
requiring direction and leadership in a variety of areas;
WHEREAS, Employee possesses the experience and expertise to provide the
direction and leadership required by the Company; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Company, therefore, wishes to establish the terms of employment of Employee as
its Vice President and Chief Financial Officer, and Employee agrees to so
establish such terms of this employment;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
Agreement, the Company hereby offers and Employee hereby accepts employment on
the terms and conditions set forth in this Agreement.
2. EFFECTIVE DATE. The effective date (the "Effective Date") of this
Agreement shall be September 23, 1996.
3. Capacity and Performance.
-------------------------
a. Employee shall be employed by the Company as its Vice President and
Chief Financial Officer, and shall have all powers and duties consistent
with those positions, subject to the direction of the Company's Board of
Directors.
b. Employee shall devote his best efforts, business judgment, skill
and knowledge to the advancement of the business and interests of the
Company and its affiliates, and to the discharge of his duties and
responsibilities hereunder. In accordance with the foregoing, Employee
shall not engage in any other business activity, except as may be approved
by the Board of Directors; PROVIDED, HOWEVER, that nothing herein shall be
construed as preventing Employee from investing his assets in a manner not
otherwise prohibited by this Agreement, and in such form or manner as shall
not require any material services on his part in the operations or affairs
of the companies or other entities in which such investments are made.
c. Except for required travel on the Company's business, Employee
shall not be required to work on a regular basis at any location outside of
Hillsborough County in the State of New Hampshire.
<PAGE> 2
4. Compensation and Benefits.
--------------------------
a. BASE SALARY. The Company shall pay Employee a base salary at an
annual rate (the "Base Salary") equal to $140,000 per year, payable in
accordance with the payroll practices of the Company for its executives,
subject to annual salary reviews by the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee") or the
President, as appropriate, on October 1st of each year for the duration of
the Term of this Agreement.
b. BONUS. Employee shall be entitled to participate in the Company's
Cash Incentive Plan (the "Bonus Plan"), whereby Employee will be eligible
to, and may, in the sole discretion of the Compensation Committee, earn as
an annual bonus a percentage of his Base Salary based 50% upon the
percentage of the Bonus Plan goals, as established by the Board of
Directors of the Company, achieved by the Company and 50% on individual
goals established by the President of the Company, in any given year, as
follows:
Percentage of Bonus Plan Percentage of Base Salary
Goals Achieved* Earned as Bonus
------------------------ ------------------------
80% 0%
100% 20%
120% 40%
* For percentages between 80% and 120%, the percentage of Base
Salary that may be earned by Employee will be determined by
linear interpolation.
c. On the Effective Date of this Agreement, Employee will be awarded
an incentive stock option to purchase 30,000 shares of Common Stock (the
"Stock Option") pursuant to the Company's 1995 Stock Option and Incentive
Plan (the "Stock Option Plan"). The Stock Option will be granted to
Employee at the market price of the shares of Common Stock underlying such
Stock Option as of the Effective Date and shall vest as follows:
Percentage of Shares Cumulative
Vesting Date Becoming Vested Percentage Vested
------------ --------------- -----------------
September 23, 1997 25% 25%
September 23, 1998 25% 50%
September 23, 1999 25% 75%
September 23, 2000 25% 100%
As provided in Section 15 of the Stock Option Plan, all of the shares subject to
the Stock Option above shall become immediately vested and exercisable in full,
whether or not the Stock Option or any portion thereof is vested and exercisable
at such time, upon the occurrence of a "Change of Control" of the Company as
such term is defined in the Stock Option Plan.
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<PAGE> 3
d. VACATIONS. Employee shall be entitled to the number of paid
vacation days to which he would be entitled in accordance with the
Company's normal vacation policy, to be taken at such times and intervals
as shall be determined by Employee, subject to the reasonable business
needs of the Company.
e. RETIREMENT PLANS. Employee shall be entitled to participate in and
enjoy the benefit of the Company's retirement, supplementary retirement,
deferred compensation or similar plans, programs or arrangements as
available to the Company's management from time to time.
f. HEALTH, WELFARE AND FRINGE BENEFIT PLANS, ETC. Employee shall be
entitled to participate in and enjoy the benefit of all the health,
medical, dental, cafeteria, reimbursement, death (including life
insurance), accident, travel insurance, long-term disability, short-term
disability, sick leave, other leaves of absence, holidays and other similar
welfare, fringe-benefit or employment-related plans, programs,
arrangements, policies or perquisites available to the Company's management
from time to time. Participation shall be subject to the terms of the
applicable plan documents and the discretion of the Board of Directors or
any administrative or other committee provided for in or contemplated by
such plan. The Company may alter, modify, add to or delete its employee
benefit plans as they apply to the Company's management at such times and
in such manner as the Company determines to be appropriate, without
recourse by Employee.
g. BUSINESS EXPENSES. The Company shall pay or reimburse Employee for
reasonable business expenses incurred or paid by him in the performance of
his duties and responsibilities hereunder, subject to any restrictions on
such expenses set by the Board of Directors and to such reasonable
substantiation and documentation as may be specified by the Company from
time to time.
h. MOVING EXPENSES. The Company shall reimburse Employee for
reasonable moving expenses incurred in connection with Employee's
relocation to New Hampshire, including without limitation costs and
expenses of moving furniture and family.
5. Termination of Employment and Severance Benefits.
-------------------------------------------------
a. GENERAL SEVERANCE BENEFITS. The Company or Employee may terminate
this employment at will upon six (6) months prior written notice if such
notice is given within one year of Employee's employment hereunder, or
upon one year's prior written notice if such notice is given after the
first year of Employee's employment hereunder.
b. Change of Control Benefits.
---------------------------
(1) If the Company undergoes a Change of Control (as defined
below) during the Term of this Agreement, and a Terminating Event
(as defined below) occurs within twelve (12) months after the
date on which such Change of Control occurs, Employee shall be
entitled to receive an amount equal to six (6) months' Base
Salary at the rate then in effect under this Agreement if such
Terminating Event occurs within the first year of Employee's
employment hereunder, and an amount equal to twelve (12) months'
Base Salary at the rate then in effect under
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<PAGE> 4
this Agreement if such Terminating Event occurs after the first
year of Employee's employment hereunder.
(2) "Change of Control" shall mean the occurrence of any one
of the following events:
(i) any "person" (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Act")) becomes a "beneficial owner" (as
such term is defined in Rule 13d-3 promulgated under the
Act) (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company),
directly or indirectly, of securities of the Company
representing 15% or more of the combined voting power of
the Company's then outstanding securities; or
(ii) persons who, as of the Effective Date, constituted
the Company's Board of Directors (the "Incumbent Board")
cease for any reason, including without limitation as a
result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board
of Directors, provided that any person becoming a director
of the Company subsequent to the Effective Date whose
election was approved by at least a majority of the
directors then comprising the Incumbent Board shall, for
purposes of this Agreement, be considered a member of the
Incumbent Board; or
(iii) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation
or other entity, other than (a) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity)
more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation
or (b) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more
than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially
all of the Company's assets.
(3) A "Terminating Event" shall mean any voluntary or
involuntary termination of Employee's employment occurring
subsequent to a Change of Control, other than the termination of
Employee's employment pursuant to Section 5d hereunder.
c. DEATH OR DISABILITY. In the event Employee dies or becomes
disabled during the Term this Agreement, his employment hereunder
shall automatically terminate. In such case, the Company shall pay to
Employee or his beneficiary, as the case may be, any earned but unpaid
4
<PAGE> 5
salary as of the date of his death or disability. For the purpose of
this Agreement, "disability" shall refer to a situation in which
Employee is totally disabled from performing his duties for the
Company during a period of thirteen (13) consecutive weeks.
If any question shall arise as to whether during any period
Employee has suffered disability, Employee may, and at the request of
the Company will, submit to the Company a certification in reasonable
detail by a physician selected by Employee or his guardian to whom the
Company has no reasonable objection as to whether Employee was so
disabled and such certification shall for the purposes of this
Agreement be conclusive of the issue. If such question shall arise and
Employee shall fail to submit such certification, the Company's
determination of such issue shall be binding on Employee.
d. BY THE COMPANY FOR CAUSE. The Company may terminate Employee's
employment hereunder for cause at any time upon notice to Employee
setting forth in reasonable detail the nature of such cause. The
following, as determined by the Board of Directors in its reasonable
judgment, shall constitute "cause" for termination:
(1) Employee's falsification of the accounts of the Company,
embezzlement of funds of the Company or other material dishonesty
with respect to the Company or any of its affiliates; or
(2) Conviction of, or plea of nolo contendere to, a felony
or other crime involving moral turpitude (it being understood
that violation of a motor vehicle code does not constitute such a
crime); or
(3) Conduct engaged in or action taken or omitted to be
taken by Employee which is in material breach of this Agreement;
or
(4) Material failure to perform a substantial portion of
Employee's duties and responsibilities hereunder, which failure
continues for more than thirty (30) days after written notice
given to Employee pursuant to a vote of the Board of Directors,
such vote to set forth in reasonable detail the nature of such
failure; or
(5) Gross or willful misconduct of Employee' with respect to
the Company or any subsidiary or affiliate thereof.
Upon the giving of notice of termination of Employee's employment
hereunder for cause, the Company shall have no further obligation or
liability to Employee, other than the payment of salary earned and unpaid
at the date of termination and the contribution by the Company to the cost
of Employee's participation (subject to any required employee contribution
by Employee under the terms of the applicable plans) in the Company's group
medical and dental insurance plans as the same are in effect from time to
time for so long as Employee is entitled to continue such participation
under applicable law and plan terms.
5
<PAGE> 6
e. LIMITATION OF BENEFITS. It is the intention of Employee and of the
Company that no payments by the Company to or for the benefit of Employee
under this Agreement or any ether agreement or plan pursuant to which he is
entitled to receive payments or benefits shall be non-deductible to the
Company by reason of the operation of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") relating to "parachute payments,"
Accordingly, and notwithstanding any other provision of this Agreement or
any such agreement or plan, if by reason of the operation of said Section
280G, any such payments exceed the amount which can be deducted by the
Company, the payments which Employee is entitled to receive under this
Agreement shall be reduced by that amount which exceeds the maximum amount
deductible by the Company under Section 280G. To the extent that payments
exceeding such maximum deductible amount have been made to or for the
benefit of Employee, such excess payments shall be refunded to the Company
with interest thereon at the applicable federal rate determined under
Section 1274(d) of the Code, compounded annually, or at such other rate as
may be required in order that no such payments shall be non-deductible to
the Company by reason of the operation of said Section 280G.
6. WITHHOLDING. All payments made by the Company under this Agreement shall
be reduced by any tax or other amounts required to be withheld by the Company
under applicable law.
7. ASSIGNMENT. Neither the Company nor Employee may make any assignment of
this Agreement or any interest herein, by operation of law or otherwise,
without the prior written consent of the other; provided, however, that the
Company may assign its rights and obligations under this Agreement without the
consent of Employee in the event that the Company shall hereafter affect a
reorganization, consolidate with, or merge into, any other person or entity or
transfer all of its properties or assets to any other person or entity. This
Agreement shall inure to the benefit of and be binding upon the Company and
Employee, their respective successors, executors, administrators, heirs and
permitted assigns.
8. SEVERABILITY. If any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
9. WAIVER. No waiver of any provision hereof shall be effective unless made
in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
10. NOTICES. Any and all notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed given when delivered by hand, telex or facsimile, or if mailed, five days
after mailing (two business days in the case of courier service), to the parties
as follows: to Employee at his last known address on the books of
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<PAGE> 7
the Company and, in the case of the Company, to its principal place of business,
attention of Clerk or to such other address as either party may specify by
notice to the other.
11. ENTIRE AGREEMENT. This Agreement and the Non-Disclosure/Non-Compete
Agreement executed by Employee constitute the entire agreement between the
parties and supersedes all prior communications, agreements and understandings,
written or oral, with respect to the terms and conditions of Employee's
employment.
12. AMENDMENT. This Agreement may be amended or modified only by a written
instrument signed by Employee and by an expressly authorized representative of
the Company.
13. HEADINGS. The headings and captions in this Agreement are for
convenience only and in no way define or describe the scope of or content of any
provision of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
15. GOVERNING LAW. This is a Massachusetts contract and shall be construed
and enforced under and be governed in all respects by the laws of The
Commonwealth of Massachusetts, without regard to the conflict of laws principles
thereof.
[END OF TEXT]
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<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument
by the Company, by its duly authorized representative, and by Employee, as of
the date first above written.
FERROFLUIDICS CORPORATION
/s/ William B. Ford By: /s/ Salvatore J. Vinciguerra
- ---------------------- ----------------------------
William B. Ford Salvatore J. Vinciguerra
President and Chief Executive
Officer
<PAGE> 1
Exhibit 9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of October 20, 1999, by
and between FERROFLUIDICS CORPORATION, a Massachusetts corporation (the
"Company"), whose principal place of business is 40 Simon Street, Nashua, New
Hampshire, 03061, FERROTEC CORPORATION, a corporation organized under the laws
of Japan ("Ferrotec"), whose principal place of business is Sumitomo Bldg. #6,
5-24-8 Higashi Ueno, Taito-Ku, Tokyo 110-0015, Japan, and WILLIAM B. FORD, an
individual (the "Executive"), whose address is 22 Preserve Drive, Nashua, New
Hampshire, 03064.
W I T N E S S E T H:
WHEREAS, the Company, Ferrotec Corporation, a Japanese corporation, and
Ferrotec Acquisition, Inc., a Massachusetts corporation, are parties to that
certain Agreement and Plan of Merger, dated as of the same date herewith (the
"Merger Agreement);
WHEREAS, in connection with the Merger Agreement, an offer (the "Offer")
will be made to acquire all of the issued and outstanding common stock, par
value $.004 per share, of the Company (the "Common Stock"), in accordance with
the terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, pursuant to the terms of the Merger Agreement, Executive is to
be employed by the Company subsequent to the consummation of the transactions
contemplated pursuant to and in accordance with that certain Merger Agreement;
WHEREAS, the Company desires to employ the Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement; and
WHEREAS, the parties intend for this Agreement to supersede and replace
all prior agreements between Executive and the Company, including, but not
limited to, the Employment Agreement dated September 23, 1996 (the "Employment
Agreement").
NOW, THEREFORE, in consideration of the mutual premises set forth
herein, and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto do hereby agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive in the capacity
described in Section 3 of this Agreement, and the Executive hereby accepts such
employment, upon the terms and conditions hereinafter set forth.
<PAGE> 2
2. TERM. The Term of employment hereunder will commence on the
Acceptance Date, as hereinafter defined, and will end on March 31, 2000
("Term"), unless otherwise sooner terminated hereunder, provided that the
Executive and the Company may upon the expiration of the then current Term
hereof, renew this Agreement for an additional term as mutually acceptable to
the parties hereto ("Renewal Term"). For purposes of this Agreement, "Acceptance
Date" has the same meaning as set forth in the Merger Agreement. The parties
acknowledge and agree that Employee's employment with the Company pursuant to
the Employment Agreement and any other agreement or understanding pursuant to
which the Employee is providing services to or on behalf of the Company and/or
its subsidiaries shall be terminated effective as of the Acceptance Date; and
that the Employment Agreement and any of such other agreements or understandings
pursuant to which the Employee is providing services to or on behalf of the
Company and/or its subsidiaries shall be deemed to have been terminated as of
the Acceptance Date and shall be of no further force or effect thereafter,
except to the extent expressly provided hereunder.
3. DUTIES DURING EMPLOYMENT PERIOD.
a. During the Term (including any Renewal Term), the Executive
shall devote substantially all of the Executive's business time to the business
and affairs of the Company. The Executive shall have such duties and powers that
are commensurate and consistent with those of an executive officer, subject to
the authority and direction of the Company's Board of Directors.
b. Executive shall devote substantially all of his business time,
his best efforts, business judgment, skill and knowledge to the advancement of
the business and interests of the Company and its affiliates, and to the
discharge of his duties and responsibilities hereunder. In accordance with the
foregoing, Executive shall not engage in any other business activity, except as
may be approved by the Board of Directors; provided, however, that nothing
herein shall be construed as preventing Executive from investing his assets in a
manner not otherwise prohibited by this Agreement, and in such form or manner as
shall not require any material services on his part in the operations or affairs
of the companies or other entities in which such investments are made.
c. Except for required travel on the Company's business,
Executive shall not be required to work on a regular basis at any location
outside of Hillsborough County in the State of New Hampshire.
4. COMPENSATION AND BENEFITS.
a. Salary. The Executive shall be paid a base salary (the "Base
Salary"), payable not less than twice per month, at an annual rate of no less
than One Hundred Forty Five Thousand Dollars ($145,000).
b. Benefit Plans. During the Term hereof, Executive shall be
entitled to participate in and enjoy the benefit of the retirement,
supplementary retirement, deferred compensation, health, medical, dental,
cafeteria, reimbursement, death (including life insurance),
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<PAGE> 3
accident, travel insurance, long-term disability, short-term disability, sick
leave, other leaves of absence, holidays and other similar welfare,
fringe-benefit or employment-related plans, programs, arrangements, policies or
perquisites available to the Company's management from time to time.
Participation in the foregoing shall be subject to the terms of the applicable
plan documents and the discretion of the Board of Directors or any
administrative or other committee provided for in or contemplated by such plan.
The Company may alter, modify, add to or delete its employee benefit plans as
they apply to the Company's management at such times and in such manner as the
Company determines to be appropriate, without recourse by Executive.
c. Vacation. During the Term of employment hereunder, the
Executive will be entitled to four (4) weeks of vacation time to be utilized or
paid for each year to be taken at such times and intervals as shall be
determined by Executive; provided, however, that the Executive will evidence
reasonable judgment with regard to appropriate vacation scheduling subject to
the reasonable business needs of the Company. The number of vacation days during
the Term (or any Renewal Term) will accrue on a daily basis at the rate of four
weeks per year of employment. Accrued but unused vacation time at the end of the
Term of this Agreement will be paid to Executive upon the expiration of such
Term. Executive shall be given credit under all of the Company's employee
benefit plans and policies, including without limitation, for accrued vacation
time, for all services prior to the Acceptance Date; and provided further that
the Company shall upon the termination of Executive's employment hereunder pay
Executive for all accrued vacation time as of the termination date in accordance
with Company policy.
d. Business Expense Reimbursement. The Executive shall be
entitled to be paid for, or receive proper reimbursement for, all reasonable,
out-of-pocket expenses incurred directly by the Executive (in accordance with
the policies and procedures established by the Company for its senior executive
officers), including business class accommodations for international air travel,
and first class rates for any other form of travel, in performing services
hereunder, provided the Executive properly accounts therefor. Employee shall
submit to the Company itemized monthly statements, in a form reasonably
satisfactory to the Company, of such expenses incurred in the previous month.
e. Severance Payments. Executive shall be entitled to receive One
Hundred Forty Nine Thousand Dollars ($149,000). This amount will be payable in
the following installments:
(1) Forty Five Thousand Dollars ($45,000) on the first
payroll date following January 1, 2000; and
(2) One Hundred Four Thousand Dollars ($104,000),
inclusive of earned interest therein, at a rate of 4% on the first
payroll date following January 1, 2001.
f. Options. Executive shall be entitled to receive for each
option to acquire Common Stock of the Company that is outstanding immediately
prior to the Acceptance Date,
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<PAGE> 4
whether or not then vested or exercisable, an amount equal to the product of (1)
the number of shares of common stock subject to such options and (2) the excess,
if any, of the Cash Consideration over the exercise price per share of such
option (the "Option Payment"). For purposes of this Agreement, "Cash
Consideration" shall have the same meaning as set forth in the Merger Agreement.
This amount will be payable in the following installments, notwithstanding
anything in the Merger Agreement to the contrary with respect to the timing of
any such payments:
(1) Fifty Thousand Dollars ($50,000) on January 2, 2000;
and
(2) On January 2, 2001, an amount equal to Forty Eight
Thousand Seven Hundred Fifty Dollars ($48,750) inclusive of earned interest at
the rate of 4% (the "Second Installment").
5. CONSEQUENCES OF TERMINATION OF EMPLOYMENT.
a. Death or Disability. In the event Executive dies or becomes
disabled during the Term this Agreement, his employment hereunder shall
automatically terminate. In such case, the Company shall pay to Executive or his
beneficiary, as the case may be, any earned but unpaid salary as of the date of
his death or disability. For the purpose of this Agreement, "disability" shall
refer to a situation in which Executive is totally disabled from performing his
duties for the Company during a period of thirteen (13) consecutive weeks. If
any question shall arise as to whether during any period Executive has suffered
disability, Executive may, and at the request of the Company will, submit to the
Company a certification in reasonable detail by a physician selected by
Executive or his guardian to whom the Company has no reasonable objection as to
whether Executive was so disabled and such certification shall for the purposes
of this Agreement be conclusive of the issue. If such question shall arise and
Executive shall fail to submit such certification, the Company's determination
of such issue shall be binding on Executive.
b. By the Company for Cause. The Company may terminate
Executive's employment hereunder for cause at any time upon notice to Executive
setting forth in reasonable detail the nature of such cause. The following, as
determined by the Board of Directors in its reasonable judgment, shall
constitute "cause" for termination:
(1) Executive's falsification of the accounts of the
Company, embezzlement of funds of the Company or other material
dishonesty with respect to the Company or any of its affiliates; or
(2) Conviction of, or plea of nolo contendere to, a felony
or other crime involving moral turpitude (it being understood that
violation of a motor vehicle code does not constitute such a crime); or
(3) Conduct engaged in or action taken or omitted to be
taken by Executive which is in material breach of this Agreement; or
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<PAGE> 5
(4) Material failure to perform Executive's duties and
responsibilities hereunder, which failure continues for more than thirty
(30) days after written notice given to Executive pursuant to a vote of
the Board of Directors, such vote to set forth in reasonable detail the
nature of such failure; or
(5) Gross or willful misconduct of Executive with respect
to the Company or any subsidiary or affiliate thereof.
Upon the giving of notice of termination of Executive's employment under this
Section 5, the Company shall have no further obligation or liability to
Executive, other than (i) payments of amounts set forth in Sections 4c, 4d, 4e
and 4f; (ii) the payment of salary earned and unpaid at the date of termination;
and (iii) the contribution by the Company to the cost of Executive's
participation (subject to any required employee contribution by Executive under
the terms of the applicable plans) in the Company's group medical and dental
insurance plans as the same are in effect from time to time for so long as
Executive is entitled to continue such participation under applicable law and
plan terms. Executive hereby agrees to release the Company, Ferrotec and Merger
Sub and their respective officers, directors, shareholders and affiliates from
any and all claims and/or liabilities arising under the Employment Agreement or
arising from the Executive's employment or retention by the Company and/or its
subsidiaries prior to the Acceptance Date; provided, however, that nothing
herein shall in any way limit Executive's indemnification rights under Section
6.6 of the Merger Agreement or under the Articles of Organization or Bylaws of
the Company.
6. COVENANT OF NON DISCLOSURE AND NON-COMPETITION.
a. The Executive acknowledges that the success of the business of
the Company depends upon both the absence of competition from the Executive and
the continued preservation of the confidentiality of certain information
possessed by the Executive, that an absence of such competition and the
preservation of the confidentiality of such information is an essential term of
this Agreement, and that the Company would be unwilling to enter into this
Agreement in the absence of this Section. Accordingly, the Executive hereby
agrees with the Company as follows:
(1) The Executive will not, at any time, directly or
indirectly, without the prior written consent of the Company, disclose
or use, in any way harmful to the business, operations, assets,
prospects or condition, financial or otherwise, of the Company, or
otherwise contrary to the interests of the Company, any proprietary or
Confidential Information (as defined below) involving or relating to the
Company past, present or future, actual or prospective; provided,
however, that such information shall not include any information known
generally to the public (other than as a result of disclosure in
violation hereof by the Executive); and provided, further, that the
provisions of this Section shall not prohibit any disclosure required by
law in connection with any judicial or administrative proceeding or
inquiry. "Confidential Information" includes, but is not limited to,
information relating to the Company which is not generally known to
those outside of the Company
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<PAGE> 6
relating to (I) the business, conduct or operations of the Company, (ii)
any materials, apparatus, processes, methods, ways of business,
programs, formulae, technology, research, development, or intellectual
property, (iii) any customer lists, or customer requirements and
preferences (iv) any supplier lists or supplier requirements and
preferences, (v) financial information or business plans, or (vi) any
other information about or generated by the Company which could, if
disclosed, be useful to any competitors of the Company.
(2) During the term hereof and for a period of two (2)
years thereafter (or, if Executive's employment hereunder is terminated,
two (2) years from the date of such termination), irrespective of the
reasons for any such termination (the "Non-Competition Term"), the
Executive shall not, directly or indirectly, (i) acquire, own, manage,
operate, control or participate directly or indirectly in any manner in
the acquisition, ownership, management, operation or control of, or be
connected as an officer, employee, partner, director, principal,
consultant, agent or otherwise with, or have any financial interest in
(other than solely as an owner for investment purposes of not more than
5% of the outstanding capital stock of any company engaged in the same
business as that of the Company), or aid or assist anyone else in the
conduct of, any business, venture or activity whose activities, products
or services are competitive with the current activities, products or
services of the Company or Ferrotec or the contemplated activities,
products or services of the Company as set forth in the Company's Annual
Operating Plan for Fiscal 2000, (ii) recruit or otherwise seek to induce
any employee or consultant of the Company to terminate his or her
employment or consulting relationship with the Company, (iii) solicit or
encourage any person who is a customer or supplier of the Company to
terminate its relationship with the Company, or (iv) encourage any of
the Company employees or consultants to become engaged or retained by or
on behalf of any person whose activities, products or services are
competitive with the current or contemplated, as set forth in the
Company's current business plan, activities, products or services of the
Company or Ferrotec or the contemplated activities, products or services
of the Company as set forth in the Company's Annual Operating Plan for
Fiscal 2000.
(3) The Executive acknowledges and agrees that, because
the legal remedies of the Company may be inadequate in the event of a
breach of, or other failure to perform, any of the covenants and
obligations set forth in this Section, the Company may, in addition to
obtaining any other remedy or relief available to it (including without
limitation, consequential and other damages at law), enforce this
Section by injunction and other equitable remedies.
(4) The parties agree that the provisions set forth in
this Section, including without limitation as to duration and geographic
scope, are reasonable to protect the legitimate interests of the
Company. The provisions of this Section are severable, and in the event
that any provision hereof should, for any reason, be held invalid or
unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof, and such
invalid or unenforceable provision shall be construed by limiting
6
<PAGE> 7
it so as to be valid and enforceable to the maximum extent compatible
with, and possible under, applicable law.
7. WITHHOLDING. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
8. EFFECT ON PRIOR AGREEMENTS. This Agreement supersedes any and all
prior or written agreements in their entirety between the parties, which shall
be void and of no further force and effect after the Effective Time of this
Agreement.
9. NOTICES. Any notice required or permitted to be given under the terms
of this Agreement shall be sufficient if in writing and if sent postage prepaid
by registered or certified mail, return receipt requested, by overnight
delivery, by courier, or by confirmed telecopy, in the case of the Executive to
the Executive's last place of business or residence as shown on the records of
the Company, or in the case of the Company to its principal office as set forth
in the introductory paragraph, or such other place as it may designate.
10. WAIVER. Unless agreed in writing, the failure of either party, at
any time, to require performance by the other of any provisions hereunder shall
not affect its right thereafter to enforce the same, nor shall a waiver by
either party of any breach of any provision hereof be taken or held to be a
waiver of any other preceding or succeeding breach of any term or provision of
this Agreement. No extension of time for the performance of any obligation or
act shall be deemed to be an extension of time for the performance of any other
obligation or act hereunder.
11. COMPLETE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto with respect to the contents hereof and supersedes
all prior agreements and understandings between the parties with respect to such
matters, whether written or oral. Neither this Agreement nor any term or
provision hereof may be changed, waived, discharged or amended in any manner
other than by an instrument in writing, signed by the party against which the
enforcement of the change, waiver, discharge or amendment is sought.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one agreement.
13. BINDING-EFFECT/ASSIGNMENT. Neither the Company nor Executive may
make any assignment of this Agreement or any interest herein, by operation of
law or otherwise, without the prior written consent of the other; provided,
however, that the Company may assign its rights and obligations under this
Agreement without the consent of Executive in the event that the Company shall
hereafter affect a reorganization, consolidate with, or merge into, any other
person or entity or transfer all of its properties or assets to any other person
or entity. This Agreement shall inure to the benefit of and be binding upon the
Company and Executive, their respective successors, executors, administrators,
heirs and permitted assigns.
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<PAGE> 8
14. GOVERNING LAW. This is a Massachusetts contract and shall be
construed and enforced under and be governed in all respects by the laws of the
Commonwealth of Massachusetts, without regard to the conflict of laws principles
thereof and the parties shall submit to the exclusive jurisdiction of the courts
of the Commonwealth of Massachusetts for all matters relating to the subject
matter of this Agreement and hereby waive any claim of non-convenient forum or
lack of personal jurisdiction or improper venue..
15. HEADINGS. The headings of the sections are for convenience only and
shall not control or affect the meaning or construction or limit the scope or
intent of any of the provisions of this Agreement.
16. SURVIVAL. Any termination of this Agreement shall not affect the
ongoing provisions of this Agreement which shall survive such termination in
accordance with their terms.
17. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein. If any court
determines that any provision of Sections 6 or 7 hereof is unenforceable because
of the duration or scope of such provision, such court shall have the power to
reduce the scope or duration of such provision, as the case may be, and, in its
reduced form, such provision shall then be enforceable.
18. CONSTRUCTION. This Agreement shall be construed within the fair
meaning of each of its terms and not against the party drafting the document.
19. EFFECTIVENESS. This Agreement is conditioned upon and shall become
effective only upon the occurrence of the Acceptance Date, and shall not become
effective in the event that the Offer is terminated or abandoned or the Merger
Agreement is terminated in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written in ____________, Massachusetts.
FERROFLUIDICS CORPORATION
By: /s/ Paul F. Avery, Jr.
-------------------------------
Name: Paul F. Avery, Jr.
-----------------------------
Title: President and CEO
-----------------------------
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FERROTEC CORPORATION
By: /s/ Nozomu (Paul) Yamamoto
-------------------------------
Name: Nozomu (Paul) Yamamoto
----------------------------
Title: Executive Director
----------------------------
EXECUTIVE
/s/ William B. Ford
------------------------------------
William B. Ford
9
<PAGE> 1
EXHIBIT 10
[Ferrofluidics Corporation Letterhead]
October 1, 1993
Mr. Alvan F. Chorney
32 Foxfire Drive
Sharon, MA 02067
Dear Mr. Chorney:
This letter sets forth our understanding with respect to severance pay to
which you would be entitled in the event of termination of your employment under
certain circumstances.
In the event that your employment with the Company is terminated by the
Company other than by reason of your death, disability or for cause, you will be
entitled to receive severance pay ("Severance Payment") for a period of eighteen
months at a rate equal to the higher of (i) $150,000 per annum or (ii) your
annual salary rate at the time of termination. The Severance Payment shall be
paid to you in 39 equal bi-weekly payments, commencing with the first pay date
of the Company following your termination of employment.
For purposes of this Agreement, in the event you shall be totally disabled
from performing your duties with the Company for a consecutive period of
thirteen weeks, the Board of Directors may terminate your employment after one
(1) month prior written notice to you, in which event the Company shall not be
liable to pay you any further compensation or the severance payment.
This Letter Agreement does not change in any way the at-will nature of your
employment with the Company, nor does it supersede the Non-Disclosure Agreement
dated January 29, 1990 between you and the Company which remains in full force
and effect.
This Letter Agreement shall in all respects be interpreted, enforced,
governed and construed by and under the laws of the State of New Hampshire,
exclusive of the conflicts of laws provisions thereof.
<PAGE> 2
Mr. Alvan F. Chorney
October 1, 1993
Page Two
This Letter Agreement represents our entire understanding regarding the
terms of your severance from the Company and supersedes any prior
understandings or agreements between you and the Company or any of its
representatives regarding the terms of your severance from the Company. This
Agreement may not be modified, altered or changed except by a written
instrument, altered or changed except by a written instrument duly signed by
the parties.
Please signify your agreement to the terms of this Letter Agreement by
signing in the space provided.
Sincerely,
FERROFLUIDICS CORPORATION
By: /s/ Paul F. Avery, Jr.
-------------------------------
Paul F. Avery, Jr.
Chief Executive Officer
Agreed to:
/s/ Alvan F. Chorney
- -----------------------------
Alvan F. Chorney
<PAGE> 1
EXHIBIT 11
[FERROFLUIDICS CORPORATION LETTERHEAD]
August 6, 1999
Mr. Alvan F. Chorney
10 Mt. Laurel Road
Unit 607
Nashua, N.H. 03061
Dear Mr. Chorney:
This letter sets forth our understanding with respect to severance pay to
which you would be entitled to in the event of change of control of the
Company, and within 12 months of that occurrence. For severance events other
than "change of control of the Company", our original agreement dated
October 1, 1993, remain in-place.
In the event that your employment with the Company is terminated, other
than by reason of your death, disability or for cause, you will be entitled to
receive severance pay ("Severance Payment") for a period of twenty-four (24)
months at a rate equal to the highest annual salary rate during the time of
employment. The Severance Payment shall be paid to you in fifty-two (52) equal
bi-weekly payments, commencing with the first pay date of the Company following
your termination of employment.
For purposes of this Agreement, in the event you shall be totally disabled
from performing your duties with the Company for a consecutive period of
thirteen weeks, the Board of Directors may terminate your employment after one
(1) month prior written notice to you, in which event the Company shall not be
liable to pay you any further compensation or the severance payment.
This Letter Agreement does not change in any way the at-will nature of
your employment with the Company, nor does it supersede the Non-Disclosure
Agreement dated January 29, 1990 between you and the Company that remains in
full force and effect.
This Letter Agreement shall in all respects be interpreted, enforced,
governed and construed by and under the laws of the State of New Hampshire,
exclusive of the conflicts of laws provisions thereof.
This Letter Agreement represents our entire understanding regarding the
terms of your severance from the Company and supersedes any prior understandings
or agreements between you and the Company or any of its representatives
regarding the terms of your severance from the Company. This Agreement may not
be modified, altered or changed except by a written instrument duly signed by
the parties.
Please signify your agreement to the terms of this Letter Agreement by
signing in the space provided.
Sincerely,
FERROFLUIDICS CORPORATION
By: /s/ Paul F. Avery, Jr.
-----------------------------
Paul F. Avery, Jr.
President & CEO
Agreed to: /s/ Alvan F. Chorney Date: August 6, 1999
------------------------ --------------------------
Alvan F. Chorney
<PAGE> 1
EXHIBIT 12
[FERROFLUIDICS CORPORATION HEADER]
MEMO OF UNDERSTANDING
DATE: July 1, 1999
TO: Mr. Timothy D. Barton
c/o Ferrofluidics Corporation
Nashua, New Hampshire
This memo confirms our discussions leading to a change in your employment
agreement effective July 5, 1999, as outlined below:
- Your title remains Vice President, and your employment with the
corporation continues to be at will.
- If you should be severed from the company by a corporate change in
control, you will receive a lump-sum payment of six months salary.
- All other benefit entitlements, with the exception of the severance
payment described above, will be the same as for any other employee,
and all outstanding option and stock arrangements remain unchanged.
Please acknowledge your acceptance of these terms by signing below and
returning one copy of this letter to Human Resources.
/s/ Paul F. Avery, Jr.
- ---------------------------
Paul F. Avery, Jr.
President & CEO
ACCEPTED:
/s/ Timothy D. Barton
- ---------------------------
Timothy D. Barton
<PAGE> 1
Exhibit 13
AMENDMENT TO
SHAREHOLDER RIGHTS AGREEMENT
Amendment, dated as of October 20, 1999 (the "Amendment") to the
Shareholder Rights Agreement, dated as of August 3, 1994 (the "Rights
Agreement"), by and between Ferrofluidics Corporation, a Massachusetts
corporation (the "Company"), and American Stock Transfer and Trust Company, a
New York corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, Section 27 of the Rights Agreement provides that prior to the
Distribution Date (as defined therein), the Company and the Rights Agent shall,
if the Company so directs, supplement or amend any provision of the Rights
Agreement as the Company may deem necessary or desirable without the approval of
any holders of certificates representing shares of the Company's common stock,
par value $.004 per share (the "Common Stock");
WHEREAS, the Company intends to enter into an Agreement and Plan of
Merger (the "Merger Agreement") with Ferrotec Corporation, a Delaware
corporation ("Parent"), and Ferrotec Acquisition, Inc., a wholly-owned
subsidiary of Parent ("Sub"), pursuant to which Sub will be merged with and into
the Company upon the terms and subject to the conditions set forth in the Merger
Agreement (the "Merger"); and
WHEREAS, prior to entering into the Merger Agreement, the Company
desires to amend certain provisions of the Rights Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. Section 1(a) of the Rights Agreement is amended by adding at the end
of Section 1(a) a new paragraph which provides as follows:
"Notwithstanding anything in this Agreement to the contrary, neither
Ferrotec Corporation ("Parent"), Ferrotec Acquisition, Inc., a wholly-owned
subsidiary of Parent ("Sub"), nor any of their Affiliates or Associates shall be
deemed to be an Acquiring Person, and no Stock Acquisition Date, Distribution
Date, Section 11(a)(ii) Event or Section 13 Event shall occur, as a result of
(i) the execution and delivery of any Agreement and Plan of Merger by and among
Parent, Sub and the Company (the "Merger Agreement"); (ii) any action taken by
Parent, Sub or any of their Affiliates or Associates in accordance with the
provisions of the Merger Agreement; or (iii) the consummation of the Merger (as
such term is defined in the Merger Agreement) in accordance with the provisions
of the Merger Agreement. In addition, notwithstanding the foregoing, a Person
shall not be an "Acquiring Person" if the Board of Directors of the Company
determines that a Person who would otherwise be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this Section 1(a), has become
such inadvertently, and such Person divests as promptly as practicable (or
within such period of
<PAGE> 2
time as the Board of Directors determines is reasonable) a sufficient number of
shares of Common Stock so that such Person would no longer be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this Section 1(a).
Notwithstanding the foregoing, upon the termination of the Merger Agreement in
accordance with its terms, this paragraph shall become null and void and of no
further force or effect."
2. At the Effective Time (as defined in the Merger), the Rights
Agreement and the Rights shall terminate and become null and void and of no
further force or effect.
3. Any term used herein and not defined shall have the meaning ascribed
to such term in the Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written. This Amendment may be
executed in one or more counterparts all of which shall be considered one and
the same amendment and each of which shall be deemed to be an original.
ATTEST: FERROFLUIDICS CORPORATION
By: /s/ Jean A. Scische By: /s/ William B. Ford
------------------------------ ---------------------------------
Name: Jean A. Scische Name: William B. Ford
Title: Vice President
ATTEST: AMERICAN TRANSFER AND TRUST
COMPANY, as Rights Agent
By: /s/ Susan Sidler By: /s/ Herbert J. Lemmer
------------------------------ ---------------------------------
Name: Susan Sidler Name: Herbert J. Lemmer
Title: Vice President
<PAGE> 1
EXHIBIT 14
SCHEDULE II
[ADVEST, INC. LOGO]
INVESTMENT BANKING
100 Federal Street
29th Floor
Boston, MA 02210
(617) 423-0003
Fax: (617) 423-7190
ADVEST, INC.
A SUBSIDIARY OF THE ADVEST GROUP, INC.
SERVING INVESTORS SINCE 1898
- --------------------------------------------------------------------------------
October 14, 1999
Board of Directors
Ferrofluidics Corporation
40 Simon Street
Nashua, NH 03061
Members of the Board:
Ferrofluidics Corporation ("Ferrofluidics" or the "Company") and Ferrotec
Corporation ("Ferrotec") are expected to enter into an Agreement and Plan of
Merger (the "Agreement"), whereby a newly created wholly-owned subsidiary of
Ferrotec ("Merger Subsidiary") will offer to purchase all of the issued and
outstanding shares of Ferrofluidics common stock for $6.50 per share (the
"Tender Offer"). Subsequent to the completion of the Tender Offer, Merger
Subsidiary will be merged with and into Ferrotec (the "Merger"), and each
outstanding share of Ferrofluidics common stock that was not acquired in the
Tender Offer will be converted into the right to receive $6.50 in cash. The
Merger and the Tender Offer together comprise the "Transaction." At the
completion of the Transaction, Ferrofluidics will be a wholly-owned subsidiary
of Ferrotec.
You have asked us, Advest, Inc. ("Advest"), whether, in our opinion, the
cash consideration to be received by Ferrofluidics shareholders is fair, from a
financial point of view, to the Company and its shareholders.
Advest, as part of its investment banking business is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, private placements of equity and debt and negotiated
underwritings.
In arriving at our opinion set forth below, we have, among other things,
reviewed:
i) the draft Agreement and Plan of Merger with comments dated October
12, 1999;
ii) the Company's Forms 10-K for the years 1996 through 1999 and the
Company's Forms 10-Q for the quarters ended December 26, 1998 and
March 27, 1999;
iii) comparative financial and operating data for companies identified
as similar to Ferrofluidics;
iv) the pricing and financial terms of business acquisitions recently
effected involving companies similar to Ferrofluidics;
v) operating projections for Ferrofluidics prepared by senior
management;
Member: New York, American and Other Principal Stock Exchanges. Member: SIPC
S-II-1
<PAGE> 2
[ADVEST, INC. LOGO]
Board of Directors -2- October 14, 1999
vi) the financial condition, businesses, and prospects of the Company
through discussions with members of senior management of
Ferrofluidics; and
vii) such other financial studies and analyses as we deemed necessary.
We have, among other things, performed the following analyses and
investigations: (i) we compared the proposed purchase price per share to the
trading range of Ferrofluidics' common stock; (ii) we compared the proposed
purchase price and its implied ratios to sales, earnings, book value and cash
flow ("multiples") to the same multiples calculated from current public market
valuations of publicly traded companies deemed similar to the Company; (iii) we
compared the proposed purchase price and its implied multiples of sales and cash
flow to the same multiples as calculated from valuations established in recent
transactions of companies deemed similar to the Company; (iv) we analyzed and
compared the proposed purchase price to the value of estimated future free cash
flows discounted to their current value; and (v) we analyzed Ferrofluidics'
historical trading activity, including volume and price relationships. In
addition, we performed such other analysis and investigations and took into
account such other matters and information as we deemed necessary.
Advest has provided certain investment banking services to Ferrofluidics in
the past and has received fees for rendering these services. As part of this
engagement, the Company has agreed to pay Advest a fee for delivery of this
opinion letter.
In preparing this opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information, nor have we undertaken
an independent appraisal of the assets or liabilities of the Company. This
opinion is necessarily based upon circumstances and conditions as they exist and
can be evaluated by us as of the date of this letter. Our opinion is directed to
the Board of Directors of Ferrofluidics and does not constitute a recommendation
of any kind to any shareholder of Ferrofluidics as to whether such shareholder
should tender his or her stock in the Tender Offer or how such shareholder
should vote at the shareholders' meeting to be held in connection with the
Merger. We have assumed for purposes of this opinion that there have been no
material changes in the financial condition of the Company from the conditions
disclosed in the Company's financial reports.
Advest will consent to a description and inclusion of this opinion in
documents issued with regard to this transaction and to references to Advest in
such documents, provided that any such description and references are reasonably
acceptable to Advest. Except as otherwise provided above, this opinion is solely
for the use and benefit of the Company and shall not be disclosed publicly or
made available to third parties without the prior approval of Advest, which
approval shall not be unreasonably withheld.
S-II-2
<PAGE> 3
[ADVEST, INC. LOGO]
Board of Directors -3- October 14, 1999
In reliance upon and subject to the foregoing, it is our opinion that, as
of the date hereof, the cash consideration of $6.50 per share to be received by
the Company's shareholders in the Transaction is fair, from a financial point of
view, to the Company and its shareholders.
Very truly yours,
ADVEST, INC.
/s/ Rex H. Green
By: Rex H. Green
Managing Director
S-II-3
