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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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GUARDSMAN PRODUCTS, INC.
(Name of Subject Company)
GUARDSMAN PRODUCTS, INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $1.00 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
401489 10 9
(CUSIP Number of Class of Securities)
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CHARLES E. BENNETT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
GUARDSMAN PRODUCTS, INC.
3033 ORCHARD VISTA DRIVE, S.E., SUITE 200
P.O. BOX 1521
GRAND RAPIDS, MICHIGAN 49501-1521
(616) 957-2600
(Name, Address and Telephone Number of Person Authorized To Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
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With a Copy to:
TRACY T. LARSEN, ESQ.
WARNER NORCROSS & JUDD LLP
900 OLD KENT BUILDING
111 LYON STREET, N.W.
GRAND RAPIDS, MICHIGAN 49503-2489
(616) 752-2000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Guardsman Products, Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 3033 Orchard Vista Drive, S.E., Suite 200, P.O. Box 1521, Grand
Rapids, Michigan 49501-1521. The title of the class of equity securities to
which this statement relates is the Common Stock, par value $1.00 per share, of
the Company (the "Shares") and the associated Preferred Stock Purchase Rights
(the "Rights") issued pursuant to the Rights Agreement, dated as of August 8,
1986, as amended, between the Company and Chemical Bank (formerly Manufacturers
Hanover Trust Company), as Rights Agent (the "Rights Agreement").
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to a cash tender offer by LP Acquisition
Corporation, a Delaware corporation (the "Purchaser") and wholly-owned
subsidiary of Lilly Industries, Inc., an Indiana corporation ("Parent"), to
purchase all outstanding Shares and the associated Rights at a purchase price of
$23.00 per Share (or any higher price per Share paid in the Offer) (the "Offer
Price") net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated March 8, 1996 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which, together with the
Offer to Purchase and any amendments or supplements thereto, collectively
constitute the "Offer"). The principal executive offices of both Parent and the
Purchaser are located at 733 South West Street, Indianapolis, Indiana 46205. The
Offer is described in, and all statements made in this paragraph are based on, a
Tender Offer Statement filed pursuant to Section 14(d)(1) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), on Schedule 14D-1, dated
March 8, 1996.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above, and here incorporated by reference.
(b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of the Company's directors, executive
officers and affiliates are described in the Information Statement of the
Company attached hereto as Annex I (the "Information Statement"). The
Information Statement is being furnished to the Company's stockholders pursuant
to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in
connection with the designation by Parent (after consummation of the Offer) of
persons to the Board of Directors of the Company other than at a meeting of the
stockholders of the Company. Annex I is here incorporated by reference.
Except as described in the Information Statement and as described under
"The Merger Agreement" and "Other Arrangements" below, to the knowledge of the
Company, there exists on the date hereof no material contract, agreement,
arrangement or understanding and no actual or potential conflict of interest
between the Company or its affiliates and (i) the Company or its executive
officers, directors or affiliates or (ii) Parent, the Purchaser or the executive
officers, directors or affiliates of Parent or the Purchaser.
The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of March 4, 1996 (the "Merger Agreement") among Parent, the Purchaser and the
Company. A copy of the Merger Agreement is filed as Exhibit 1 hereto and is here
incorporated by reference. The Merger Agreement provides, among other things,
for the commencement of the Offer by the Purchaser and further provides that,
subject to the satisfaction or waiver of certain conditions, the Purchaser will
be merged with and into the Company (the "Merger"), with the Company surviving
the Merger as a direct, wholly-owned subsidiary of Parent (the "Surviving
Corporation"). In the Merger, each outstanding Share (other than Shares owned by
the Company or any subsidiary of the Company, Parent, the Purchaser, or any
subsidiary of Parent or the Purchaser, and Shares owned by stockholders who have
properly exercised their appraisal rights under Delaware law) will be converted
as of the date and time that the Merger becomes effective (the "Effective Time")
into the right to receive the Offer Price in cash, without interest and less any
required withholding taxes and stock-transfer taxes (the "Merger
Consideration"). A copy of the press release dated March 4, 1996 issued by the
Company
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and Parent announcing the Offer and the execution of the Merger Agreement is
filed as Exhibit 2 hereto and is here incorporated by reference.
The following is a summary of the material provisions of the Merger
Agreement as well as certain other agreements described under "Other
Arrangements" below. Copies of the Merger Agreement and such other agreements
are filed as Exhibits hereto and are here incorporated by reference. The
following summary does not purport to be complete and is qualified in its
entirety by reference to such Exhibits.
THE MERGER AGREEMENT
The Offer. The Merger Agreement provides that Parent will take all
necessary actions (including providing adequate financing) to cause the
Purchaser to commence the Offer as soon as practicable, but in no event later
than five business days from the date of the Merger Agreement. The obligation of
the Purchaser to accept for payment (and thereby purchase) any Shares tendered
pursuant to the Offer is subject to the conditions set forth in Annex I to the
Merger Agreement (the "Offer Conditions"). See the Section entitled "Conditions
to the Offer" below. The Purchaser may waive, in its sole discretion, any Offer
Condition other than the Minimum Condition (as defined below). Without the prior
written consent of the Company, the Purchaser will not decrease the Offer Price,
decrease the number of Shares being sought in the Offer, change the form of
consideration payable in the Offer, amend or waive satisfaction of the Minimum
Condition, add additional conditions to the Offer or amend any other term of the
Offer in any manner adverse to the holders of Shares. The Purchaser has reserved
the right to increase the price per Share payable in the Offer. Parent and the
Purchaser have also agreed that the Purchaser will not terminate or withdraw the
Offer or extend its expiration date unless at the expiration date of the Offer
the Offer Conditions have not been satisfied or earlier waived, except that the
Purchaser will be allowed to extend the Offer for up to a total of 10 days.
Upon payment by the Purchaser for Shares purchased pursuant to the Offer
constituting at least a majority of the outstanding Shares, the Company, at
Parent's request, will take all necessary actions to cause its Board of
Directors to include a number of Parent's designees such that the designees
constitute a percentage of the Board as nearly equal as practicable to the
percentage of outstanding Shares beneficially owned by Parent (which will be at
least a majority of the Board). The necessary actions of the Company may include
accepting resignations of certain incumbent directors or increasing the size of
the Board. The Company has agreed to use its best efforts not to increase the
size of the Board above twelve members, and the Parent has agreed that the
Company may retain, and the Parent will cause to be retained, at least three
incumbent directors until the Effective Time. If any of the incumbent directors
become unavailable or unwilling to serve for any reason, Parent will cause such
vacancy or vacancies to be promptly filled by other incumbent directors willing
to serve in such capacity, or their designees. Upon written request by the
Purchaser, the Company will use its reasonable best efforts to cause the
designees of the Purchaser to constitute a percentage as nearly equal as
practicable to the percentage of representation on the Board of Directors after
giving effect to the foregoing on (i) each committee of the Board of Directors,
(ii) the board of directors of each subsidiary of the Company, and (iii) each
committee of such subsidiaries' boards of directors.
After the time that the Purchaser's designees constitute at least a
majority of the Board and until the Effective Time, any amendment or termination
of the Merger Agreement by the Company or its Board of Directors, any extension
by the Company or its Board of the time of performance of any obligations or
other acts of the Purchaser or Parent or waiver of the Company's rights under
the Merger Agreement, or any consent, approval or recommendation of the Company
or its Board required under the Merger Agreement, will (if there are any then
serving directors not affiliated with or designated by Parent) require the
approval of a majority of the directors of the Company then in office who are
not affiliated with Parent and were not designated by Parent.
The Merger. The Merger Agreement provides that at the Effective Time,
subject to the terms and conditions thereof, the Purchaser will be merged with
and into the Company, which will be the Surviving Corporation. The name of the
Surviving Corporation will be "Guardsman Products, Inc." At the election of
Parent or the Purchaser, any direct or indirect wholly-owned subsidiary of
Parent may be substituted for the
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Purchaser as a constituent corporation in the Merger. Pursuant to the Merger,
the Certificate of Incorporation and By-laws of the Purchaser will be the
Certificate of Incorporation and By-laws of the Surviving Corporation until
thereafter amended as provided by law. The directors of the Purchaser at the
Effective Time will become the directors of the Surviving Corporation until
their respective successors are duly elected and qualified. The officers of the
Company at the Effective Time will continue as the officers of the Surviving
Corporation until their respective successors are duly elected and qualified.
The Merger will have the effects set forth in the General Corporation Law of the
State of Delaware (the "DGCL").
Conversion of Shares. The Merger Agreement provides that at the Effective
Time, each outstanding Share will be converted into the right to receive the
Merger Consideration (or any higher price per Share paid in the Offer), other
than (i) Shares held by the Parent, the Purchaser or any wholly-owned subsidiary
of Parent or the Purchaser, or in the treasury of the Company, or by 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, will be canceled and
retired and will cease to exist with no payment being made with respect thereto,
and (ii) Shares held by stockholders who validly exercise their statutory
appraisal rights as described below. At the Effective Time, each issued and
outstanding share of capital stock of the Purchaser will be converted into one
validly issued, fully-paid and nonassessable share of Common Stock, par value
$1.00 per share, of the Surviving Corporation.
The Merger Agreement further provides that any Shares outstanding
immediately before the Effective Time and held by a stockholder who has not
voted in favor of or consented to the Merger in writing and who complies with
all the provisions of the DGCL concerning the right of holders of shares of
capital stock to dissent from the Merger and require appraisal of their shares
(a "Dissenting Stockholder") will not be converted into the right to receive the
Merger Consideration as described above but instead will be converted, at the
Effective Time, by virtue of the Merger and without any further action, into the
right to receive any consideration that may be determined to be due to the
Dissenting Stockholder pursuant to the DGCL; provided, that Shares outstanding
immediately before the Effective Time and held by a Dissenting Stockholder who,
after the Effective Time, fails to perfect or withdraws or loses the Dissenting
Stockholder's right to appraisal, in either case pursuant to the DGCL, will be
deemed to be converted as of the Effective Time into the right to receive the
Merger Consideration, without interest or dividends thereon. The Company may
not, without the prior written consent of the Purchaser, voluntarily make any
payment with respect to, or settle or offer to settle, any demands for appraisal
of Shares by Dissenting Stockholders.
Stockholder's Meeting. The Company has agreed to convene a meeting of the
holders of the Shares as promptly as practicable after the Purchaser's purchase
of and payment for Shares pursuant to the Offer, to consider and vote upon the
adoption of the Merger Agreement, if such a meeting is required by applicable
law. The Company has agreed that in the proxy statement with respect to the
meeting, the Company will, through its Board, and subject to the fiduciary
obligations of the Board under applicable law, recommend that stockholders of
the Company vote in favor of approval of the Merger and adoption of the Merger
Agreement. Parent has agreed that at any stockholders' meeting, it will vote or
cause all of the Shares then owned by it, the Purchaser or any of its other
subsidiaries to be voted in favor of approval and adoption of the Merger
Agreement. The Information Statement attached as Annex I hereto is being
furnished to the Company's stockholders in connection with the designation by
Parent (after the consummation of the Offer) of persons to the Board of
Directors of the Company other than at a meeting of the stockholders of the
Company.
Conditions to the Merger. The obligations of each party to effect the
Merger are subject to the satisfaction or, if permissible, waiver on or before
the Effective Time of each of the following conditions: (i) the Purchaser must
have accepted for payment and paid for Shares pursuant to the Offer in
accordance with the terms of the Offer, except that this condition will be
deemed to have been satisfied with respect to the obligation of Parent and the
Purchaser to effect the Merger if the Purchaser fails to accept for payment or
pay for Shares pursuant to the Offer in violation of the terms of the Offer;
(ii) the vote of the stockholders of the Company necessary to consummate the
transactions contemplated by the Merger Agreement must have been obtained, if
required by applicable law; (iii) there must not have been any statute, rule or
regulation promulgated, enacted, entered or enforced, or any other legally
binding, final and nonappealable action taken, by any domestic, foreign or
supranational government or governmental, administrative or regulatory authority
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or agency of competent jurisdiction or by any court or tribunal of competent
jurisdiction, domestic, foreign or supranational, that in any of the foregoing
cases has the effect of making illegal or directly or indirectly restraining,
prohibiting or restricting the consummation of the Merger; and (iv) any waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), must have terminated or expired.
Conditions to the Offer. The obligation of the Purchaser to accept and pay
for Shares pursuant to the terms of the Offer, and thereby satisfy the condition
described in clause (i) of "Conditions to the Merger" above, is subject to the
satisfaction of the following conditions: (i) there must have been validly
tendered and not withdrawn prior to the expiration of the Offer a number of
Shares that represents at least a majority of the number of Shares outstanding
on a fully diluted basis (assuming the exercise of all outstanding Options (as
defined below)) (the "Minimum Condition"), which condition may not be waived
without the Company's consent; (ii) any applicable waiting period under the HSR
Act must have expired or been terminated prior to the expiration of the Offer;
and (iii) at any time after the date of the Merger Agreement and before the time
of payment for any such Shares (whether or not any Shares have been accepted for
payment), none of the following conditions exists:
(a) there is in effect as of April 4, 1996 (the "Expiration Date") an
injunction or other order, decree, judgment or ruling by a court of
competent jurisdiction or by a governmental, regulatory or administrative
agency or commission of competent jurisdiction or a statute, rule,
regulation, executive order or other action has been promulgated, enacted,
taken or threatened by a governmental authority or a governmental,
regulatory or administrative agency or commission of competent jurisdiction
which in any such case (1) restrains or prohibits the making or
consummation of the Offer or the consummation of the Merger, (2) results in
a significant delay in or significantly restricts the ability of the
Purchaser, or renders the Purchaser unable, to accept for payment, pay for
or purchase Shares sufficient to satisfy the Minimum Condition in the Offer
or the remaining Shares outstanding in the Merger (other than as a result
of the exercise of dissenters' rights and other than for delays or
restrictions that are not material to Parent and the Purchaser), (3)
prohibits or restricts the ownership or operation by Parent or the
Purchaser (or any of their respective affiliates or subsidiaries) of any
portion of its or the Company's business or assets that is material to the
business of the Company and its subsidiaries or of Parent and its
subsidiaries or compels Parent or the Purchaser (or any of their respective
affiliates or subsidiaries) to dispose of or hold separate any portion of
its or the Company's business or assets that is material to the business of
the Company and its subsidiaries or of Parent and its subsidiaries, (4)
imposes material limitations on the ability of the Purchaser effectively to
acquire or hold or to exercise full rights of ownership of the Shares,
including, without limitation, the right to vote the Shares purchased by
the Purchaser on all matters properly presented to the stockholders of the
Company, (5) imposes any material limitations on the ability of Parent or
the Purchaser (or any of their respective affiliates or subsidiaries)
effectively to control in any material respect the business and operations
of the Company and its subsidiaries, or (6) that otherwise would materially
adversely affect the Company and its subsidiaries taken as a whole, except
that Parent and the Purchaser must have complied with their obligations to
have used their reasonable best efforts to consummate the transactions
contemplated by the Merger Agreement, including the Offer and the Merger;
or
(b) the Merger Agreement has been terminated by the Company, Parent or
the Purchaser in accordance with its terms; or
(c) the representations or warranties of the Company contained in the
Merger Agreement are not true and correct when made or on the Expiration
Date as if made as of such date, except for (1) failures to be true and
correct as could not, individually or in the aggregate, reasonably be
expected to result in a material adverse effect on the business,
operations, assets, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries taken as a
whole (a "Company Material Adverse Affect") and (2) failures to comply as
are capable of being and are cured (other than by mere disclosure of the
breach) within 10 days after written notice from the Purchaser to the
Company of such failure (in which case the Expiration Date will be extended
to the end of such cure period or, if earlier, the date of cure); or
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(d) The Company has failed to comply with its obligations under the
Merger Agreement, except for (1) failures to so comply as could not,
individually or in the aggregate, reasonably be expected to result in a
Company Material Adverse Effect and (2) failures to comply as are capable
of being and are cured within 10 days after written notice from the
Purchaser to the Company of such failure (in which case the Expiration Date
shall be extended to the end of such cure period of, if earlier, the date
of cure); or
(e) There occurs on or after the date of the Merger Agreement and is
continuing any development or developments with respect to the Company or
its subsidiaries which individually or in the aggregate have had or
constitute a Company Material Adverse Effect, other than developments
affecting generally the industries and businesses in which the Company and
its subsidiaries operate; or
(f) there has occurred and is continuing (1) any general suspension
of, or limitation on prices for, trading in securities on any national
securities exchange or the over-the-counter market, (2) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (3) the commencement of a war,
armed hostilities or other international or national calamity directly
involving the United States, (4) from the date of the Merger Agreement
through the date of termination or expiration of the Offer, a decline of at
least 25% in the Standard & Poor's 500 Stock Index, (5) any limitation by
any U.S. governmental authority or agency that materially affects generally
the extension of credit by banks or other financial institutions, or (6) in
the case of any of the foregoing existing at the time of the execution of
the Merger Agreement, a material acceleration or worsening thereof; or
(g) Parent, the Purchaser and the Company have agreed that the
Purchaser will amend the Offer to terminate the Offer or postpone the
payment for Shares pursuant to the Offer.
The foregoing conditions, other than the Minimum Condition, are for the
sole benefit of Parent and the Purchaser and may be asserted by Parent or the
Purchaser regardless of the circumstances (including any action or inaction by
Parent or the Purchaser) giving rise to any such conditions and, except as
provided in the Merger Agreement, may be waived by Parent or the Purchaser in
whole or in part at any time and from time to time in their sole discretion, in
each case subject to the terms of the Merger Agreement. The failure by Parent or
the Purchaser at any time to exercise any of the foregoing rights will not be
deemed a waiver of any such right and each such right will be deemed an ongoing
right which may be asserted at any time and from time to time.
Interim Operations of the Company. In the Merger Agreement, the Company has
agreed that, except as expressly provided in the Merger Agreement or consented
to in writing by Parent, from the date of the Merger Agreement to the Effective
Time, (i) the business of the Company and its subsidiaries will be conducted
only in the ordinary and usual course of business, and (ii) the Company will
not, nor will it permit any of its subsidiaries to:
(a) amend or propose to amend its certificate or articles of
incorporation or by-laws (or similar constituent documents);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights), except for Shares issued upon exercise of Options (as
defined below) outstanding as of the date of the Merger Agreement (in
accordance with their respective terms) or pursuant to the existing terms
of the Rights Agreement, or amend any of the terms of any such securities
or agreements outstanding as of the date of the Merger Agreement, except as
specifically contemplated by the Merger Agreement;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock, or redeem or otherwise acquire any of its securities or any
securities of its subsidiaries, except that the Company will be allowed to
pay its normal quarterly cash dividend for the first quarter of
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1996 in the amount of $.09 per Share payable on or about March 21, 1996 to
stockholders of record on March 7, 1996;
(d) (1) incur, assume or prepay any long-term or short-term debt or
issue any debt securities except for borrowings under existing lines of
credit or prepayments in the ordinary course of business; (2) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for any material obligations of any
other person except for obligations of wholly-owned subsidiaries of the
Company; (3) make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly-owned subsidiaries
of the Company or customary loans or advances to employees in the ordinary
course of business consistent with past practice and in amounts not
material to the maker of such loan or advance); (4) pledge or otherwise
encumber shares of capital stock of the Company or any of its subsidiaries;
or (5) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material lien thereupon,
excluding Permitted Liens (as defined in the Merger Agreement);
(e) except as may be required by law or as contemplated by the Merger
Agreement, enter into, adopt or amend or terminate any bonus, profit
sharing, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust (except
for the trusts to be established pursuant to the Company's directors'
retirement plan), plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee in any manner, or (except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company, and as required under
existing agreements) increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not
required by any plan and arrangement as in effect as of the date of the
Merger Agreement (including, without limitation, the granting of stock
options, stock appreciation rights or performance units);
(f) acquire, sell, lease or dispose of any assets outside the ordinary
course of business or any assets which in the aggregate are material to the
Company and its subsidiaries taken as a whole, or enter into any
commitments, contracts, agreements or transactions outside the ordinary
course of business consistent with past practice or which would,
individually or in the aggregate, be material to the Company and its
subsidiaries taken as a whole, or modify, amend, terminate or waive any
material rights under any material contract or agreement;
(g) except as may be required as a result of a change in law or in
generally accepted accounting principles (after consultation with Parent as
to the effect of any such change), change any of the accounting principles
or practices used by it;
(h) (1) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (2) enter into any
contract or agreement other than in the ordinary course of business
consistent with past practice which would be material to the Company and
its subsidiaries taken as a whole; or (3) enter into or amend any contract,
agreement, commitment or arrangement providing for the taking of any action
that would be prohibited hereunder;
(i) revalue in any material respect any of its assets, including,
without limitation, writing down the value of inventory or writing-off
notes or accounts receivable other than in the ordinary course of business;
(j) make any tax election or settle or compromise any federal, state
or local tax liability or assent to the extension of time for collection or
assessment of any federal, state or local tax (provided the Company and its
subsidiaries may extend the time for filing 1995 tax returns in accordance
with past practice);
(k) pay, discharge or satisfy any 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 consolidated
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financial statements (or the notes thereto) of the Company and its
subsidiaries or incurred in the ordinary course of business consistent with
past practice;
(l) settle or compromise any pending or threatened suit, action or
claim relating to the transactions contemplated hereby or material to the
Company and its subsidiaries taken as a whole, except for the contemplated
settlements with insurance carriers concerning environmental liabilities as
disclosed to Parent (and the Company agrees in the Merger Agreement to
consult with Parent prior to finalizing such settlements);
(m) authorize any new capital expenditure or expenditures which
individually is in excess of $100,000 or in the aggregate are in excess of
$1,000,000; or
(n) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action that would make any of the representations
or warranties of the Company contained in the Merger Agreement untrue or
incorrect in any material respect as of the date when made or would result
in any of the Offer Conditions not being satisfied.
Stock Option Plans. The Merger Agreement provides that, as of the Effective
Time, the Company will take, and Parent will cause the Company to take, such
actions to provide that by virtue of the Merger and without any action on the
part of the holders thereof, each option to purchase Shares (the "Option") that
is outstanding immediately before the Effective Time will be canceled and, in
consideration of such cancellation, each holder of an Option will receive in
cash an amount equal to the product of (i) the excess, if any, by which $23.00
exceeds the exercise price of the Option and (ii) the number of Shares subject
to the Option. Except as provided in the Merger Agreement or as otherwise agreed
by the Company, Parent and the Purchaser, the plans under which the Options were
granted (the "Option Plans") will terminate as of the Effective Time and the
provisions in any other plan, program or arrangement providing for the issuance
or grant by the Company or any of its subsidiaries of any interest in respect of
the capital stock of the Company or any of its subsidiaries will be deleted as
of the Effective Time. In addition, except as provided in the Merger Agreement
or as otherwise agreed by the Company, Parent and the Purchaser, following the
Effective Time no holder of Options or any participant in the Option Plans or
any other such plans, programs or arrangements will have any right thereunder to
acquire any equity securities of the Company, the Surviving Corporation or any
subsidiary thereof.
Amendment of Rights Agreement. The Company and the Rights Agent have
amended the Rights Agreement pursuant to Amendment No. 2 to Rights Agreement
dated as of March 4, 1996, a copy of which is filed as Exhibit 3 hereto and is
here incorporated by reference. The amendment provides that neither Parent nor
the Purchaser will become an "Acquiring Person," that no "Stock Acquisition
Date" or "Distribution Date" (as those terms are defined in the Rights
Agreement) will occur and that Section 11 and Section 13 of the Rights Agreement
will not be triggered, as a result of the announcement, commencement or
consummation of the Offer, the execution or delivery of the Merger Agreement or
any amendment thereto, the consummation of the Merger, or the consummation of
any other transactions contemplated by the Merger Agreement. Under the Merger
Agreement, the Company has agreed that, unless required to do so by court order
or to fulfill fiduciary obligations, the Company will not redeem the Rights or
amend or terminate the Rights Agreement before consummation of the Merger. The
Company has further agreed that, upon the Purchaser's or Parent's request, the
Company will redeem all outstanding Rights at a redemption price of $.05 per
Right effective immediately before the Purchaser accepts any Shares for purchase
pursuant to the Offer. However, because of the Amendment No. 2 to the Rights
Agreement discussed above, no redemption is contemplated. The Rights Agreement
is discussed more fully in Item 8 below.
No Solicitation. The Company has agreed to immediately cease, and to direct
its officers, directors, employees, representatives and agents to immediately
cease, any existing discussions and negotiations with any parties conducted up
to the date of the Merger Agreement with respect to any proposal relating to an
Acquisition Transaction (as defined below). The Company has also agreed that
before the Effective Time it
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will not, and it will not authorize or permit any of its subsidiaries or any of
its or its subsidiaries' directors, officers, employees, agents, or
representatives, directly or indirectly, to, solicit, initiate, facilitate or
encourage (including by way of furnishing or disclosing nonpublic information)
any inquiries or the making of any proposal with respect to any acquisition of
all or substantially all of the Company by means of a merger, consolidation or
other business combination involving the Company or its subsidiaries or
acquisition of all or substantially all of the assets or capital stock of the
Company and its subsidiaries taken as a whole (an "Acquisition Transaction"),
or, subject to the proviso below, negotiate, explore or otherwise engage in
substantive communications in any way with any person (other than Parent, the
Purchaser or their respective directors, officers, employees, agents and
representatives) with respect to any Acquisition Transaction, or enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Merger or any other transactions contemplated by the
Merger Agreement; provided, that, notwithstanding the foregoing, the Company
may, in response to an unsolicited written proposal with respect to an
Acquisition Transaction from a third party reasonably believed to have the
financial capability to consummate an Acquisition Transaction, furnish
information to, and negotiate, explore or otherwise engage in substantive
discussions with, such third party, in each case if the Company's Board of
Directors determines in good faith by a majority vote, after consultation with
its financial advisors and after receipt of the written advice of the outside
legal counsel of the Company, that such action is required by applicable law
(including fiduciary principles thereof). In addition, the Company has agreed to
immediately advise Parent in writing of the receipt of any inquiries or
proposals relating to an Acquisition Transaction and any actions taken pursuant
to an inquiry or proposal.
Standstill Arrangement. Under the Merger Agreement, Parent has agreed that,
for a period of three years from the date of the Merger Agreement, it will not,
directly or indirectly, except pursuant to the Merger Agreement: (i) acquire or
agree, offer, seek or propose to acquire, or cause to be acquired, ownership of
any of the Company's assets or businesses or any voting securities issued by the
Company or any other rights or options to acquire that ownership (including from
a third party); (ii) seek or propose to influence or control the Company's
management or policies; or (iii) enter into any discussions, negotiations,
arrangements or understandings with any third party with respect to any of the
foregoing.
Indemnification; Directors' and Officers' Insurance. The Merger Agreement
provides that from and after the purchase of Shares pursuant to the Offer,
Parent will indemnify, defend and hold harmless, and will cause the Surviving
Corporation (including, if necessary, providing the Surviving Corporation with
sufficient funds) to indemnify, defend and hold harmless, the present and former
directors (including the Company's Advisory Director), officers, employees and
agents of the Company and its subsidiaries against all losses, claims, damages,
expenses or liabilities arising out of actions or omissions or alleged actions
or omissions occurring at or before the Effective Time to the same extent and on
the same terms and conditions (including with respect to advancement of
expenses) provided for in the Company's Certificate of Incorporation and Bylaws
and agreements in effect at the date of the Merger Agreement (to the extent
consistent with applicable law).
Further, Parent has agreed that for six years after the Effective Time,
Parent will cause to be maintained in effect the current policies of directors'
and officers' liability insurance maintained by the Company (except that Parent
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions that are no less advantageous) with respect to
claims arising from facts or events that occurred before the Effective Time;
provided, however, that Parent will not be obligated to make annual premium
payments for such insurance to the extent the premiums exceed 175% of the annual
premiums paid as of the date of the Merger Agreement by the Company for such
insurance (the "Maximum Amount"). If the amount of the annual premiums necessary
to maintain or procure such insurance coverage exceeds the Maximum Amount,
Parent and the Surviving Corporation will maintain the most advantageous
policies of directors' and officers' insurance obtainable for an annual premium
equal to the Maximum Amount.
In the Letter Agreements described under "Other Arrangements" below, Parent
agrees to indemnify the signatory stockholders thereto and hold them harmless
from and against certain claims, liabilities and expenses, with certain
exceptions. In the Merger Agreement, the Company agrees to indemnify and hold
Parent harmless from and against any liability, cost or expense (including
reasonable attorneys' fees) incurred by it in providing the indemnification
required under the Letter Agreements, except that the Company's
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indemnity obligation will terminate upon the purchase of Shares by Parent
pursuant to the Offer. In the event that any claim is made which gives rise or
may give rise to the Company's foregoing indemnity obligation, Parent has agreed
to promptly notify the Company and the Company will be entitled to assume the
defense, settlement or other disposition of the claim.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and the Purchaser with
respect to, among other things, the Company's organization, capitalization,
authority to enter into the Merger Agreement and to consummate the transactions
contemplated thereby, potential conflicts, consents and approvals, public
filings and financial statements, absence of certain events, undisclosed
liabilities, litigation, compliance with laws, tax matters, terminations,
severance and employment agreements, employee benefit plans, environmental
matters, assets (including real property and intellectual property), labor
matters, broker's fees and information set forth in this Schedule 14D-9. None of
the representations or warranties in the Merger Agreement will survive the
Effective Time of the Merger.
Access; Confidentiality. The Company has agreed to give Parent and its
authorized representatives, including its legal counsel, financial advisors,
accountants, banks, financial institutions, auditors and others, during normal
business hours until the Effective Time, full access to all facilities,
personnel and operations and to all books and records of the Company and its
subsidiaries to inspect and evaluate the Company and its operations. In
addition, during that same period the Company has agreed to cause its officers
and the officers of its subsidiaries to give Parent any financial and operating
information regarding the Company and its subsidiaries that Parent may request.
Pursuant to a Confidentiality Agreement between the Company and Parent dated
December 13, 1995, Parent has agreed to hold in confidence all information
concerning the Company and its subsidiaries and not to use that information in
any way detrimental to the Company. A copy of the Confidentiality Agreement is
filed as Exhibit 4 hereto and is here incorporated by reference.
Amendment. Subject to applicable law, the Company, Parent and the Purchaser
may amend or supplement the Merger Agreement at any time before the Effective
Time by a written instrument signed by each of them. If the stockholders of the
Company have approved the Merger Agreement, the parties may not amend or
supplement the Merger Agreement to reduce the Merger Consideration, to change
the form of consideration, or to effect any other change that materially
adversely affects the rights of those stockholders, without the stockholders'
further approval. In addition, following the election or appointment of Parent's
designees to constitute a majority of the Company's directors, any amendment or
termination of the Merger Agreement by the Company or its Board, any extension
by the Company or its Board of the time of the performance of any obligation of
Parent or the Purchaser or waiver of any rights of the Company under the Merger
Agreement, or any consent, approval or recommendation of the Company or Board
required under the Merger Agreement, will require the approval of a majority of
the directors of the Company then in office who are not affiliated with and were
not designated by Parent.
Assignment. The Merger Agreement provides that no party may assign the
Merger Agreement or any of the party's rights, interests or obligations under
the Merger Agreement without the prior written consent of the other parties,
except that Parent may assign the rights and obligations of the Purchaser under
the Merger Agreement to any direct or indirect wholly-owned subsidiary of
Parent, but no such assignment will relieve any party of its obligations under
the Merger Agreement.
Termination. (i) The Merger Agreement may be terminated (and the Merger may
be abandoned notwithstanding approval thereof by the stockholders of the
Company, in which case the Offer will also be abandoned unless the Purchaser has
already purchased Shares pursuant to the Offer) at any time before the Effective
Time, (a) by mutual written consent of Parent and the Company, (b) by either
Parent or the Company if, without any material breach by the terminating party
of its obligations under the Merger Agreement, the purchase of Shares pursuant
to the Offer has not occurred on or before May 31, 1996 (or, if Parent or the
Company receives a request for additional information under the HSR Act, the
earlier of (1) July 31, 1996, or (2) the earliest date following the expiration
of the waiting period under the HSR Act, as extended by such request, on which
the Purchaser may purchase Shares pursuant to the terms of the Offer and the
applicable rules and regulations of the Securities and Exchange Commission),
which dates the parties
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to the Merger Agreement may extend by their mutual written consent and which
will be automatically extended in the circumstances described in subparagraphs
(c) and (d) under "Conditions to the Offer" above, (c) by Parent or the Company
if the Offer expires or is terminated or withdrawn pursuant to its terms without
any Shares being purchased thereunder, except that Parent may not terminate the
Merger Agreement if Parent's or the Purchaser's termination of, or failure to
accept for payment or pay for any Shares tendered pursuant to, the Offer does
not follow the occurrence, or failure to occur, of any Offering Condition or is
otherwise in violation of the terms of the Offer or the Merger Agreement, or (d)
by either Parent or the Company if any court of competent jurisdiction in the
United States or other governmental body in the United States has issued an
order (other than a temporary restraining order), decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the purchase of
Shares pursuant to the Offer or the Merger, and such order, decree, ruling or
other action has become final and nonappealable; provided, that the party
seeking to terminate the Merger Agreement generally must have used its
reasonable best efforts to remove or lift the order, decree or ruling.
(ii) In addition, the Merger Agreement may be terminated and the Offer and
the Merger may be abandoned by Parent at any time prior to the purchase of
Shares pursuant to the Offer, if (a) the representations or warranties of the
Company contained in the Merger Agreement are not true and correct at and as of
any date prior to the Expiration Date of the Offer as if made at and as of such
time, except for (1) failures to be true and correct as could not, individually
or in the aggregate, reasonably be expected to result in a Company Material
Adverse Effect and (2) failures to comply as are capable of being and are cured
(other than by mere disclosure of the breach) within 10 days after written
notice from the Purchaser to the Company of such failure; (b) the Company has
failed to comply with its obligations under the Merger Agreement, except for (1)
failures to so comply as could not, individually or in the aggregate, reasonably
be expected to result in a Company Material Adverse Effect and (2) failures to
comply as are capable of being and are cured within 10 days after written notice
from the Purchaser to the Company of such failure; (c) the Board of Directors of
the Company (1) withdraws its recommendation or approval in respect of the
Merger Agreement or Offer or (2) modifies or changes its recommendation or
approval in respect of the Merger Agreement, the Offer or the Merger in a manner
adverse to Parent; or (d) the Board recommends any proposal other than by Parent
or the Purchaser in respect of an Acquisition Transaction.
(iii) The Merger Agreement may be terminated and the Merger may be
abandoned by the Company (a) at any time prior to the purchase of Shares
pursuant to the Offer upon receipt of an Acquisition Transaction proposal that
contains no financing condition that the Board of Directors of the Company in
good faith determines in the exercise of its fiduciary duties (based as to legal
matters on the written opinion of legal counsel and after consultation with its
financial advisor) it is required to accept by applicable law including the
fiduciary principles thereof, or (b) at any time prior to the Effective Time if
(1) the representations and warranties of Parent or the Purchaser contained in
the Merger Agreement are not true and correct as if made at and as of such time,
except for (A) failures to be true and correct as could not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on
Parent's or the Purchaser's ability to perform their respective obligations
pursuant to the Merger Agreement or consummate the Offer and the Merger (a
"Parent Material Adverse Effect") and (B) failures to comply as are capable of
being and are cured (other than by mere disclosure of the breach) within 10 days
after written notice from the Company to Parent of such failure, or (2) Parent
or the Purchaser has failed to comply with their respective obligations under
the Merger Agreement, except for (A) failures to so comply as could not,
individually or in the aggregate, reasonably be expected to result in a Parent
Material Adverse Effect and (B) failures to comply as are capable of being and
are cured within 10 days after written notice from the Company to Parent of such
failure.
(iv) If the Merger Agreement is terminated as provided in subsections
(i)-(iii) above, the Merger will be deemed abandoned, the Merger Agreement will
become void (except for certain provisions concerning confidentiality, Parent's
standstill undertaking, the payment of expenses and the Company's indemnity
obligations with respect to the Letter Agreements, which will survive the
termination) and no party will have any liability to or claim against any other
party or its affiliates, directors, officers or stockholders, except for any
willful or bad faith breach of the Merger Agreement and except for the
following: If following receipt by the
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Company of an Acquisition Transaction proposal, the Merger Agreement is
terminated pursuant to clauses (ii)(c) or (ii)(d) above or by the Company
pursuant to clause (iii)(a) above, the Company has agreed to promptly pay to
Parent (but in any event within three business days after termination) the sum
of $3,000,000, provided that no fee shall be payable if Parent or the Purchaser
is in material breach of any of its material representations, warranties or
obligations under the Merger Agreement as of the date of termination. If such
fee is payable and within 365 days after such termination an Acquisition
Transaction is consummated, the Company will be required to promptly pay to
Parent (but in any event within three business days after the consummation of
the Acquisition Transaction) the additional sum of $5,000,000.
Timing. The exact timing and details for the Merger will depend upon legal
requirements and a variety of other factors, including the number of Shares
acquired by the Purchaser pursuant to the Offer. Although Parent and the
Purchaser have agreed to cause the Merger to be consummated on the terms
described above, there can be no assurance as to the timing of the Merger.
Appraisal Rights. Holders of Shares do not have dissenters' rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
may have certain rights pursuant to the provisions of Section 262 of the DGCL to
dissent and demand appraisal of, and to receive payment in cash of the fair
value of, their Shares. If the statutory procedures are complied with, such
rights could lead to a judicial determination of the fair value required to be
paid in cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than or in addition to the Offer Price or the market value of the Shares,
including asset values and the investment value of the Shares. The value so
determined could be more or less than the Offer Price or the Merger
Consideration.
If any stockholder who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses the right to appraisal, as
provided in the DGCL, the Shares of such stockholder will be converted into the
Merger Consideration in accordance with the Merger Agreement. A stockholder may
withdraw a demand for appraisal by delivery to Parent of a written withdrawal of
the demand for appraisal and acceptance of the Merger.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS.
OTHER ARRANGEMENTS
Arrangements with Certain Stockholders. As a condition to Parent's
willingness to make the Offer and to enter into the Merger Agreement, Irwin
Wayne Uran, James L. Sadler and John H. Sadler (the "Major Stockholders") have
entered into letter agreements with Parent regarding their Shares (the "Letter
Agreements"). Copies of the Letter Agreements are filed as Exhibit 5 hereto and
are here incorporated by reference. The Company has been informed that the Major
Stockholders collectively beneficially own approximately 48% of the outstanding
Shares on a fully diluted basis.
In each Letter Agreement, each Major Stockholder agrees as follows:
(i) to validly tender into the Offer, and not withdraw, all Shares
beneficially owned by him;
(ii) if requested by Parent, to vote all of his Shares in favor of the
transactions contemplated by the Merger Agreement, and against any action
or arrangement that would interfere with the successful completion of those
transactions;
(iii) to not sell, transfer or grant voting rights with respect to, or
agree to sell, transfer or grant voting rights with respect to, any of his
Shares other than as part of the transactions contemplated by the Merger
Agreement, and likewise to not purchase any additional Shares while those
transactions are pending; and
(iv) to not solicit or encourage the making of any other proposal
intended to lead to the acquisition of his Shares or any other
extraordinary transaction involving the Company.
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In the Letter Agreements, Parent agrees to indemnify the Major Stockholders
and hold them harmless from and against any and all claims by third parties or
Parent (and its affiliates), judgments, fines, penalties, liabilities, fees and
expenses (including, without limitation, reasonable attorneys' fees) that may be
asserted against or incurred by the Major Stockholders in connection with their
entering into the Letter Agreements or their compliance with the terms thereof,
except that such indemnity would not protect the Major Stockholders against (i)
any violations of law (other than violations alleged to have occurred as a
result of their compliance with the terms and conditions of the Letter
Agreements) or (ii) any breach by them of their commitments in the Letter
Agreements. In the Merger Agreement, the Company agrees to indemnify and hold
Parent harmless from and against any liability, cost, or expense (including
reasonable attorneys' fees) incurred by it in providing the indemnification
required under the Letter Agreements, except that the Company's indemnity
obligation will terminate upon the purchase of Shares by Parent pursuant to the
Offer. In the event that any claim is made which gives rise or may give rise to
the Company's foregoing indemnity obligation, Parent has agreed to promptly
notify the Company and the Company will be entitled to assume the defense,
settlement or other disposition of the claim.
Each Letter Agreement provides that it will remain in effect until the
transactions contemplated by the Merger Agreement, including the Offer and the
Merger, are successfully completed or the Merger Agreement is terminated (either
by Parent or the Company) in accordance with its terms.
In addition, each Major Stockholder has granted to Parent a proxy to vote
his Shares in favor of approving the Merger and against any action, agreement or
arrangement that would result in a breach of the Merger Agreement or delay or
interfere with the Offer or the Merger. Copies of the proxies signed by each
Major Stockholder are filed as Exhibit 6 hereto and are here incorporated by
reference. The proxy is irrevocable and terminates upon the first to occur of
(i) consummation of the Merger, (ii) termination of the Merger Agreement in
accordance with its terms, and (iii) termination of the Letter Agreement by
Parent.
Each of James L. Sadler and John H. Sadler have delivered an acknowledgment
to Purchaser to the effect that certain provisions of the Agreement and Plan of
Merger relating to the merger of Moline Paint Manufacturing Co. into a
subsidiary of the Company providing for the payment of certain contingent
amounts to him will terminate upon the purchase of his Shares pursuant to the
Offer or Merger.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors. The Board of Directors of the
Company, subject to its fiduciary duties, recommends that all holders of Shares
accept the Offer and tender their Shares pursuant to the Offer.
The Board of Directors of the Company has unanimously approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, and determined that the consideration to be paid for each Share in the
Offer and the Merger is fair to the stockholders of the Company and that the
Offer and the Merger are otherwise in the best interests of the Company and its
stockholders. A copy of a letter to the stockholders of the Company from Paul K.
Gaston, on behalf of the Board, communicating the Board of Directors'
recommendation is filed as Exhibit 7 hereto and is here incorporated by
reference.
(b) Background; Reasons For the Board's Recommendation.
Background. In late May, 1995, Mr. Paul K. Gaston, Chairman of the Board of
the Company, met with Mr. Irwin Uran, the Company's largest stockholder owning
approximately 35.5% of the outstanding Shares. In that meeting, Messrs. Gaston
and Uran discussed in general terms a variety of possible strategies to maximize
stockholder value, including short-term strategies such as a sale of the Company
and long-term growth strategies.
On May 31, 1995, the Company's Board of Directors met and Mr. Gaston
informed the Board of his discussions with Mr. Uran. At the conclusion of that
meeting, the Board authorized Mr. Gaston and Mr. Charles E. Bennett, the
Company's President and Chief Executive Officer, to preliminarily investigate,
on a confidential basis, whether a premium value could be obtained for the
Company's stockholders in a sale transaction.
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After the May 31 Board meeting, Mr. Bennett prepared a list of prospective
domestic and international strategic buyers, and evaluated each in terms of
financial capability, strategic fit and certain other factors. During the course
of the ensuing three months, Mr. Gaston and Mr. Bennett held confidential
discussions, either directly or indirectly, with representatives of possible
strategic purchasers and invited them to submit purchase proposals with respect
to the Company. Mr. Gaston informed such parties that only an offer for all
Shares at a substantial premium price would be considered by the Company's Board
of Directors.
One strategic purchaser expressed a serious interest in investigating the
possible acquisition of the Company and, following execution of a
confidentiality agreement, conducted due diligence with respect to the Company's
assets and business operations. That party also emphatically stated that any
offer that may be made for the Company would be conditioned upon the execution
by the Major Stockholders of separate agreements to support the transaction.
In the following days through September 20, 1995, the respective parties
engaged in numerous discussions concerning the terms and conditions of a
possible acquisition proposal. The Company's Board of Directors met September
20, 1995 to consider an acquisition proposal should one be forthcoming, but was
advised on that date that the prospective bidder was not willing at that time to
make an offer for the Company at a price thought to be acceptable to the
Company's Board of Directors and Major Stockholders.
Upon receipt of this information, the Company's Board of Directors
determined that no further efforts to investigate a possible sale of the Company
would be pursued at that time, pending further consideration by the Board of
Directors at a later meeting.
On November 8, 1995, the Board of Directors, at its regularly scheduled
meeting, again discussed strategic options available to the Company, which again
included a possible sale at a premium price. At the conclusion of that meeting,
the Board of Directors approved the creation of the Strategic Opportunities and
Stockholder Enhancement Committee comprised of George R. Kempton, Chairman, Paul
K. Gaston, James L. Sadler and Robert D. Tuttle, and issued a press release on
November 14, 1995, announcing (among other things) the formation of such
committee. That press release provided, in relevant part: "The [Strategic
Opportunities and Stockholder Enhancement] Committee will actively analyze
potential, synergistic acquisitions; divestitures as might be appropriate;
strategic alliances, both domestic and international, and mergers, reporting its
findings back to the Board as a whole....The Company has already informally
explored certain opportunities...[and] the Board deemed it appropriate to form
this Committee to heighten our focus on these activities." The Board of
Directors also authorized the Company's Chairman and President and Chief
Executive Officer to engage a nationally recognized investment banking firm to
assist the Company in its exploration of a possible sale transaction.
In early December 1995, the Company provided confidential information to
several additional potentially interested strategic purchasers.
On December 12, 1995, Mr. Gaston met with representatives of Goldman, Sachs
& Co. ("Goldman") and informed them of the Company's previous efforts to
maximize stockholder value through a sale.
On January 2, 1996, Mr. Gaston and representatives from Goldman met with
Mr. Uran at Mr. Gaston's request to discuss the preliminary conclusions of
Goldman as to whether, in their judgment, it was feasible to obtain a premium
value for the Company through a sale at that time. In that meeting, Mr. Uran
stated that he would not support any offer of less than $23 per Share. Following
that meeting, Goldman engaged in discussions with three potential synergistic
purchasers, including Parent, who had been previously approached by, or who had
previously approached, the Company (including the strategic purchaser with whom
the Company had negotiated in September, 1995) and who they believed would be
most likely to offer a premium price for the Company.
On January 25, 1995, Parent provided to the Company a preliminary,
non-binding expression of interest to investigate a possible acquisition of the
Company's Shares in a price range of $22-$23.50 per Share, subject to further
due diligence and financing.
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On February 1, 1996, Goldman sent a final bid instruction letter, together
with a draft merger agreement, to the three prospective buyers.
From January 25, 1996 through February 23, 1996, Parent conducted an
extensive due diligence investigation of the Company, including physical plant
visits.
On February 13, 1996, the Company, as a result of market activity in the
Shares, issued a press release stating, in pertinent part: "Paul K. Gaston,
Chairman of the Board of Guardsman, stated that the Guardsman Board of Directors
has authorized management to engage in discussions with selected companies which
have expressed an interest in acquiring Guardsman. However, Mr. Gaston cautioned
that no offer has been made for the Company, no definitive agreement with
respect to any offer has been reached, and there can be no assurance that such
an offer will be made or definitive agreement entered into, or if it were, that
the transaction would be consummated."
On February 23, 1996, the Company received a non-binding proposal from
Parent to acquire the outstanding Shares at a price of $23 per Share, together
with proposed changes to the merger agreement previously distributed by the
Company and a preliminary commitment letter from NBD Bank, N.A. to provide
financing for the transaction, which commitment letter was subject to various
conditions. Parent's proposal was conditioned upon the Major Stockholders
executing agreements to support a transaction with Parent, substantially in
accordance with the Letter Agreements described in this Schedule 14D-9. The two
other parties that had received the bid instruction letter did not make an
offer.
From February 23, 1996 through March 4, 1996, Parent continued its due
diligence review of the Company and engaged, either directly or through
professional advisors, in extensive discussions and negotiations concerning the
terms of the definitive merger agreement. The specific terms negotiated during
that period included the scope of representations and warranties to be made by
the Company in the Merger Agreement, the conditions to Parent's obligations to
consummate the acquisition of Shares, the size of the termination fee and
instances in which such fee would be payable in the event that the transaction
was not consummated, as well as various other matters. Negotiations on the
Merger Agreement continued through late afternoon on March 3, 1996. Upon
conclusion of those negotiations, the Strategic Opportunities and Stockholder
Enhancement Committee of the Board of Directors met and reviewed the final terms
of the Merger Agreement.
At 9 a.m. on March 4, the Company's Board of Directors met to consider
Parent's proposal to acquire the Company pursuant to the terms outlined in this
Schedule 14D-9. Subject to approval of such proposal by Parent's Board of
Directors, the Company's Board of Directors unanimously accepted Parent's offer
for the reasons described below, and it approved the Merger Agreement and the
transactions contemplated thereby and unanimously recommended that stockholders
accept the Offer and tender their Shares pursuant thereto. Certain other actions
described in this Schedule 14D-9 were also taken at the meeting. At
approximately 2:30 p.m. on March 4, 1996, Paul K. Gaston received a telephone
call from Mr. Douglas W. Huemme, Chairman, President and Chief Executive Officer
of Parent, indicating that Parent's board of directors had approved Parent's
offer as set forth in the Merger Agreement. Thereafter, the Merger Agreement was
immediately executed on behalf of both parties and a press release announcing
the execution of such agreement was issued. A copy of that press release is
attached hereto as Exhibit 2.
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Reasons for the Board's Recommendation; Factors Considered by the Board. In
making its decision and concluding to recommend that holders of Shares tender
their Shares pursuant to the Offer as described in Item 4(a) above, the
directors of the Company considered a number of factors, including, among
others, the following material considerations:
(i) the directors' familiarity with and review of the business,
financial condition, results of operations and prospects of the Company and
the Company's competitive position in its business, as well as general
economic and stock market conditions;
(ii) the advantages of a strategic combination with Parent in
enhancing the Company's growth prospects and competitive position;
(iii) the possible alternatives to the Offer and the Merger,
including, among others, continuing to operate the Company as an
independent entity and the risks associated therewith;
(iv) the historical and recent market prices and trading volumes for
the Shares, and the premium represented by the $23.00 payable in the Offer
over such recent market prices;
(v) the directors' belief that the Offer and the Merger represented
the best transaction available following efforts by the Board of Directors
of the Company to solicit interest in the Company;
(vi) the anticipated costs associated with restructuring the Company
or pursuing other strategic alternatives;
(vii) the directors' belief that $23.00 payable in the Offer
represented the highest price per Share that could be negotiated with the
Purchaser, and the assessment of management and the directors of the
Company, after consultation with the Company's financial advisor, that it
was unlikely a third party bidder would be prepared to pay a significantly
higher price for all of the Shares;
(viii) the presentations by Goldman, including the opinion of Goldman,
a copy of which is filed as attached Exhibit 8 hereto, to the effect that,
as of March 4, 1996, the $23.00 per Share in cash to be received by holders
of Shares in the Offer and the Merger is fair to those holders;
(ix) the timing of the sale of the Company, and premiums currently
being obtained in comparable transactions;
(x) the proposed structure of the transaction involving an immediate
cash tender offer for all outstanding Shares to be followed by a merger,
thereby enabling the stockholders to obtain cash for their Shares with
relatively little delay, and the tax effects of such transaction on the
Company's stockholders;
(xi) the terms and conditions of the Merger Agreement, including,
among others, the right of the Company's Board of Directors (a) in
connection with the discharge of the Board's fiduciary duties to the
Company and its stockholders, to withdraw, modify or amend its
recommendation to stockholders to accept the Offer and/or to pursue an
Acquisition Transaction proposal from another party, and (b) in certain
circumstances to terminate the Merger Agreement (in which case, under
certain conditions, the Company would be obligated to pay Parent a fee of
$3,000,000 and, if an Acquisition Transaction were consummated within 365
days after such termination, an additional fee of $5,000,000);
(xii) that, pursuant to the Letter Agreements, the Major Stockholders,
who collectively beneficially own approximately 48% of the outstanding
Shares on a fully diluted basis, have agreed to tender their Shares in the
Offer;
(xiii) that all of the Company's stockholders will receive the same
price and consideration for their Shares;
(xiv) the availability of dissenters' rights of appraisal in the
Merger;
(xv) the financial strength of Parent and the absence of any financing
condition in the Offer or in the Merger Agreement; and
15
<PAGE> 17
(xvi) the regulatory approvals required to consummate the Merger,
including, among others, antitrust approvals, and the prospects for
receiving such approvals.
The Company's directors also recognized that, while consummation of the
Offer and the Merger will result in all stockholders being entitled to receive
$23.00 net in cash for each of their Shares, it will eliminate the opportunity
for current stockholders to participate in the benefit of increases, if any, in
the value of the Company's business and properties following the Merger.
Accordingly, the directors gave consideration to the Company's future prospects,
as well as its historical results of operations.
The Board of Directors of the Company did not assign relative weights to
the foregoing factors or determine that any factor was of specific importance
relative to any other factor. Rather, the Board viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it.
The full text of the written opinion of Goldman, dated March 4, 1996, which
sets forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached hereto as Exhibit 8.
STOCKHOLDERS ARE URGED TO READ THE GOLDMAN OPINION IN ITS ENTIRETY.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter dated January 18, 1996 (the "Engagement
Letter"), the Company retained Goldman to act as financial advisor to the
Company with respect to the possible sale of all or substantially all of the
Shares or the assets of the Company. As consideration for Goldman's services,
the Company has agreed in the Engagement Letter that, upon the sale of 60% or
more of the outstanding Shares or the assets of the Company in one or a series
of transactions, it will pay Goldman a transaction fee equal to 1.0% of the
aggregate consideration paid in such transactions. Under the Engagement Letter,
the aggregate consideration in the case of the sale, exchange or purchase of the
Company's equity securities is defined as the total consideration paid for such
securities (including amounts paid to holders of options, warrants and
convertible securities). In addition, the Company has agreed to reimburse
Goldman for its reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its legal counsel, incurred in connection with the performance
of its duties under the Engagement Letter. The Company has further agreed to
indemnify Goldman against certain liabilities, including liabilities arising
under applicable securities laws.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the Company's knowledge, by any executive officer,
director, affiliate or subsidiary of the Company.
(b) The Company does not know of any commitments to tender Shares in the
Offer other than as described herein. Based on the best information available to
the Company as of the date of this Schedule 14D-9, the Company presently
believes that, to the extent permitted by applicable securities laws, rules or
regulations, all of the Company's directors, executive officers and affiliates
who own Shares presently intend to tender such Shares to the Purchaser pursuant
to the Offer, although they are under no obligation to do so. Under the terms of
the Merger Agreement, at the Effective Time any Shares owned by any wholly-owned
subsidiary of the Company will be canceled and retired and will cease to exist.
See Item 3 for information concerning certain agreements (i.e., the Letter
Agreements) between Parent and certain substantial stockholders of the Company
pursuant to which the Shares owned by such stockholders are required to be
tendered pursuant to the Offer or, if not so tendered, voted in favor of the
Merger, and the irrevocable proxies granted to Parent in furtherance thereof.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth herein, the Company is not engaged in any
negotiation in response to the Offer or Merger 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
16
<PAGE> 18
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 herein, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer or the Merger that 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.
Delaware Law. The Board of the Directors of the Company has given its prior
approval to the Letter Agreements and the Merger Agreement and the transactions
contemplated by the Merger Agreement, including the Offer and the Merger, for
purposes of Section 203 of the DGCL. Accordingly, the restrictions of Section
203 do not apply to the transactions contemplated by the Merger Agreement,
including the Offer and the Merger. Section 203 of the DGCL prevents an
"interested stockholder" (generally, any stockholder owning 15% or more of a
corporation's outstanding voting stock or an affiliate or associate of that
stockholder) from engaging in a "business combination" (defined to include a
merger and certain other transactions) with a Delaware corporation for a period
of three years following the date on which the stockholder became an interested
stockholder, unless (i) before that date, the corporation's board of directors
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder, (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the corporation's voting stock
outstanding at the time the transaction commenced (excluding shares owned by
certain employee stock plans and persons who are directors and also officers of
the corporation) or (iii) on or after that date, the business combination is
approved by the corporation's board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock not owned by the
interested stockholder. As described above, Section 203 of the DGCL does not
apply to the Offer, the Merger or any other transactions contemplated by the
Merger Agreement.
Rights Agreement. Under the Rights Agreement, one Right is associated with
and represented by each outstanding Share. Each Right entitles the holder to
purchase 1/100th of a share of Series A Preferred Stock, $1.00 par value, from
the Company at a price of $60 per share (subject to adjustment to prevent
dilution). A Right is exercisable when (i) a person or affiliated group
("Acquiring Person"), other than a person who beneficially owned 20% or more of
Shares outstanding on August 8, 1986, acquires, or obtains the right to acquire,
beneficial ownership of 20% or more of all outstanding Shares, or (ii) a person
commences a tender or exchange offer that would result in beneficial ownership
by a person of 30% or more of all outstanding Shares.
If the Company is acquired in a merger or other business combination
transaction, or if 50% or more of its assets or earning power are sold, each
holder of a Right will have the right to receive shares of the acquiring company
with a market value of two times the exercise price of the Right. In addition,
if the Company is the surviving corporation in a merger with an Acquiring Person
and its common stock is not changed or exchanged, or an Acquiring Person engages
in one or more "self dealing" transactions considered to be unfair to the
Company, or an Acquiring Person becomes the beneficial owner of more than 40% of
the then outstanding Shares (except pursuant to an offer for all outstanding
Shares), each holder of a Right, other than the Acquiring Person, will have the
right to receive Shares with a market value of two times the exercise price of
the Right. The Company is entitled to redeem the Rights for $.05 each at any
time until 30 days after the Acquiring Person acquires or obtains the right to
acquire 20% or more of all outstanding Shares.
As described in Item 3 above, the Company has amended the Rights Agreement
so that the Rights will not be exercisable upon the execution or delivery of the
Merger Agreement or the consummation of the transactions contemplated by the
Merger Agreement, including the Offer and the Merger. A copy of the amendment to
the Rights Agreement is filed as Exhibit 3 hereto.
17
<PAGE> 19
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- -----------------------------------------------------------------------
<C> <C> <S>
1 -- Agreement and Plan of Merger dated as of March 4, 1996 between Parent,
the Purchaser and the Company.
2 -- Press Release issued on March 4, 1996 by the Company and Parent.
3 -- Amendment No. 2 to Rights Agreement, dated as of March 4, 1996, between
the Company and the Rights Agent.
4 -- Confidentiality Agreement dated as of December 13, 1995, between Parent
and the Company.
5(a) -- Letter Agreement dated March 4, 1996 between Parent and Irwin Wayne
Uran.
5(b) -- Letter Agreement dated March 4, 1996 between Parent and James L.
Sadler.
5(c) -- Letter Agreement dated March 4, 1996 between Parent and John H. Sadler.
6(a) -- Proxy dated March 4, 1996 given to Parent by Irwin Wayne Uran.
6(b) -- Proxy dated March 4, 1996 given to Parent by James L. Sadler.
6(c) -- Proxy dated March 4, 1996 given to Parent by John H. Sadler.
7* -- Letter dated March 8, 1996 from Paul K. Gaston, on behalf of the Board
of Directors, to stockholders of the Company.
8* -- Opinion of Goldman, Sachs & Co. dated March 4, 1996.
9* -- Information Statement required by Section 14(f) of the Exchange Act and
Rule 14f-1 thereunder in connection with the designation by Parent of
persons to the Board of Directors of the Company. Attached as Annex I
to this Schedule 14D-9 and incorporated herein by reference.
</TABLE>
- ---------------
* Included in materials mailed to stockholders.
18
<PAGE> 20
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.
GUARDSMAN PRODUCTS, INC.
By /s/ CHARLES E. BENNETT
----------------------------------
Charles E. Bennett
President and Chief Executive
Officer
Dated: March 8, 1996
19
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- -----------------------------------------------------------------------
<C> <C> <S>
99.1 -- Agreement and Plan of Merger dated as of March 4, 1996 between Parent,
the Purchaser and the Company.
99.2 -- Press Release issued on March 4, 1996 by the Company and Parent.
99.3 -- Amendment No. 2 to Rights Agreement, dated as of March 4, 1996, between
the Company and the Rights Agent.
99.4 -- Confidentiality Agreement dated as of December 13, 1995, between Parent
and the Company.
99.5(a) -- Letter Agreement dated March 4, 1996 between Parent and Irwin Wayne
Uran.
99.5(b) -- Letter Agreement dated March 4, 1996 between Parent and James L.
Sadler.
99.5(c) -- Letter Agreement dated March 4, 1996 between Parent and John H. Sadler.
99.6(a) -- Proxy dated March 4, 1996 given to Parent by Irwin Wayne Uran.
99.6(b) -- Proxy dated March 4, 1996 given to Parent by James L. Sadler.
99.6(c) -- Proxy dated March 4, 1996 given to Parent by John H. Sadler.
99.7* -- Letter dated March 8, 1996 from the Company to stockholders of the
Company.
99.8* -- Opinion of Goldman, Sachs & Co. dated March , 1996.
99.9* -- Information Statement required by Section 14(f) of the Exchange Act and
Rule 14f-1 thereunder in connection with the designation by Parent of
persons to the Board of Directors of the Company. Attached as Annex I
to this Schedule 14D-9 and incorporated herein by reference.
</TABLE>
--------------
*Included in materials mailed to stockholders.
<PAGE> 1
MERGER AGREEMENT
BY AND AMONG
LILLY INDUSTRIES, INC.
("PARENT"),
LP ACQUISITION CORP.,
("PURCHASER")
AND
GUARDSMAN PRODUCTS, INC.
("COMPANY")
DATED AS OF
MARCH 4, 1996
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 4, 1996 (the "Agreement"),
by and among GUARDSMAN PRODUCTS, INC., a Delaware corporation (the "Company"),
LP ACQUISITION CORPORATION, a Delaware corporation (the "Purchaser"), and LILLY
INDUSTRIES, INC., an Indiana corporation ("Parent"). The Company and the
Purchaser are hereinafter sometimes collectively referred to as the
"Constituent Corporations."
RECITALS
WHEREAS, the Boards of Directors of Parent, the Purchaser and the Company
have each approved the acquisition of the Company by Parent upon the terms and
subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Parent, the Purchaser and the Company have each approved the merger of the
Purchaser with and into the Company in accordance with the terms of this
Agreement and the General Corporation Law of the State of Delaware (the "DGCL")
and with any other applicable law;
WHEREAS, the Board of Directors of the Company (the "Board") has, in light
of and subject to the terms and conditions set forth herein, (i) determined
that (x) the consideration to be paid for each Share in the Offer and the
Merger (as such terms are hereinafter defined) is fair to the stockholders of
the Company, and (y) the Offer and the Merger are otherwise in the best
interests of the Company and its stockholders, and (ii) resolved to approve and
adopt this Agreement and the transactions contemplated hereby and to recommend
acceptance of the Offer and approval and adoption by the stockholders of the
Company of this Agreement; and
WHEREAS, as a condition to Parent's willingness to enter into this
Agreement and make the Offer, Parent and certain stockholders of the Company
are simultaneously entering into and delivering letter agreements, dated the
date hereof, pursuant to which such stockholders have agreed, among other
things, to tender all the Shares beneficially owned by them into the Offer (the
"Letter Agreements").
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
<PAGE> 3
ARTICLE I
THE OFFER
SECTION 1.1. THE OFFER.
(a) Provided that this Agreement shall not have been
terminated in accordance with Article IX hereof and none of the events set
forth in Annex I hereto shall have occurred and be existing, as promptly
as practicable (but in no event later than five business days from the
date hereof) Purchaser shall commence (within the meaning of Rule 14d-2
under the Securities Exchange Act of 1934, as amended (including the rules
and regulations promulgated thereunder, the "Exchange Act")), and Parent
shall cause the Purchaser to commence and shall provide adequate financing
for, an offer to purchase all outstanding shares of Common Stock, par
value $1.00 per share (the "Shares"), of the Company (which shall include
the Shares held pursuant to the Escrow Agreement referenced in Section 5.2
hereof), including the associated Preferred Stock Purchase Rights issued
pursuant to the Rights Agreement dated as of August 8, 1986, as amended
(the "Rights Agreement") between the Company and Chemical Bank, as Rights
Agent (the "Rights"), at a price of $23.00 per Share net to the seller in
cash (the "Offer") and, subject to the conditions of the Offer, shall use
all reasonable efforts to consummate the Offer. Except where the context
otherwise requires, all references herein to the Shares shall include the
associated Rights. The obligation of the Purchaser to consummate the
Offer and to accept for payment and to pay for any Shares tendered
pursuant thereto shall be subject to only those conditions set forth in
Annex I hereto. The parties agree that, except for the Minimum Condition,
the conditions set forth in Annex I are for the sole benefit of the
Purchaser and may be asserted by the Purchaser regardless of the
circumstances giving rise to any such condition or, except as provided in
this Agreement, may be waived by the Purchaser, in whole or in part, at
any time and from time to time in its sole discretion, in each case
subject to the terms of this Agreement. The failure by the Purchaser at
any time to exercise any of the foregoing rights will not be deemed a
waiver of any such right, the waiver of any such right with respect to
particular facts and circumstances will not be deemed a waiver with
respect to other facts or circumstances, and each such right will be
deemed an ongoing right that may be asserted at any time and from time to
time. The Company agrees that no Shares held by the Company or its
subsidiaries will be tendered in the Offer.
(b) Without the prior written consent of the Company, the
Purchaser shall not (i) decrease the price per Share or change the form of
consideration payable in the Offer, (ii) decrease the number of Shares
sought, (iii) amend or waive satisfaction of the Minimum Condition (as
defined in Annex I) or (iv) impose additional conditions to the
-2-
<PAGE> 4
Offer or amend any other term of the Offer in any manner adverse
to the holders of Shares. Upon the terms and subject to the
conditions of the Offer, the Purchaser will accept for payment and
purchase, as soon as permitted under the terms of the Offer, all
Shares validly tendered and not withdrawn prior to the expiration
of the Offer (it being agreed that the Offer shall expire as soon
as is permissible under the Exchange Act and the rules and
regulations of the New York Stock Exchange, Inc., subject to
subsection (d) and Section 9.1(b) below). The Purchaser reserves
the right to increase the price per Share payable in the Offer.
(c) Each of Parent and the Purchaser, on the one hand, and
the Company, on the other hand, agrees promptly to correct any
information provided by it for use in the documents filed by
Parent and the Purchaser with the Securities and Exchange
Commission (the "SEC") in connection with the Offer (the "Offer
Documents") if and to the extent that it shall have become false
or misleading in any material respect, and Parent and the
Purchaser further agree to take all steps necessary to cause the
Offer Documents as so corrected to be filed with the SEC and to be
disseminated to stockholders of the Company, in each case as and
to the extent required by applicable federal securities laws.
(d) Parent and the Purchaser agree that the Purchaser shall
not terminate or withdraw the Offer or extend the expiration date
of the Offer unless at the expiration date of the Offer the
conditions to the Offer described in Annex I hereto shall not have
been satisfied or earlier waived; provided, however, that
Purchaser shall be allowed to extend the Offer for up to a total
of 10 days.
SECTION 1.2. COMPANY ACTIONS.
(a) The Company hereby approves of and consents to the Offer
and represents that (i) the Board, at a meeting duly called and
held, has, in light of and subject to the terms and conditions set
forth herein, unanimously (x) determined that the consideration to
be paid for each Share in the Offer and the Merger is fair to the
stockholders of the Company and the Offer and the Merger are
otherwise in the best interests of the Company and its
stockholders and (y) approved and adopted this Agreement and the
transactions contemplated hereby, including the Offer and the
Merger, and resolved to recommend acceptance of the Offer and
approval and adoption of this Agreement and the Merger and the
other transactions contemplated hereby by the stockholders of the
Company and (ii) Goldman Sachs & Co., the Company's financial
advisor, has rendered to the Board its opinion that the
consideration to be received by the stockholders of the Company
pursuant to the Offer and the Merger is fair to such stockholders.
(b) The Company hereby agrees promptly to prepare and, after
review by the Purchaser, to file with the SEC and to mail to its
stockholders, a
-3-
<PAGE> 5
Solicitation/Recommendation Statement on Schedule 14D-9 with
respect to the Offer (together with any amendments or supplements
thereto, the "Schedule 14D-9") containing the recommendation
described in Section 1.2(a) hereof and to disseminate the Schedule
14D-9 as required by Rule 14d-9 promulgated under the Exchange
Act; provided, however, that, subject to the provisions of Article
IX, such recommendation may be withdrawn, modified or amended to
the extent that the Board deems it necessary to do so in the
exercise of its fiduciary and other legal obligations after being
so advised in writing by outside counsel. Each of the Company, on
the one hand, and Parent and the Purchaser, on the other hand,
agree promptly to correct any information provided by either of
them for use in the Schedule 14D-9 if and to the extent that it
shall have become false or misleading in any material respect, 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 to
be disseminated to the stockholders of the Company, in each case
as and to the extent required by applicable federal securities
laws.
(c) In connection with the Offer, the Company will promptly
furnish the Purchaser with mailing labels, security position
listings and any available listing or computer files containing
the names and addresses of the record holders of Shares as of the
most recent practicable date and will furnish the Purchaser with
such information (which subject to applicable law shall be held in
confidence) and assistance as the Purchaser or its agents or
representatives may reasonably request in connection with the
preparation of the Offer and communicating the Offer to the record
and beneficial holders of the Shares.
SECTION 1.3. DIRECTORS.
(a) Subject to compliance with the DGCL, the Company's
Certificate of Incorporation and other applicable law, promptly
upon the payment by the Purchaser for Shares purchased pursuant to
the Offer constituting at least a majority of the outstanding
Shares, and from time to time thereafter, the Company shall, upon
request of Parent, promptly take all actions necessary to cause
the Board to include a number of Parent's designees such that
Parent's designees constitute a percentage of the Board as nearly
equal as practicable to the percentage of the outstanding Shares
beneficially owned by Parent (which shall be at least a majority
of the Board). Such necessary actions may include accepting the
resignations of those incumbent directors designated by the
Company or increasing the size of the Board and causing Parent's
designees to be elected; provided, however, that the Company shall
use its reasonable best effort to comply with the foregoing
without increasing the size of the Board above twelve members; and
provided, further, that Parent agrees that the Company may retain,
and the Parent shall cause to be retained, at least three
incumbent directors on the Board prior to the Effective Time (as
hereinafter defined). If any of the
-4-
<PAGE> 6
incumbent directors become unavailable or unwilling to serve for
any reason, Parent shall cause such vacancy or vacancies to be
promptly filled by other incumbent directors willing to serve in
such capacity, or their designees. The date on which Purchaser's
designees constitute at least a majority of the Board is herein
referred to as the "Control Date." Upon written request by the
Purchaser, the Company will use its reasonable best efforts to
cause the designees of the Purchaser to constitute a percentage as
nearly equal as practicable to the percentage of representation on
the Board of Directors after giving effect to this Section 1.3 on
(i) each committee of the Board of Directors; (ii) the board of
directors of each subsidiary of the Company; and (iii) each
committee of such subsidiaries' boards of directors.
(b) In satisfying its obligations to appoint Parent's
designees to the Board, the Company shall comply with Section
14(f) of the Exchange Act and Rule 14f-1 thereunder, if
applicable. The Company shall promptly take all actions required
pursuant to such Section and Rule in order to fulfill its
obligations under this Section 1.3 and shall include in the
Schedule l4D-9 such information with respect to the Company and
its officers and directors as is required under such Section and
Rule in order to fulfill its obligations under this Section 1.3.
Parent will supply to the Company complete and accurate
information with respect to itself and its officers, directors and
affiliates required by such Section and Rule.
(c) Following the election or appointment of Parent's
designees pursuant to this Section 1.3 and prior to the Effective
Time, any amendment or termination of this Agreement by the
Company or the Board, any extension by the Company or the Board of
the time for the performance of any of the obligations or other
acts of Parent or the Purchaser or waiver of any of the Company's
rights hereunder, or any consent, approval or recommendation of
the Company or Board required hereunder, will (if there are any
then serving directors not affiliated with or designated by
Parent) require the concurrence of, and shall be effective if and
only if approved by, a majority of the directors of the Company
then in office who are not affiliated with Parent and were not
designated by Parent.
ARTICLE II
THE MERGER
SECTION 2.1. THE MERGER.
(a) In accordance with the provisions of this Agreement and
the DGCL, at the Effective Time, the Purchaser shall be merged
with and into the
-5-
<PAGE> 7
Company (the "Merger"), and the Company shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") and
shall continue its corporate existence under the laws of the State of
Delaware. At the Effective Time the separate existence of the Purchaser
shall cease. At the election of Parent or the Purchaser, any direct or
indirect wholly-owned subsidiary of Parent may be substituted for the
Purchaser as a constituent corporation in the Merger.
(b) The name of the Surviving Corporation shall be "Guardsman
Products, Inc."
(c) The Merger shall have the effects on the Company and the
Purchaser as Constituent Corporations of the Merger as provided under
the DGCL. As of the Effective Time, the Company shall be a wholly-owned
direct or indirect subsidiary of Parent.
SECTION 2.2. EFFECTIVE TIME. The Merger shall become effective at the
time of filing of, or at such later time specified in, a certificate of merger
(the "Certificate of Merger") (or, if applicable, a certificate of ownership
and merger), in the form required by and executed in accordance with the DGCL,
filed with the Secretary of State of the State of Delaware (the "Delaware
Secretary of State") in accordance with the provisions of Section 251 of the
DGCL (or in the event Section 3.4 hereof is applicable, Section 253 of the
DGCL). The date and time when the Merger shall become effective is herein
referred to as the "Effective Time."
SECTION 2.3. CERTIFICATE OF INCORPORATION AND BY-LAWS OF SURVIVING
CORPORATION. Subject to Section 2.1 (b), the Certificate of Incorporation and
By-Laws of the Purchaser shall be the Certificate of Incorporation and By-Laws
of the Surviving Corporation until thereafter amended as provided by law.
SECTION 2.4. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
(a) Subject to applicable law, the directors of the Purchaser
immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation and shall hold office until their
respective successors are duly elected and qualified, or their earlier
death, resignation or removal.
(b) The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving
Corporation and shall hold office until their respective successors are
duly elected and qualified, or their earlier death, resignation or
removal.
SECTION 2.5. FURTHER ASSURANCES. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to vest, perfect or confirm of record or otherwise in
the Surviving Corporation its right, title or interest in, to or under any
-6-
<PAGE> 8
of the rights, properties or assets of either of the Constituent Corporations
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of each of the Constituent Corporations or
otherwise, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of each of the Constituent Corporations
or otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement in accordance with its terms.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1. EFFECT ON SHARES AND THE PURCHASER'S CAPITAL STOCK.
(a) As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, each Share issued
and outstanding immediately prior to the Effective Time (other than any
Shares held by Parent, the Purchaser or any wholly-owned subsidiary of
Parent or the Purchaser or in the treasury of the Company or by 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, and other than any Dissenting Shares (as hereinafter
defined)) shall be converted into the right to receive $23.00 net to the
holder in cash or any higher price per Share paid in the Offer (the
"Merger Price"), payable to the holder thereof, without interest thereon,
as set forth in Section 4.2 hereof.
(b) As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, each share of
capital stock of the Purchaser issued and outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $1.00 per share, of the
Surviving Corporation.
SECTION 3.2. COMPANY OPTION PLANS.
(a) As of the Effective Time, the Company shall take, and
Parent shall cause the Company to take, such actions to provide that by
virtue of the Merger and without any action on the part of the holders
thereof, each option to purchase Shares (the "Option") that is outstanding
immediately before the Effective Time shall be cancelled and, in
consideration of such cancellation, each holder of an Option shall receive
an amount equal to the product of (i) the excess, if any, by
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which the Merger Price exceeds the exercise price of the Option and
(ii) the number of Shares subject thereto, such amount to be paid to the
holder in cash on the Effective Date of the Merger as set forth in Section
4.2 hereof.
(b) Except as provided herein or as otherwise agreed to by
the parties (i) the Option Plans shall terminate as of the Effective Time
and the provisions in any other plan, program or arrangement, providing
for the issuance or grant by the Company or any of its subsidiaries of any
interest in respect of the capital stock of the Company or any of its
subsidiaries shall be deleted as of the Effective Time and (ii) following
the Effective Time no holder of Options or any participant in the Option
Plans or any other such plans, programs or arrangements shall have any
right thereunder to acquire any equity securities of the Company, the
Surviving Corporation or any subsidiary thereof.
SECTION 3.3. STOCKHOLDERS' MEETING.
(a) If required by applicable law in order to consummate the
Merger, the Company, acting through the Board, shall, in
accordance with applicable law:
(i) duly call, give notice of, convene and hold a
special meeting of its stockholders (the "Special Meeting")
as soon as practicable following the purchase of and payment
for Shares by the Purchaser pursuant to the Offer for the
purpose of considering and adopting this Agreement and such
other matters as may be necessary to consummate the
transactions contemplated herein;
(ii) prepare and file with the SEC a preliminary proxy
statement relating to the matters to be considered at the
Special Meeting pursuant to this Agreement and use its
reasonable best efforts (x) to obtain and furnish the
information required to be included by the SEC in the Proxy
Statement (as hereinafter defined) and, after consultation
with Parent, to respond promptly to any comments made by the
SEC with respect to the preliminary proxy statement and to
cause a definitive proxy statement (the "Proxy Statement")
to be mailed to its stockholders and (y) to obtain the
necessary approvals of this Agreement and such other matters
as may be necessary to consummate the transactions
contemplated hereby by its stockholders; and
(iii) subject to the fiduciary obligations of the Board
under applicable law as advised by outside counsel, include
in the Proxy Statement the recommendation of the Board that
stockholders of the Company vote in favor of the approval of
the Merger and adoption of this Agreement and such other
matters as may be necessary to consummate the transactions
contemplated hereby.
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<PAGE> 10
(b) Parent agrees that it will vote, or cause to be voted,
all of the Shares then owned by it, the Purchaser or any of its
other subsidiaries in favor of the approval and adoption of this
Agreement and such other matters as may be necessary to consummate
the transactions contemplated hereby.
SECTION 3.4. MERGER WITHOUT MEETING OF STOCKHOLDERS. Notwithstanding
Section 3.3 hereof, in the event that Parent, the Purchaser or any other
subsidiary of Parent shall acquire at least 90 percent of the outstanding
Shares pursuant to the Offer or otherwise, the parties hereto agree to take all
necessary and appropriate action to cause the Merger to become effective as
soon as practicable after the acceptance for payment and purchase of Shares by
the Purchaser pursuant to the Offer without a meeting of stockholders of the
Company in accordance with Section 253 of the DGCL.
SECTION 3.5. CONSUMMATION OF THE MERGER. As soon as practicable after
the satisfaction or waiver of the conditions set forth in Article VIII hereof,
the Surviving Corporation shall execute in the manner required by the DGCL and
file with the Delaware Secretary of State the Certificate of Merger (or, in the
event Section 3.4 hereof is applicable, the Purchaser shall execute in the
manner required by the DGCL and file with the Delaware Secretary of State a
certificate of ownership and merger), and the parties shall take such other and
further actions as may be required by law to make the Merger effective as
promptly as is practicable.
ARTICLE IV
DISSENTING SHARES; PAYMENT FOR SHARES
SECTION 4.1. DISSENTING SHARES. Notwithstanding anything in this
Agreement to the contrary, Shares outstanding immediately prior to the
Effective Time and held by a holder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such Shares in
accordance with Section 262 of the DGCL, if such Section 262 provides for
appraisal rights for such Shares in the Merger ("Dissenting Shares"), shall not
be converted into the right to receive the Merger Price, as provided in Section
3.1 hereof, unless and until such holder fails to perfect or withdraws or
otherwise loses such holder's right to appraisal and payment under the DGCL.
If, after the Effective Time, any such holder fails to perfect or withdraws or
loses such holder's right to appraisal, such Dissenting Shares shall thereupon
be treated as if they had been converted as of the Effective Time into the
right to receive the Merger Price to which such holder is entitled, without
interest or dividends thereon. The Company shall give Parent prompt notice of
any demands received by the Company for appraisal of Shares and Parent shall
have the right to participate in all negotiations and proceedings with respect
to such demands. The Company shall not, except with the prior written consent
of Parent, make any voluntary payment with respect to, or settle or offer to
settle, any such demands.
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<PAGE> 11
SECTION 4.2. PAYMENT FOR SHARES; STOCK OPTIONS.
(a) From and after the Effective Time, a bank or trust
company designated by Parent and reasonably acceptable to the
Company shall act as paying agent (the "Paying Agent") in
effecting the payment of the Merger Price for certificates (the
"Certificates") formerly representing Shares and entitled to
payment of the Merger Price pursuant to Section 3.1 hereof. At
the Effective Time and from time to time thereafter, Parent or the
Purchaser shall deposit, or cause to be deposited, in trust with
the Paying Agent sufficient funds to permit the Paying Agent to
make the payments contemplated by this Section 4.2 and Section
3.2.
(b) Promptly after the Effective Time, Parent shall cause the
Paying Agent to mail to each record holder of Certificates that
immediately prior to the Effective Time represented Shares (other
than Certificates representing Shares held by Parent or the
Purchaser, any wholly-owned subsidiary of Parent or the Purchaser
or in the treasury of the Company or by any wholly-owned
subsidiary of the Company) 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 Paying Agent and instructions
for use in surrendering such Certificates and receiving the Merger
Price therefor. Upon the surrender of each such Certificate, the
Paying Agent shall pay the holder of such Certificate in exchange
therefor cash in an amount equal to the Merger Price multiplied by
the number of Shares formerly represented by such Certificate, and
such Certificate shall forthwith be canceled. Until so
surrendered, each such Certificate (other than Certificates
representing Dissenting Shares and Certificates representing
Shares held by Parent or the Purchaser, any wholly-owned
subsidiary of Parent or the Purchaser or in the treasury of the
Company or by any wholly-owned subsidiary of the Company) shall
represent solely the right to receive the aggregate Merger Price
relating thereto. No interest shall be paid or accrued on such
Merger Price.
(c) Promptly following the date which is nine months after
the Effective Time, the Paying Agent shall deliver to Parent all
cash, Certificates and other documents in its possession relating
to the transactions described in this Agreement, and the Paying
Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing a Share (other than Certificates
representing Dissenting Shares and Certificates representing
Shares held by Parent or the Purchaser, any wholly-owned
subsidiary of Parent or the Purchaser or in the treasury of the
Company or by any wholly-owned subsidiary of the Company) may
surrender such Certificate to Parent and (subject to applicable
abandoned property, escheat and similar laws) receive in
consideration therefor the aggregate Merger Price relating
thereto, without any interest or dividends thereon. Neither
Parent, the Purchaser nor the Surviving Corporation will be liable
to any holder
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<PAGE> 12
of Shares for any amount paid to a public official in accordance
with applicable abandoned property, escheat or similar laws.
(d) The Merger Price shall be net to each holder of
Certificates in cash, subject to reduction only for any applicable
federal back-up withholding or, as set forth in Section 4.2(e),
stock transfer taxes payable by such holder.
(e) If payment of cash in respect of any Certificate is to be
made to a person other than the person in whose name such
Certificate is registered, it shall be a condition to such payment
that the Certificate so surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other
taxes required by reason of such payment in a name other than that
of the registered holder of the Certificate surrendered or shall
have established to the satisfaction of Parent or the Paying Agent
that such tax either has been paid or is not payable.
(f) After the Effective Time, there shall be no transfers on
the stock transfer books of the Surviving Corporation of any
Shares which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates formerly
representing Shares (other than Certificates representing Shares
held by Parent or the Purchaser, any wholly-owned subsidiary of
Parent or the Purchaser or in the treasury of the Company or by
any wholly-owned subsidiary of the Company) are presented to
Parent, the Surviving Corporation or the Paying Agent, they shall
be surrendered and canceled in return for the payment of the
aggregate Merger Price relating thereto, without interest, as
provided in this Article IV, subject to applicable law in the case
of Dissenting Shares.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser as
follows, except as previously disclosed by the Company to Parent and the
Purchaser in a Disclosure Letter dated of even date herewith, including the
materials referenced therein (the "Disclosure Letter"):
SECTION 5.1. ORGANIZATION. The Company and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its respective jurisdictions of incorporation and the Company and each
of its subsidiaries has all requisite corporate power and authority to own,
lease and operate their respective properties and to carry on their respective
businesses as now being conducted. The Company and each of its subsidiaries is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted
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<PAGE> 13
by it makes such qualification necessary, except in such jurisdictions where
the failure to be so duly qualified or licensed and in good standing would not,
individually or in the aggregate, have a material adverse effect on the
business, operations, assets, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries taken as a whole (a
"Company Material Adverse Effect"). Copies of the Certificate of Incorporation
and Bylaws of the Company and the articles or certificate of incorporation and
bylaws of each of its subsidiaries, including all amendments, have been
delivered to Parent and the Purchaser and such copies are accurate and
complete. The Company owns directly or indirectly all of the outstanding
capital stock of each of its subsidiaries, free and clear of any claim, lien or
encumbrance.
SECTION 5.2. CAPITALIZATION. The authorized capital stock of the Company
consists of 30,000,000 Shares and 1,000,000 shares of preferred stock, par
value $1.00 per share ("Company Preferred Stock"). As of February 28, 1996,
there were 9,599,775 Shares and no shares of Company Preferred Stock issued and
outstanding, 38,888 Shares (which for purposes of this Agreement shall be
deemed outstanding) held pursuant to the Escrow Agreement dated as of January
30, 1995, by and among the Company, Michael P. Connolly and First of America
Bank-Michigan, as Escrow Agent (a copy of which has been provided by the
Company to Parent and the Purchaser), and no Shares or shares of Company
Preferred Stock held in the Company's treasury. As of February 28, 1996, there
were outstanding options to purchase 597,970 Shares under the Option Plans and
the Company has provided to Parent and the Purchaser an accurate summary of
such Options, including applicable exercise prices, terms and conditions.
Except for the Rights granted pursuant to the Rights Agreement, and Options
under the Option Plans (which shall be cancelled as provided in Section 3.2(a)
hereof), there are not as of the date hereof, and at all times thereafter
through the Effective Date there will not be, any existing options, warrants,
calls, subscriptions, or other rights or other agreements or commitments
obligating the Company or any of its subsidiaries to issue, transfer, sell or
vote any shares of capital stock of the Company or any of its subsidiaries or
any other securities convertible into or evidencing the right to subscribe for
any such shares. All issued and outstanding Shares, and all outstanding shares
of capital stock of each subsidiary, are duly authorized and validly issued,
fully paid, nonassessable and free of preemptive rights with respect thereto.
SECTION 5.3. AUTHORITY. The Company has full corporate power and
authority to execute and deliver this Agreement and, subject to the approval of
its stockholders, if required, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized and
approved by the Board, and other than the approval by its stockholders, if
required, no other corporate proceedings are necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming this Agreement constitutes a legal, valid and binding agreement of the
other parties hereto, it constitutes a legal, valid and binding agreement of
the Company, enforceable against it in accordance with its terms. The
affirmative vote of holders of a majority of the Shares is the only vote of
holders of any class or series of the Company's capital stock necessary to
approve the Merger.
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<PAGE> 14
SECTION 5.4. NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will
(i) violate any provision of its or any of its subsidiaries'
articles or certificate of incorporation or by-laws, (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 or any right
which becomes effective upon the occurrence of a merger,
consolidation or change in control or ownership, under, any of the
terms, conditions or provisions of any note, bond, mortgage,
indenture or other instrument of indebtedness for money borrowed
to which the Company or any of its subsidiaries is a party, or by
which the Company or any of its subsidiaries or any of their
respective properties is bound, or (iii) 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 or any right which becomes effective
upon the occurrence of a merger, consolidation or change in
control or ownership, under, any of the terms, conditions or
provisions of any license, franchise, permit or agreement to which
the Company or any of its subsidiaries is a party, or by which the
Company or any of its subsidiaries or any of their respective
properties is bound, or (iv) violate any statute, rule,
regulation, order or decree of any public body or authority by
which the Company or any of its subsidiaries or any of their
respective properties is bound, excluding from the foregoing
clauses (ii), (iii) and (iv) violations, breaches, defaults or
rights which either would not individually or in the aggregate
have a Company Material Adverse Effect or materially impair the
Company's ability to consummate the transactions contemplated
hereby or for which the Company has received or, prior to the
consummation of the Offer, shall have received appropriate
consents or waivers.
(b) No filing or registration with, notification to, or
authorization, consent or approval of, any governmental entity is
required in connection with the execution and delivery of this
Agreement by the Company, or the consummation by the Company of
the transactions contemplated hereby, except (i) expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) in connection, or in
compliance, with the provisions of the Exchange Act, (iii) the
filing of the Certificate of Merger with the Delaware Secretary of
State, (iv) such filings and consents as may be required under
any environmental law pertaining to any notification, disclosure
or required approval triggered by the Merger or the transactions
contemplated by this Agreement, (v) filing with, and approval of,
the New York Stock Exchange, Inc. and the SEC with respect to the
delisting and deregistration of the Shares and (vi) such other
consents, approvals, orders, authorizations, notifications,
registrations, declarations and filings not obtained or made prior
to the
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<PAGE> 15
consummation of the Offer the failure of which to be obtained or
made would not, individually or in the aggregate, have a Company
Material Adverse Effect, or materially impair the Company's
ability to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
SECTION 5.5. SEC DOCUMENTS; FINANCIAL STATEMENTS.
(a) The Company has made available to Parent and the
Purchaser accurate and complete copies of each registration
statement, report, proxy statement, information statement or
schedule, together with all amendments thereto, that were required
to be filed with the SEC by the Company since January 1, 1993 (the
"SEC Documents"), each of which was timely filed with the SEC. As
of their respective dates, the Company's SEC Documents complied,
or will comply, in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, and the
Exchange Act, as the case may be, and none of such SEC Documents
contained, or will contain, any untrue statement of a material
fact or omitted, or will 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 or are made,
not misleading.
(b) Neither the Company nor any of its subsidiaries, nor any
of their respective assets, businesses, or operations, is a party
to, or is bound or affected by, or receives benefits under any
contract or agreement or amendment thereto, that in each case was
required to be filed as an exhibit to a Form 10-K that has not
been, or timely will not be, filed as an exhibit to an SEC
Document.
(c) As of their respective dates, the consolidated financial
statements of the Company included in the SEC Documents were, or
will be, prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods
(except as may be indicated therein or in the notes thereto) and
fairly presented, or will fairly present, the Company's
consolidated financial position and that of its consolidated
subsidiaries as at the dates thereof and the consolidated results
of their operations and statements of cash flows for the periods
then ended (subject, in the case of unaudited statements, to the
lack of footnotes thereto, to normal year-end audit adjustments
and to any other adjustments described therein).
SECTION 5.6. ABSENCE OF CERTAIN CHANGES; NO UNDISCLOSED LIABILITIES.
(a) Except as disclosed or reflected in the SEC Documents or
disclosed in the Disclosure Letter, since December 31, 1995, the
Company has not (i) incurred any liabilities or obligations of any
nature, whether or not accrued, contingent or otherwise, or
suffered any event or occurrence which, individually or in the
aggregate, would have a Company Material Adverse Effect or (ii)
made
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<PAGE> 16
any changes in accounting methods, principles or practices or
(iii) declared, set aside or paid any dividend or other
distribution with respect to its capital stock, other than regular
quarterly cash dividends at a rate not exceeding $0.09 per Share
per quarter, payable on the Company's customary dividend payment
dates. Since December 31, 1995, each of the Company and its
subsidiaries has conducted its operations according to its
ordinary course of business consistent with past practice.
(b) Except as and to the extent disclosed by the Company in
the SEC Documents or disclosed in the Disclosure Letter, as of
December 31, 1995, neither the Company nor any of its subsidiaries
had any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, that was required by generally
accepted accounting principles to be reflected on a consolidated
balance sheet of the Company and its subsidiaries (including the
notes thereto) or which would have, individually or in the
aggregate, a Company Material Adverse Effect.
SECTION 5.7. LITIGATION. Except as disclosed by the Company in the SEC
Documents, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of the Company, threatened against the Company or any of
its subsidiaries or any of their respective properties or assets before any
court or governmental entity which, individually or in the aggregate, would
have a Company Material Adverse Effect or prevent or delay the consummation of
the transactions contemplated by this Agreement, nor, to the knowledge of the
Company, are there any facts that are reasonably likely to give rise to any
such suit, claim, action, proceeding or investigation. Neither the Company nor
any of its subsidiaries is subject to any outstanding order, writ, injunction
or decree which, insofar as can be reasonably foreseen, individually or in the
aggregate, in the future would have a Company Material Adverse Effect or would
prevent or delay the consummation of the transactions contemplated hereby.
SECTION 5.8. COMPLIANCE WITH APPLICABLE LAW. Except as disclosed by the
Company in the SEC Documents, the Company and its subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
governmental entities necessary for the lawful conduct of their respective
businesses (the "Company Permits"), except for failures to hold such permits,
licenses, variances, exemptions, orders and approvals which would not,
individually or in the aggregate, have a Company Material Adverse Effect.
Except as disclosed by the Company in the SEC Documents, the Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure so to comply would not, individually or in the aggregate,
have a Company Material Adverse Effect. Except as disclosed by the Company in
the SEC Documents, the businesses of the Company and its subsidiaries have not
been and are not being conducted in violation of any law, ordinance or
regulation of any governmental entity except for violations or possible
violations which individually or in the aggregate do not, and, insofar as
reasonably can be foreseen, in the future will not, have a Company Material
Adverse Effect. Except as disclosed by the Company in the SEC Documents, no
investigation or review by any governmental entity with respect to the Company
or any of its subsidiaries is pending or,
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<PAGE> 17
to the knowledge of the Company, threatened nor, to the knowledge of the
Company, has any governmental entity indicated an intention to conduct the
same, other than, in each case, those which would not, individually or in the
aggregate, have a Company Material Adverse Effect.
SECTION 5.9. TAXES. Each of the Company and its subsidiaries has filed,
or caused to be filed, all federal, state, local and foreign income and other
material tax returns required to be filed by it, has paid or withheld, or
caused to be paid or withheld, all taxes of any nature whatsoever, with any
related penalties, interest and liabilities (any of the foregoing being
referred to herein as a "Tax"), that are shown on such tax returns as due and
payable, or otherwise required to be paid, other than such Taxes as are being
contested in good faith and for which adequate reserves have been established,
except where the failure so to file or pay would not, individually or in the
aggregate, have a Company Material Adverse Effect. The Company and each of its
subsidiaries have paid or will timely pay all Taxes due with respect to any
period ending on or prior to the date Shares are purchased pursuant to the
Offer, or where the payment of Taxes is not yet due, have established, or with
respect to Taxes incurred after the date hereof will timely establish in
accordance with past practices, an adequate accrual in accordance with
generally accepted accounting practices, except for failures to pay or accrue
that would not, individually or in the aggregate, have a Company Material
Adverse Effect. There are no material claims, assessments or audits pending,
or to the Company's knowledge threatened, against the Company or its
subsidiaries for any alleged deficiency in any Tax, and the Company does not
know of any threatened Tax claims or assessments against the Company or any of
its subsidiaries which if upheld could, individually or on the aggregate, have
a Company Material Adverse Effect. None of the Company or any of its
subsidiaries has made an election to be treated as a "consenting corporation"
under Section 341(f) of the Internal Revenue Code of 1986, as amended (the
"Code"). There is no material deferred inter-company gain within the meaning of
the Treasury Regulations promulgated under Section 1502 of the Code. There are
no waivers or extensions of any applicable statute of limitations to assess any
Taxes. All returns filed with respect to Taxes are true and correct in all
material respects. There are no outstanding requests for any extension of time
within which to file any return or within which to pay any Taxes shown to be
due on any return. There are no liens for any Taxes upon the assets of the
Company or any of its subsidiaries (other than statutory liens for Taxes not
yet due and payable and liens for real estate taxes being contested in good
faith) which individually or in the aggregate could have a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries is a party to,
is bound by or has any obligation under, a tax sharing or tax allocation
agreement or arrangement for the allocation, apportionment, sharing,
indemnification or payment of taxes.
SECTION 5.10. TERMINATION, SEVERANCE AND EMPLOYMENT AGREEMENTS. The
Company has provided to Parent and the Purchaser a complete and accurate list
of each (a) employment or severance agreement not terminable without material
liability or obligation (either individually or collectively) on 60 days' or
less notice; (b) agreement with any director, executive officer or other key
employee of the Company (i) the benefits of which are contingent, or the terms
of which are materially altered, on the occurrence of a transaction involving
the Company of the nature of any of the transactions contemplated by this
Agreement or relating to an actual or
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<PAGE> 18
potential change in control of the Company or (ii) providing any term of
employment or other compensation guarantee or extending severance benefits or
other benefits after termination not comparable to benefits available to
employees of the Company generally; (c) agreement, plan or arrangement under
which any person may receive payments that may be subject to tax imposed by
Section 4999 of the Code or included in the determination of such person's
"parachute payment" under Section 280G of the Code; and (d) agreement or plan,
including any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. Except as previously
disclosed to Parent and the Purchaser in the Disclosure Letter, since December
31, 1995, neither the Company nor any of its subsidiaries has entered into or
amended any employment or severance agreement with any director, executive
officer or other key employee of the Company or granted any severance or
termination pay to any director, executive officer or key employee of the
Company.
SECTION 5.11. EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as previously disclosed to Parent and the
Purchaser, (i) each "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), and all other employee benefit, bonus,
incentive, stock option (or other equity-based), severance, change
in control, welfare (including post-retirement medical and life
insurance) and fringe benefit plans (whether or not subject to
ERISA) maintained or sponsored by the Company or its subsidiaries
or any trade or business, whether or not incorporated, that would
be deemed a "single employer" within the meaning of Section 4001
of ERISA (an "ERISA Affiliate"), for the benefit of any employee
or former employee of the Company or any of its ERISA Affiliates
(the "Plans") is, and has been operated in accordance with its
terms and in compliance (including the making of governmental
filings) with all applicable Laws, including ERISA and the
applicable provisions of the Code, except for failures that would
not, individually or in the aggregate, have a Company Material
Adverse Effect, (ii) each of the Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service to be so qualified,
(iii) no "reportable event," as such term is defined in Section
4043(c) of ERISA (for which the 30-day notice requirement to the
Pension Benefit Guaranty Corporation ("PBGC") has not been
waived), has occurred with respect to any Plan that is subject to
Title IV of ERISA which presents a risk of liability to any
governmental entity or other person which, individually or in the
aggregate, would have a Company Material Adverse Effect, and (iv)
there are no pending, or to the Company's knowledge threatened,
claims (other than routine claims for benefits) by, on behalf of
or against, any of the Plans or any trusts related thereto which
would, individually or in the aggregate, have a Company Material
Adverse Effect. No Plan is a "multiemployer plan" (within the
meaning
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of ERISA) nor has the Company or any ERISA Affiliate ever
contributed or been required to contribute to any multiemployer
plan.
(b) (i) No Plan has incurred an "accumulated fund deficiency"
(as defined in Section 302 of ERISA or Section 412 of the Code),
whether or not waived and (ii) neither the Company nor any ERISA
Affiliate has incurred any liability under Title IV of ERISA
except for required premium payments to the PBGC, which payments
have been made when due, and no events have occurred which are
reasonably likely to give rise to any liability of the Company or
an ERISA Affiliate under Title IV of ERISA or which could
reasonably be anticipated to result in any claims being made
against Purchaser by the PBGC, in any such case, which presents a
risk of liability which would, individually or in the aggregate,
have a Company Material Adverse Effect.
(c) With respect to each Plan that is subject to Title IV of
ERISA, (i) the Company has provided to Parent and the Purchaser
copies of the most recent actuarial valuation report prepared for
such Plan prior to the date hereof, (ii) the assets and
liabilities in respect of the accrued benefits as set forth in the
most recent actuarial valuation report prepared by the Plan's
actuary fairly presented the funded status of such Plan in all
material respects, and (iii) since the date of such valuation
report there has been no adverse change in the funded status of
any such Plan which would, individually or in the aggregate, have
a Company Material Adverse Effect.
(d) Neither the Company nor any ERISA Affiliate has failed to
make any contribution or payment to any Plan which has resulted or
could result in the imposition of a lien or the posting of a bond
or other security under ERISA or the Code which would have a
Company Material Adverse Effect.
(e) Except as provided for in this Agreement or as disclosed
in the Disclosure Letter, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or
former employee or officer of the Company or any ERISA Affiliate
to severance pay, unemployment compensation or any other payment,
or (ii) accelerate the time of payment or vesting or increase the
amount of compensation due any such employee or officer.
SECTION 5.12. ENVIRONMENTAL MATTERS. The Company and each of its
subsidiaries has obtained and is in compliance with the terms and conditions of
all required permits, licenses, registrations and other authorizations required
under Environmental Laws (as hereinafter defined), except for failures which
would not, individually or in the aggregate, have a Company Material Adverse
Effect. No asbestos in a friable condition, equipment containing
polychlorinated biphenyls, leaking underground or above-ground storage tanks,
or Hazardous Substance (as hereinafter defined), is contained in or located at
any facility currently, or was contained or located at any facility previously,
owned, leased or controlled by the Company or
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any of its subsidiaries, except for any of the foregoing that would not,
individually or in the aggregate, have a Company Material Adverse Effect. The
Company and each of its subsidiaries is in compliance with all applicable
Environmental Laws, except for failures to comply which would not, individually
or in the aggregate, have a Company Material Adverse Effect. The Company has
fully disclosed all past and present noncompliance with, or liability under,
Environmental Laws, and all past discharges, emissions, leaks, releases or
disposals of any substance or waste regulated under or defined by Environmental
Laws that have formed or could reasonably be expected to form the basis of any
claim, action, suit, proceeding, hearing or investigation under any applicable
Environmental Laws which, in any such case, individually or in the aggregate,
would have a Company Material Adverse Effect. Neither the Company nor any of
its subsidiaries has received notice of any past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans that have
resulted in or threaten to result in any common law or legal liability, or
otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation under, any applicable Environmental Laws, which would,
individually or in the aggregate, have a Company Material Adverse Effect. For
purposes of this Section 5.12, (a) "Environmental Laws" mean applicable
federal, state, local and foreign laws, regulations and codes relating in any
respect to pollution or protection or the environment and (b) "Hazardous
Substances" means any toxic, caustic, or otherwise dangerous substance (whether
or not regulated under federal, state or local environmental statutes, rules,
ordinances, or orders), including (i) "hazardous substance" as defined in 42
U.S.C. Section 9601, and (ii) petroleum products, derivatives, byproducts and
other hydrocarbons.
SECTION 5.13. ASSETS; REAL PROPERTY; INTELLECTUAL PROPERTY.
(a) The Company and its subsidiaries own or have rights to
use all assets necessary to permit the Company and its
subsidiaries to conduct their business as it is currently being
conducted except where the failure to own or have the right to use
such assets would not, individually or in the aggregate, have or
constitute a Company Material Adverse Effect.
(b) Except as previously disclosed to Parent and the
Purchaser, the Company has, either directly or through its
subsidiaries, (i) good, valid and marketable or indefeasible title
to all real property material to its business operations, free and
clear of any liens, encumbrances, mortgages and security interests
other than Permitted Liens (as hereinafter defined), or (ii)
rights by lease or other agreement to use all such real property.
The term "Permitted Liens" shall mean (i) liens or encumbrances
for water, sewage and similar charges and current taxes and
assessments not yet due and payable or being contested in good
faith, (ii) mechanics', carriers', workers', repairers',
materialmen's, warehousemen's and other similar liens or
encumbrances arising or incurred in the ordinary course of
business, (iii) liens, encumbrances, mortgages and security
interests arising or resulting from any action taken by Parent or
the Purchaser, (iv) liens, encumbrances, mortgages and security
interests of record or securing indebtedness described in the SEC
Documents and (v) easements, rights of way,
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restrictions and other similar charges or encumbrances that do not
materially interfere with the ordinary conduct of the Company's
business. All material real property leases under which the
Company or any of its subsidiaries is a lessee or lessor are
valid, binding and enforceable in all material respects in
accordance with their terms, and there are no existing defaults
thereunder which would, individually or in the aggregate, have a
Company Material Adverse Effect.
(c) Neither the Company nor any of its subsidiaries now or in
the past has manufactured or sold products which conflict with or
infringe upon any proprietary rights of others except where such
conflict or infringement would not, individually or in the
aggregate, have or constitute a Company Material Adverse Effect.
To the Company's knowledge, none of the Intellectual Property of
the Company or any of its subsidiaries is infringed or challenged
or threatened in any way, except for infringements, challenges or
threats which would not individually or in the aggregate have or
constitute a Company Material Adverse Effect. "Intellectual
Property" means trademarks, trade names, service marks, service
names, mark registrations, logos, assumed names, copyright
registrations, patents and all applications therefor and all other
similar proprietary rights.
SECTION 5.14. LABOR MATTERS. Neither the Company nor any of its
subsidiaries has, since July 1, 1993, (i) been subject to, or threatened with,
any material strike, lockout or other labor dispute or engaged in any unfair
labor practice, the result of which had or constituted, or could reasonably be
expected to have or constitute, a Company Material Adverse Effect, or (ii)
received notice of any pending petition for certification before the National
Labor Relations Board with respect to any material group of employees of the
Company or any of its subsidiaries who are not currently organized. The
Company has provided to Parent copies of each collective bargaining agreement
to which the Company or any subsidiary is a party.
SECTION 5.15. RIGHTS AGREEMENT. The Board has taken all necessary action
(i) to provide that neither Parent nor the Purchaser will become an "Acquiring
Person," that no "Stock Acquisition Date" or "Distribution Date" (as such terms
are defined in the Rights Agreement) will occur and that Sections 11 and 13 of
the Rights Agreement will not be triggered, in each case as a result of the
announcement, commencement or consummation of the Offer, the execution or
delivery of this Agreement or any amendment hereto, the consummation of the
Merger, or the consummation of any other transactions contemplated hereby or
thereby, and (ii) at the request of Parent or the Purchaser, to redeem the
Rights effective immediately prior to the Purchaser's acceptance of Shares for
purchase pursuant to the Offer.
SECTION 5.16. INFORMATION. None of the Schedule 14D-9, the Proxy
Statement, if any, or any other document filed or to be filed by or on behalf
of the Company with the SEC or any other governmental entity in connection with
the transactions contemplated by this Agreement contained when filed or will,
at the respective times filed with the SEC or other governmental entity and, in
addition, in the case of the Proxy Statement, if any, at the date it or any
amendment or supplement is mailed to stockholders and at the time of any
Special Meeting,
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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 light of the circumstances under which they were made, not
misleading; provided that the foregoing shall not apply to information supplied
by Parent or the Purchaser specifically for inclusion or incorporation by
reference in any such document. The Schedule 14D-9 and the Proxy Statement, if
any, will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. None of the information
supplied by the Company specifically for inclusion or incorporation by
reference in the Offer Documents or in any other document filed or to be filed
by or on behalf of Parent or the Purchaser with the SEC or any other
governmental entity in connection with the transactions contemplated by this
Agreement contains, or will contain, any untrue statement of a material fact
or omits, 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 5.17. DELAWARE SECTION 203. The Board has taken all appropriate
and necessary action such that the provisions of Section 203 of the DGCL will
not apply to any of the transactions contemplated by this Agreement, including
the Letter Agreements.
SECTION 5.18. BROKER'S FEES. Except for Goldman Sachs & Co., whose fees
are set forth in the engagement letter previously provided by the Company to
Parent, neither the Company nor any of its subsidiaries or any of its directors
or officers has incurred any liability for any broker's fees, commissions, or
financial advisory or finder's fees in connection with any of the transactions
contemplated by this Agreement, and neither the Company nor any of its
subsidiaries or any of its directors or officers has employed any other broker,
finder or financial advisor in connection with any of the transactions
contemplated by this Agreement.
SECTION 5.19. REPRESENTATIONS AND WARRANTIES. None of the information
contained in the representations and warranties of the Company set forth in
this Agreement or in any certificate or writing delivered to Parent or the
Purchaser as contemplated by this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PARENT
AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as follows:
SECTION 6.1. ORGANIZATION. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing (to the
extent applicable) under the laws of its state of incorporation and each of
Parent and the Purchaser has all requisite corporate power and
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authority to own, lease and operate its properties and to carry on its business
as now being conducted. Purchaser is a wholly-owned subsidiary of Parent.
SECTION 6.2. AUTHORITY. Each of Parent and the Purchaser has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized and approved by the Board of Directors of
each of Parent and the Purchaser and by Parent as the sole stockholder of the
Purchaser and no other corporate proceedings are necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by each of Parent
and the Purchaser and, assuming this Agreement constitutes a legal, valid and
binding agreement of the Company, it constitutes a legal, valid and binding
agreement of each of Parent and the Purchaser, enforceable against them in
accordance with its terms.
SECTION 6.3. NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby nor
compliance by Parent or the Purchaser with, any of the provisions
hereof will (i) violate any provision of their respective articles
or certificates of incorporation or by-laws, (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 or any right which
becomes effective upon the occurrence of a merger, under, any of
the terms, conditions or provisions of any note, bond, mortgage,
indenture or other instrument of indebtedness for money borrowed
to which Parent or the Purchaser is a party, or by which Parent or
the Purchaser or any of their respective properties is bound,
(iii) 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 or
any right which becomes effective upon the occurrence of a merger,
under any of the terms, conditions or provisions of any license,
franchise, permit or agreement to which Parent or the Purchaser is
a party, or by which Parent or the Purchaser or any of their
respective properties is bound, or (iv) violate any statute, rule,
regulation, order or decree of any public body or authority by
which Parent or the Purchaser or any of its respective properties
is bound, excluding from the foregoing clauses (ii), (iii) and
(iv) violations, breaches, defaults or rights which, either
individually or in the aggregate, would not have a material
adverse effect on Parent's or the Purchaser's ability to perform
their respective obligations pursuant to this Agreement or
consummate the Offer and the Merger (a "Parent Material Adverse
Effect") or for which Parent or the Purchaser has received or,
prior to the consummation of the Offer, shall have received
appropriate consents or waivers.
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(b) No filing or registration with, notification to, or
authorization, consent or approval of, any governmental entity is
required by Parent or the Purchaser in connection with the
execution and delivery of this Agreement, or the consummation by
Parent or the Purchaser of the transactions contemplated hereby,
except (i) expiration of the waiting period under the HSR Act,
(ii) in connection, or in compliance, with the provisions of the
Exchange Act, (iii) the filing of the Certificate of Merger with
the Delaware Secretary of State, (iv) such filings and consents as
may be required under any environmental law pertaining to any
notification, disclosure or required approval triggered by the
Merger or the transactions contemplated by this Agreement and (v)
such other consents, orders, authorizations, registrations,
declarations and filings not obtained prior to the Effective Time
the failure of which to be obtained or made would not,
individually or in the aggregate, have a Parent Material Adverse
Effect.
SECTION 6.4. INFORMATION. Neither the Offer Documents nor any other
document filed or to be filed by or on behalf of Parent or the Purchaser with
the SEC or any other governmental entity in connection with the transactions
contemplated by this Agreement contained when filed or will, at the respective
times filed with the SEC or other governmental entity, 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
light of the circumstances under which they were made, not misleading; provided
that the foregoing shall not apply to information supplied by the Company
specifically for inclusion or incorporation by reference in any such document.
None of the information supplied by Parent or the Purchaser specifically for
inclusion or incorporation by reference in the Schedule 14D-9, the Proxy
Statement, if any, or any other document filed or to be filed by or on behalf
of the Company with the SEC or any other governmental entity in connection with
the transactions contemplated by this Agreement contains, or will contain, any
untrue statement of a material fact or omits, 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 6.5. FINANCING. The Purchaser has available to it committed
funds sufficient to allow it to timely consummate the transactions contemplated
by this Agreement.
ARTICLE VII
COVENANTS
SECTION 7.1. CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated
by this Agreement or as expressly agreed to in writing by Parent, during the
period from the date hereof to the Effective Date, the Company will not, nor
will it permit any of its subsidiaries to, conduct its operations otherwise
than in the ordinary course of business consistent with past practice. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in
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this Agreement, prior to the Effective Date, the Board will not, without the
prior written consent of Parent or the Purchaser, permit the Company or any of
its subsidiaries to:
(a) amend or propose to amend its certificate or articles of
incorporation or by-laws (or similar constituent documents);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights
to purchase or otherwise) any stock of any class or any other
securities or equity equivalents (including, without limitation,
any stock options or stock appreciation rights), except for Shares
issued upon exercise of Options outstanding as of the date of this
Agreement (in accordance with their respective terms) or pursuant
to the existing terms of the Rights Agreement, or amend any of the
terms of any such securities or agreements outstanding as of the
date hereof, except as specifically contemplated by this
Agreement;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem or
otherwise acquire any of its securities or any securities of its
subsidiaries; provided, however, that the Company shall be allowed
to pay the normal quarterly cash dividend for the first quarter of
1996 in the amount of $0.09 per Share, payable on or about March
21, 1996 to stockholders of record on March 7, 1996;
(d) (i) incur, assume or prepay any long-term or short-term
debt or issue any debt securities except for borrowing under
existing lines of credit or prepayments in the ordinary course of
business; (ii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or
otherwise) for any material obligations of any other person except
for obligations of wholly-owned subsidiaries of the Company; (iii)
make any loans, advances or capital contributions to, or
investments in, any other person (other than to wholly-owned
subsidiaries of the Company or customary loans or advances to
employees in the ordinary course of business consistent with past
practice and in amounts not material to the maker of such loan or
advance); (iv) pledge or otherwise encumber shares of capital
stock of the Company or any of its subsidiaries; or (v) mortgage
or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any lien thereupon, excluding Permitted
Liens.
(e) except as may be required by law or as contemplated by
this Agreement, enter into, adopt or amend or terminate any bonus,
profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance
unit, stock equivalent, stock purchase agreement,
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pension, retirement, deferred compensation, employment, severance
or other employee benefit agreement, trust (except for the trusts
to be established pursuant to the Company's directors' retirement
plan), plan, fund or other arrangement for the benefit or welfare
of any director, officer or employee in any manner, or (except for
normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do not result in a
material increase in benefits or compensation expense to the
Company, and as required under existing agreements) increase in
any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any plan
and arrangement as in effect as of the date hereof (including,
without limitation, the granting of stock options, stock
appreciation rights or performance units);
(f) acquire, sell, lease or dispose of any assets outside the
ordinary course of business or any assets which in the aggregate
are material to the Company and its subsidiaries taken as a whole,
or enter into any commitments, contracts, agreements or
transactions outside the ordinary course of business consistent
with past practice or which would, individually or in the
aggregate, be material to the Company and its subsidiaries taken
as a whole, or modify, amend, terminate or waive any material
rights under any material contract or agreement;
(g) except as may be required as a result of a change in law
or in generally accepted accounting principles (after consultation
with Parent as to the effect of any such change), change any of
the accounting principles or practices used by it;
(h) (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein;
(ii) enter into any contract or agreement other than in the
ordinary course of business consistent with past practice which
would be material to the Company and its subsidiaries taken as a
whole; or (iii) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action
that would be prohibited hereunder;
(i) revalue in any material respect any of its assets,
including, without limitation, writing down the value of inventory
or writing-off notes or accounts receivable other than in the
ordinary course of business;
(j) make any tax election or settle or compromise any
federal, state or local tax liability or assent to the extension
of time for collection or assessment of any federal, state or
local tax (provided the Company and its subsidiaries may extend
the time for filing 1995 tax returns in accordance with past
practice);
(k) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than
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the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the
notes thereto) of the Company and its subsidiaries or incurred in
the ordinary course of business consistent with past practice;
(l) settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby
or material to the Company and its subsidiaries take as a whole,
except for the contemplated settlements with insurance carriers
concerning environmental liabilities as disclosed to Parent (and
the Company agrees to consult with Parent prior to finalizing such
settlements);
(m) authorize any new capital expenditure or expenditures
which individually is in excess of $100,000 or in the aggregate
are in excess of $1,000,000; or
(n) take, or agree in writing or otherwise to take, any of
the actions described in Sections 7.1(a) through 7.1(m) or take,
or omit to take, any action which would make any of the
representations or warranties of the Company contained in this
Agreement untrue or incorrect in any material respect as of the
date when made or would result in any of the conditions set forth
in Annex I not being satisfied.
SECTION 7.2. NO SOLICITATION.
(a) The Company shall, and shall direct its officers,
directors, employees, representatives and agents to, immediately
cease any existing discussions and negotiations with any parties
conducted heretofore with respect to any proposal relating to an
Acquisition Transaction. The Company agrees that, prior to the
Effective Time, it shall not, and shall not authorize or permit
any of its subsidiaries or any of its or its subsidiaries'
directors, officers, employees, agents or representatives,
directly or indirectly, to solicit, initiate, facilitate or
encourage (including by way of furnishing or disclosing non-public
information) any inquiries or the making of any proposal with
respect to any acquisition of all or substantially all of the
Company by means of a merger, consolidation or other business
combination involving the Company or its subsidiaries or
acquisition of all or substantially all of the assets or capital
stock of the Company and its subsidiaries taken as a whole (an
"Acquisition Transaction") or, subject to the proviso to this
Section 7.2, negotiate, explore or otherwise engage in substantive
communications in any way with any person (other than Parent, the
Purchaser or their respective directors, officers, employees,
agents and representatives) with respect to any Acquisition
Transaction, or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to
consummate the Merger or any other transactions contemplated by
this Agreement; provided that, notwithstanding the foregoing, the
Company may, in response to an unsolicited
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written proposal with respect to an Acquisition Transaction from a
third party reasonably believed to have the financial capability
to consummate an Acquisition Transaction, furnish information to,
and negotiate, explore or otherwise engage in substantive
discussions with, such third party, in each case if the Board
determines in good faith by a majority vote, after consultation
with its financial advisors and after receipt of the written
advice of the outside legal counsel of the Company, that such
action is required by applicable law (including fiduciary
principles thereof).
(b) The Company shall immediately advise Parent in writing of
the receipt of any inquiries or proposals relating to an
Acquisition Transaction and any actions taken pursuant to Section
7.2(a).
SECTION 7.3. ACCESS TO INFORMATION. From the date of this Agreement
until the Effective Time, the Company will give Parent and its authorized
representatives (including counsel, environmental and other consultants,
financial advisors, accountants, banks, financial institutions and auditors)
full access during normal business hours to all facilities, personnel and
operations and to all books and records of the Company and its subsidiaries,
will permit Parent to make such inspections as it may reasonably require and
will cause its officers and those of its subsidiaries to furnish Parent with
such financial and operating data and other information with respect to its
business and properties as Parent may from time to time request. All such
information shall be held in confidence in accordance with the terms of the
Confidentiality Agreement (the "Confidentiality Agreement") between Parent and
the Company dated December 13, 1995, the terms of which are hereby incorporated
herein.
SECTION 7.4. REASONABLE BEST EFFORTS; OTHER ACTIONS. Subject to the
terms and conditions herein provided and applicable law, each of the Company,
Parent and the Purchaser shall use its reasonable best efforts promptly to
take, or cause to be taken, all other actions and do, or cause to be done, all
other things necessary, proper or appropriate under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including, without limitation, using such reasonable best
efforts to (i) obtain all necessary consents, approvals or waivers under its
material contracts, (ii) cooperate in making available information and
personnel to the lenders to Parent and the Purchaser with respect to financing
for the transactions contemplated by this Agreement and (iii) lift any legal
bar to the Merger; provided, however, that the foregoing shall not require
Parent, the Purchaser or any other affiliate of Parent to agree to any action
or restriction which, if imposed by a governmental entity, would constitute a
condition described in paragraph (a) of Annex I to this Agreement. If any
"fair price," "moratorium," "control share acquisition" or other form of
antitakeover statute, regulation, charter provision or contract is or becomes
applicable to the transactions contemplated by this Agreement, the Company will
use its reasonable efforts to grant such approvals and take such actions as are
necessary under such laws, provisions or contracts so that the transactions
contemplated by this Agreement may be consummated as promptly as practicable on
the terms contemplated by this Agreement and otherwise act to eliminate or
minimize the
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effects of such statute, regulation, provision or contract on the transactions
contemplated by this Agreement.
SECTION 7.5. PUBLIC ANNOUNCEMENTS. Before issuing any press release or
otherwise making any public statements with respect to this Agreement, the
Offer or the Merger, Parent, the Purchaser and the Company will consult with
each other as to its form and substance and shall not issue any such press
release or make any such public statement prior to such consultation, except in
either case as may be required by law or any obligations pursuant to any
listing agreement with any national securities exchange.
SECTION 7.6. NOTIFICATION OF CERTAIN MATTERS. Each of the Company and
Parent shall give prompt notice to the other party of (i) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which would
be likely to cause either (A) any representation or warranty of any party
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the acceptance for payment of Shares
pursuant to the Offer, (B) any condition set forth in Annex I to be unsatisfied
at any time from the date hereof to the date the Purchaser purchases Shares
pursuant to the Offer or (C) any condition set forth in Article VIII hereof to
be unsatisfied at any time from the date hereof to the Effective Time, and (ii)
any material failure of the Company or Parent, as the case may be, or any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 7.6 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 7.7. INDEMNIFICATION.
(a) From and after the purchase of Shares pursuant to the
Offer, Parent shall indemnify, defend and hold harmless, and shall
cause the Surviving Corporation (including, if necessary,
providing the Surviving Corporation with sufficient funds) to
indemnify, defend and hold harmless, the present and former
officers, directors (including the Company's Advisory Director),
employees and agents of the Company and its subsidiaries (the
"Indemnified Parties") against all losses, claims, damages,
expenses or liabilities arising out of actions or omissions or
alleged actions or omissions occurring at or prior to the
Effective Time to the same extent and on the same terms and
conditions (including with respect to advancement of expenses)
provided for in the Company's Certificate of Incorporation and
By-Laws and agreements in effect at the date hereof (to the extent
consistent with applicable law).
(b) For a period of six years after the Effective Time,
Parent shall cause to be maintained in effect the current policies
of directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor policies of
at least the same coverage and amounts containing terms and
conditions which are no less advantageous) with respect to claims
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arising from facts or events which occurred before the Effective
Time; provided, however, that Parent shall not be obligated to
make annual premium payments for such insurance to the extent such
premiums exceed 175% of the annual premiums paid as of the date
hereof by the Company for such insurance (the "Maximum Amount").
If the amount of the annual premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount, Parent
and the Surviving Corporation shall maintain the most advantageous
policies of directors' and officers' insurance obtainable for an
annual premium equal to the Maximum Amount.
(c) The provisions of this Section 7.7 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified
Party, and their respective heirs, legal representatives,
successors and assigns.
SECTION 7.8. EXPENSES. Except as set forth in Section 9.6 hereof,
Parent, the Purchaser and the Company shall each bear their respective expenses
incurred in connection with this Agreement, the Offer and the Merger,
including, without limitation, the preparation, execution and performance of
this Agreement and the transactions contemplated hereby, and all fees and
expenses of investment bankers, finders, brokers, agents, representatives,
counsel and accountants.
SECTION 7.9. RIGHTS AGREEMENT. Except as contemplated by Section 5.15
hereof or the last sentence of this Section 7.9, the Company shall not redeem
the Rights or amend or terminate the Rights Agreement prior to the consummation
of the Merger unless required to do so by order of a court of competent
jurisdiction or fiduciary obligation as advised in writing by outside counsel.
The Company will take any necessary further actions to cause the Rights not to
be outstanding upon consummation of the Merger. If requested to do so by
Parent or the Purchaser, the Company shall redeem all outstanding Rights at a
redemption price of $0.05 per Right effective immediately prior to the
acceptance for payment of any Shares by the Purchaser pursuant to the Offer.
SECTION 7.10. STANDSTILL AGREEMENT. For a period of three years from
the date of this Agreement, Parent shall not, directly or indirectly, except
pursuant to this Agreement: (a) acquire or agree, offer, seek or propose to
acquire, or cause to be acquired, ownership of any of the Company's assets or
businesses or any voting securities issued by the Company, or any other rights
or options to acquire that ownership (including from a third party); (b) seek
or propose to influence or control the Company's management or policies; or (c)
enter into any discussions, negotiations, arrangements or understandings with
any third party with respect to any of the foregoing.
SECTION 7.11. LETTER AGREEMENT INDEMNIFICATION. In the Letter
Agreements, and as a condition to obtaining the same, Parent agreed to
indemnify and hold harmless the stockholder signatories thereto from and
against any and all claims by third parties or Parent (and its affiliates),
judgments, fines, penalties, liabilities, fees and expenses (including, without
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<PAGE> 31
limitation, reasonable attorneys' fees) that may be asserted against or
incurred by such stockholder signatories in connection with their entering into
the Letter Agreements or their compliance with the terms thereof, provided that
such indemnity does not protect the stockholder signatories against (i) any
violations of law (other than violations alleged to have occurred as a result
of their compliance with the terms and conditions of the Letter Agreements) or
(ii) any breach by the stockholder signatories of their commitments in the
Letter Agreements. The Company hereby agrees to indemnify and hold Parent
harmless from and against any liability, cost, or expense (including reasonable
attorneys' fees) incurred by it in providing the indemnification required under
the Letter Agreements; provided, however, that the foregoing indemnity of the
Company shall terminate upon the purchase of Shares by Parent pursuant to the
Offer. In the event that any claim is made which gives rise or may give rise
to the Company's obligation to indemnify Parent hereunder, Parent shall
promptly notify the Company and the Company shall be entitled to assume the
defense, settlement or other disposition thereof.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF PARENT,
THE PURCHASER AND THE COMPANY
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction or, if permissible, waiver at or prior to the
Effective Time of each of the following conditions:
SECTION 8.1. PURCHASE OF SHARES. The Purchaser shall have accepted for
payment and paid for Shares pursuant to the Offer in accordance with the terms
thereof; provided that this condition shall be deemed to have been satisfied
with respect to the obligation of Parent and the Purchaser to effect the Merger
if the Purchaser fails to accept for payment or pay for Shares pursuant to the
offer in violation of the terms of the Offer.
SECTION 8.2. STOCKHOLDER APPROVAL. The vote of the stockholders of the
Company necessary to consummate the transactions contemplated by this Agreement
shall have been obtained, if required by applicable law.
SECTION 8.3. NO LEGAL IMPEDIMENTS. No statute, rule or regulation shall
have been promulgated, enacted, entered or enforced, and no other legally
binding, final and nonappealable action shall have been taken, by any domestic,
foreign or supranational government or governmental, administrative or
regulatory authority or agency of competent jurisdiction or by any court or
tribunal of competent jurisdiction, domestic, foreign or supranational, that in
any of the foregoing cases has the effect of making illegal or directly or
indirectly restraining, prohibiting or restricting the consummation of the
Merger. Any waiting period applicable to the Merger under the HSR Act shall
have terminated or expired.
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<PAGE> 32
ARTICLE IX
TERMINATION AND ABANDONMENT
SECTION 9.1. TERMINATION. This Agreement may be terminated (and the
Merger contemplated hereby may be abandoned notwithstanding approval thereof by
the stockholders of the Company, in which case the Offer shall also be
abandoned unless the Purchaser has already purchased Shares pursuant thereto)
at any time prior to the Effective Time:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if, without any material
breach of such terminating party of its obligations under this
Agreement, the purchase of Shares pursuant to the Offer shall not
have occurred on or before May 31, 1996 (or, in the event Parent
or the Company receives a request for additional information under
the HSR Act, the earlier of (i) July 31, 1996, or (ii) the
earliest date following the expiration of the waiting period under
the HSR Act, as extended by such request, on which the Purchaser
may purchase shares pursuant to the terms of the Offer and the
applicable rules and regulations of the SEC), which dates may be
extended by mutual written consent of the parties hereto and which
shall automatically be extended in certain instances as provided
in subparagraphs (c) and (d) of the Condition to Offer attached as
Annex I;
(c) by Parent or the Company if the Offer expires or is
terminated or withdrawn pursuant to its terms without any Shares
being purchased thereunder; provided however, that Parent may not
terminate this Agreement pursuant to this Section 9.1(c) if
Parent's or the Purchaser's termination of, or failure to accept
for payment or pay for any Shares tendered pursuant to, the Offer
does not follow the occurrence, or failure to occur, as the case
may be, of any condition set forth in Annex I hereto or is
otherwise in violation of the terms of the Offer or this
Agreement; or
(d) by either Parent or the Company if any court of competent
jurisdiction in the United States or other governmental body in
the United States shall have issued an order (other than a
temporary restraining order), decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the
purchase of Shares pursuant to the Offer or the Merger, and such
order, decree, ruling or other action shall have become final and
nonappealable; provided that the party seeking to terminate this
Agreement shall have used its reasonable best efforts, subject to
Section 7.4, to remove or lift such order, decree or ruling.
SECTION 9.2. TERMINATION BY PARENT. This Agreement may be terminated and
the Offer and the Merger may be abandoned by Parent, at any time prior to the
purchase of Shares pursuant to the Offer, if (a) the representations or
warranties of the Company contained in this
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<PAGE> 33
Agreement are not true and correct at and as of any date prior to the
expiration date of the Offer as if made at and as of such time, except for (i)
failures to be true and correct as could not, individually or in the aggregate,
reasonably be expected to result in a Company Material Adverse Effect and (ii)
failures to comply as are capable of being and are cured (other than by mere
disclosure of the breach) within 10 days after written notice from the
Purchaser to the Company of such failure; (b) the Company has failed to comply
with its obligations under this Agreement, except for (i) failures to so comply
as could not, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect and (ii) failures to comply as are
capable of being and are cured within 10 days after written notice from the
Purchaser to the Company of such failure; (c) the Board shall (i) withdraw its
recommendation or approval in respect of this Agreement or Offer or (ii) modify
or change its recommendation or approval in respect of this Agreement, the
Offer or the Merger in a manner adverse to Parent; or (d) the Board shall have
recommended any proposal other than by Parent or the Purchaser in respect of an
Acquisition Transaction.
SECTION 9.3. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the Merger may be abandoned by the Company, (a) at any time
prior to the purchase of Shares pursuant to the Offer upon receipt of an
Acquisition Transaction proposal that contains no financing condition which the
Board in good faith determines in the exercise of its fiduciary duties (based
as to legal matters on the written opinion of legal counsel and after
consultation with its financial advisor) it is required to accept by applicable
law including the fiduciary principles thereof; or (b) at any time prior to the
Effective Time if (i) the representations and warranties of Parent or the
Purchaser contained in this Agreement are not true and correct as if made at
and as of such time, except for (A) failures to be true and correct as could
not, individually or in the aggregate, reasonably be expected to result in a
Parent Material Adverse Effect and (B) failures to comply as are capable of
being and are cured (other than by mere disclosure of the breach) within 10
days after written notice from the Company to Parent of such failure; or (ii)
Parent or the Purchaser has failed to comply with their respective obligations
under this Agreement, except for (X) failures to so comply as could not,
individually or in the aggregate, reasonably be expected to result in a Parent
Material Adverse Effect and (Y) failures to comply as are capable of being and
are cured within 10 days after written notice from the Company to Parent of
such failure.
SECTION 9.4. PROCEDURE FOR TERMINATION. In the event of termination and
abandonment of the Merger and the Offer by Parent or the Merger by the Company
pursuant to this Article IX, written notice thereof shall be given to the
other.
SECTION 9.5. EFFECT OF TERMINATION. In the event of termination of this
Agreement pursuant to and in accordance with this Article IX, the Merger shall
be deemed abandoned and this Agreement shall forthwith become void, except as
provided in the last sentence of Section 7.3 and in Sections 7.8, 7.10 and 7.11
(which Sections shall survive any termination of this Agreement), without
liability on the part of any party hereto or its affiliates, directors,
officers or stockholders except as provided in Section 9.6 and except for any
willful or bad faith
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<PAGE> 34
default of any obligation or undertaking hereunder, and each of the parties
hereto hereby waives and releases any other claim which may otherwise exist
upon such termination.
SECTION 9.6. TERMINATION FEE. In the event that following receipt by the
Company of an Acquisition Termination proposal this Agreement is terminated by
Parent pursuant to Section 9.2(c) or (d) or by the Company pursuant to Section
9.3(a), the Company shall promptly pay to Parent (but in any event within three
business days after termination) the sum of $3,000,000, provided that no fee
shall be payable if Parent or the Purchaser shall be in material breach of any
of its material representations, warranties or obligations hereunder as of the
date of termination. If such fee is payable and within 365 days after such
termination an Acquisition Transaction is consummated, the Company shall
promptly pay to Parent (but in any event within three business days after the
consummation of the Acquisition Transaction) the additional sum of $5,000,000.
ARTICLE X
DEFINITIONS
SECTION 10.1. TERMS DEFINED IN AGREEMENT. The following terms used
herein shall have the meanings ascribed in the indicated sections.
<TABLE>
<S> <C>
Acquiring Person ................. 5.15
Acquisition Transaction .......... 7.2 (a)
Agreement ........................ Preamble
Board ............................ Recitals
Certificate of Merger ............ 2.2
Certificates ..................... 4.2 (a)
Code ............................. 5.9
Company .......................... Preamble
Company Material Adverse Effect .. 5.1
Company Permits .................. 5.8
Company Preferred Stock .......... 5.2
Confidentiality Agreement ........ 7.3
Constituent Corporations ......... Preamble
Control Date ..................... 1.3(a)
Delaware Secretary of State ...... 2.2
DGCL ............................. Recitals
Dissenting Shares ................ 4.1
Distribution Date ................ 5.15
Effective Time ................... 2.2
Environmental Laws ............... 5.12
ERISA ............................ 5.11(a)
ERISA Affiliate .................. 5.11(a)
</TABLE>
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<PAGE> 35
<TABLE>
<S> <C>
Exchange Act ..................... 1.1(a)
Hazardous Substances ............. 5.12
HSR Act .......................... 5.4(b)
Including ........................ 11.8
Indemnified Parties .............. 7.7(a)
Intellectual Property ............ 5.13(c)
Letter Agreements ................ Recitals
Maximum Amount ................... 7.7(b)
Merger ........................... 2.1(a)
Merger Price ..................... 3.1(a)
Minimum Condition ................ Annex I
Offer ............................ 1.1(a)
Offer Documents .................. 1.1(c)
Option ........................... 3.2(a)
Parent ........................... Preamble
Parent Material Adverse Effect ... 6.3(a)
Paying Agent ..................... 4.2(a)
PBGC ............................. 5.11(a)
Permitted Liens .................. 5.13(b)
Person ........................... 11.8
Plans ............................ 5.11(a)
Proxy Statement .................. 3.3(a)(ii)
Purchaser ........................ Preamble
Rights ........................... 1.1(a)
Rights Agreement ................. 1.1(a)
Schedule 14D-9 ................... 1.2(b)
SEC .............................. 1.1(c)
SEC Documents .................... 5.5(a)
Shares ........................... 1.1(a)
Special Meeting .................. 3.3(a)(i)
Stock Acquisition Date ........... 5.15
Subsidiary ....................... 11.8
Surviving Corporation ............ 2.1(a)
Tax .............................. 5.9
</TABLE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. AMENDMENT AND MODIFICATION. At any time prior to the
Effective Time, subject to applicable law and the provisions of Section 1.3(c)
hereof, this Agreement may be amended, modified or supplemented only by written
agreement (referring specifically to this Agreement) of Parent, the Purchaser
and the Company with respect to any of the terms
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<PAGE> 36
contained herein; provided, however, that after any approval and adoption of
this Agreement by the stockholders of the Company, no such amendment,
modification or supplementation shall be made which reduces the Merger Price or
the form of consideration therefor or which in any way materially adversely
affects the rights of such stockholders, without the further approval of such
stockholders.
SECTION 11.2. WAIVER. Subject to the provisions of Section 1.3(c), at
any time prior to the Effective Time, Parent and the Purchaser, on the one
hand, and the Company, on the other hand, may (i) extend the time for the
performance of any of the obligations or other acts of the other, (ii) waive
any inaccuracies in the representations and warranties of the other contained
herein or in any documents delivered pursuant hereto and (iii) waive compliance
by the other with any of the agreements or conditions contained herein which
may legally be waived. Any such extension or waiver shall be valid only if set
forth in an instrument in writing specifically referring to this Agreement and
signed on behalf of such party.
SECTION 11.3. SURVIVABILITY; INVESTIGATIONS. The respective
representations and warranties of Parent, the Purchaser and the Company
contained herein or in any certificates or other documents delivered prior to
or as of the Effective Time (i) shall not be deemed waived or otherwise
affected by any investigation made by any party hereto and (ii) shall not
survive beyond the Effective Time. The covenants and agreements of the parties
hereto (including the Surviving Corporation after the Merger) shall survive the
Effective Time without limitation (except for those which, by their terms,
contemplate a shorter survival period).
SECTION 11.4. NOTICES. All notices and other communications hereunder
shall be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof). Any such notice shall be effective upon receipt,
if personally delivered or telecopied, or one day after delivery to a courier
for next day delivery.
(a) if to the Company, to
Guardsman Products, Inc.
3033 Orchard Vista Drive, Suite 200
P.O. Box 1521
Grand Rapids, Michigan 49501
Telecopy: (616) 957-1236
Attention: President and Chief Executive Officer
with a copy to:
Warner Norcross & Judd LLP
900 Old Kent Building
111 Lyon St., N.W.
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<PAGE> 37
Grand Rapids, Michigan 49503-2489
Telecopy: (616) 752-2510
Attention: Tracy T. Larsen, Esq.
(b) if to Parent or the Purchaser, to
Lilly Industries, Inc.
733 South West Street
Indianapolis, Indiana 46225
Telecopy: (317) 687-6702
Attention: Chairman, President and Chief Executive Officer
with a copy to:
Barnes & Thornburg
1313 Merchants Bank Building
Indianapolis, Indiana 46204
Telecopy: (317) 231-7433
Attention: Catherine L. Bridge, Esq.
SECTION 11.5. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties, provided that Parent may assign the rights and obligations of the
Purchaser under this Agreement to any direct or indirect wholly-owned
subsidiary of Parent, but no such assignment will relieve any party of its
obligations under this Agreement. This Agreement, except for the provisions of
Sections 3.2(a) and 7.7 (which are intended to be for the benefit of the
persons identified therein, and may be enforced by such persons), is not
intended to confer any rights or remedies hereunder upon any other person
except the parties hereto.
SECTION 11.6. GOVERNING LAW. This Agreement shall be governed by the
laws of the State of Delaware, except for Section 7.11 above which shall be
governed by the laws of the State of Michigan (regardless of the laws that
might otherwise govern under applicable Delaware (or as to Section 7.11
Michigan) principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
SECTION 11.7. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 11.8. INTERPRETATION. The article and section headings contained
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties
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<PAGE> 38
and shall not in any way affect the meaning or interpretation of this
Agreement. As used in this Agreement, (i) the term "person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a trust,
an unincorporated organization and a government or any department or agency
thereof; (ii) the term "subsidiary" of any specified corporation shall mean any
corporation of which a majority of the outstanding securities having ordinary
voting power to elect a majority of the board of directors are directly or
indirectly owned by such specified corporation or any other person of which a
majority of the equity interests therein are, directly or indirectly, owned by
such specified corporation; (iii) the term "including" and words of similar
import shall mean "including, without limitation," unless the context otherwise
requires or unless otherwise specified; and (iv) the term "to the knowledge of
the Company" (or words of similar import) shall mean to the knowledge of the
Chairman or any executive officer of the Company.
SECTION 11.9. POST-CONTROL DATE ACTIONS. Notwithstanding anything in
this Agreement to the contrary, from and after the Control Date the Company
shall not be deemed for purposes hereof to be in breach of this Agreement if
such breach was caused by Parent in its capacity as the controlling stockholder
of the Company or by action of the Board taken with the approval of a majority
of Parent's designees thereto.
SECTION 11.10. ENTIRE AGREEMENT. This Agreement, the Disclosure Letter
and the Confidentiality Agreement, embody the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein and supersedes all prior agreements and understandings
between the parties with respect to such subject matter. There are no
representations, promises, warranties, covenants or undertakings in respect of
such subject matter, other than those expressly set forth or referred to herein
and therein.
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
LILLY INDUSTRIES, INC.
By: /s/ Douglas W. Huemme
-------------------------------------
Name: Douglas W. Huemme
Title: President and CEO
"Parent"
LP ACQUISITION CORPORATION
By: /s/ Douglas W. Huemme
-------------------------------------
Name: Douglas W. Huemme
Title: President and CEO
"Purchaser"
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<PAGE> 39
GUARDSMAN PRODUCTS, INC.
By: /s/ Paul K. Gaston
------------------------------------
Name: Paul K. Gaston
Title: Chairman
"Company"
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<PAGE> 40
ANNEX I
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, the Purchaser shall not
accept Shares for payment if the condition that there shall be validly tendered
and not withdrawn prior to the expiration of the Offer a number of Shares which
represents at least a majority of the number of Shares outstanding on a fully
diluted basis (assuming the exercise of all outstanding Options) shall not have
been satisfied (the "Minimum Condition"), which condition may not be waived
without the Company's consent, and shall not be required to accept for payment
or, subject to any applicable rules and regulations of the SEC, including Rule
l4e-1(c) promulgated under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and (subject to any such rules or
regulations) may delay the acceptance for payment of any tendered Shares and
(except as provided in this Agreement) amend or terminate the Offer as to any
Shares not then paid for if (i) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer
or (ii) at any time after the date of this Agreement and before the time of
payment for any such Shares (whether or not any Shares have theretofore been
accepted for payment), any of the following conditions exists:
(a) there shall be in effect as of the Expiration Date (as
defined in the Offer Documents) an injunction or other order,
decree, judgment or ruling by a court of competent jurisdiction or
by a governmental, regulatory or administrative agency or
commission of competent jurisdiction or a statute, rule,
regulation, executive order or other action shall have been
promulgated, enacted, taken or threatened by a governmental
authority or a governmental, regulatory or administrative agency
or commission of competent jurisdiction which in any such case (i)
restrains or prohibits the making or consummation of the Offer or
the consummation of the Merger, (ii) results in a significant
delay in or significantly restricts the ability of the Purchaser,
or renders the Purchaser unable, to accept for payment, pay for or
purchase Shares sufficient to satisfy the Minimum Condition in the
Offer or the remaining Shares outstanding in the Merger (other
than as a result of the exercise of dissenters' rights and other
than for delays or restrictions that are not material to Parent
and the Purchaser), (iii) prohibits or restricts the ownership or
operation by Parent or the Purchaser (or any of their respective
affiliates or subsidiaries) of any portion of its or the Company's
business or assets which is material to the business of the
Company and its subsidiaries or of Parent and its subsidiaries or
compels Parent or the Purchaser (or any of their respective
affiliates or subsidiaries) to dispose of or hold separate any
portion of its or the Company's business or assets which is
material to the business of the Company and its subsidiaries or of
Parent and its subsidiaries, (iv) imposes material limitations on
the ability of the Purchaser effectively to acquire or to hold or
to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by the
Purchaser on all matters properly presented to the stockholders of
the Company, (v) imposes any material
<PAGE> 41
limitations on the ability of Parent or the Purchaser or any of
their respective affiliates or subsidiaries effectively to control
in any material respect the business and operations of the Company
and its subsidiaries, or (vi) which otherwise would materially
adversely affect the Company and its subsidiaries taken as a
whole; provided, however, that Parent and the Purchaser shall have
complied with Section 7.4 of this Agreement; or
(b) this Agreement shall have been terminated by the Company,
Parent or the Purchaser in accordance with its terms; or
(c) the representations or warranties of the Company
contained in this Agreement shall not be true and correct when
made or on the Expiration Date as if made as of such date, except
for (i) failures to be true and correct as could not, individually
or in the aggregate, reasonably be expected to result in a Company
Material Adverse Effect and (ii) failures to comply as are capable
of being and are cured (other than by mere disclosure of the
breach) within 10 days after written notice from the Purchaser to
the Company of such failure (in which case the Expiration Date
shall be extended to the end of such cure period or, if earlier,
the date of cure); or
(d) the Company shall have failed to comply with its
obligations under this Agreement, except for (i) failures to so
comply as could not, individually or in the aggregate, reasonably
be expected to result in a Company Material Adverse Effect and
(ii) failures to comply as are capable of being and are cured
within 10 days after written notice from the Purchaser to the
Company of such failure (in which case the Expiration Date shall
be extended to the end of such cure period or, if earlier, the
date of cure); or
(e) there shall have occurred on or after the date of this
Agreement and be continuing any development or developments with
respect to the Company or its subsidiaries which individually or
in the aggregate have had or constitute a Company Material
Adverse Effect, other than developments affecting generally the
industries and businesses in which the Company and its
subsidiaries operate; or
(f) there shall have occurred and be continuing (i) any
general suspension of, or limitation on prices for, trading in
securities on any national securities exchange or the
over-the-counter market, (ii) a declaration of, a banking
moratorium or any suspension of payments in respect of banks in
the United States (whether or not mandatory), (iii) the
commencement of a war, armed hostilities or other international or
national calamity directly involving the United States, (iv) from
the date of this Merger Agreement through the date of termination
or expiration of the Offer, a decline of at least 25 percent in
the Standard & Poor's 500 Index, (v) any limitation by any U.S.
governmental
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<PAGE> 42
authority or agency that materially affects generally the extension of
credit by banks or other financial institutions or (vi) in the case of
any of the foregoing existing at the time of the execution of this
Agreement, a material acceleration or worsening thereof; or
(g) Parent, the Purchaser and the Company shall have agreed
that the Purchaser shall amend the Offer to terminate the Offer or
postpone the payment for Shares pursuant thereto.
The foregoing conditions, other than Minimum Condition, are for the sole
benefit of Parent and the Purchaser and may be asserted by Parent or the
Purchaser regardless of the circumstances (including any action or inaction by
Parent or the Purchaser) giving rise to any such conditions and, except as
provided in this Agreement, may be waived by Parent or the Purchaser in whole
or in part at any time and from time to time in their sole discretion in each
case subject to the terms of this Agreement. The failure by Parent or the
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
-3-
<PAGE> 1
Lilly Industries, Inc. and Guardsman Products, Inc. Execute
Definitive agreement
INDIANAPOLIS--March 4, 1996--Douglas W. Huemme, Chairman, President
and Chief Executive Officer of Lilly Industries, Inc. (NYSE:LI) and Paul K.
Gaston, Chairman of the Board of Guardsman Products, Inc. (NYSE:GPI) today
jointly announced that Lilly and Guardsman have signed a definitive agreement
pursuant to which Lilly will acquire all of the outstanding common stock of
Guardsman for a cash purchase price of $23.00 per share or approximately $235
million in the aggregate. The agreement was approved by the unanimous vote of
all members of the Board of Directors of each company in attendance at today's
meetings.
Under the terms of the agreement, Lilly, through a wholly-owned
subsidiary, will make a cash tender offer for all Guardsman shares at a price
of $23.00 per share in cash, and upon successful completion of the tender
offer, the stock not tendered will be cashed out at $23.00 per share in a
statutory merger. Guardsman's three largest stockholders, collectively
representing approximately 50% of Guardsman's outstanding shares, have entered
into separate agreements with Lilly supporting the transaction. The
transaction remains subject to regulatory approval and certain other
conditions. Lilly will finance the transaction through bank financings, for
which firm commitments have been obtained.
Douglas W. Huemme, Chairman, President and Chief Executive Officer of
Lilly stated, "The acquisition of Guardsman is consistent with and accelerates
Lilly's stated goal of achieving annual sales of $500 million." Mr. Huemme
stated, "He expects the combined companies, within twelve to twenty-four
months, will realize synergistic integration savings in excess of $20 million
annually." Mr. Huemme further stated, "The growth opportunities
<PAGE> 2
from the integration of Lilly's and Guardsman's business and technology are
significant and represent added value for both customers and shareholders."
Paul K. Gaston, Chairman of the Board of Guardsman, stated that
Guardsman's decision to pursue a business combination with Lilly "resulted from
our long-standing efforts to obtain maximum value for our stockholders."
Guardsman Products, Inc. is a leading producer of customized industrial
coatings and a supplier of diversified consumer products with 1995 sales of
approximately $251 million. Founded in 1915, Guardsman presently has
manufacturing facilities in eight states and Canada, and operations in the
United Kingdom.
Lilly Industries, Inc., headquartered in Indianapolis, Indiana, is one
of the ten largest North American manufacturers of industrial coatings and
specialty chemical products and had fiscal 1995 sales of approximately $328
million. Lilly supplies coatings and specialty chemical products worldwide
from fourteen domestic and five international locations.
CONTACT: Lilly Industries, Inc., Indianapolis
Douglas W. Huemme/Roman J. Klusas, 317/687-6702
or
Guardsman Products, Inc.
Paul K. Gaston or Jeffrey Lambert, 616/957-2600
-2-
<PAGE> 1
AMENDMENT NO. 2 TO RIGHTS AGREEMENT, dated as of March 4,
1996, between GUARDSMAN PRODUCTS, INC., a Delaware corporation (the "Company"),
and Chemical Bank (formerly Manufacturers Hanover Trust Company) (the "Rights
Agent"), amending the Rights Agreement, dated as of August 8, 1986, as amended,
between the Company and the Rights Agent (the "Rights Agreement").
W I T N E S S E T H
WHEREAS, the Board of Directors of the Company has approved an
Agreement and Plan of Merger (the "Merger Agreement") by and among the Company,
Lilly Industries, Inc., an Indiana corporation ("Lilly"), and LP Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of Lilly
("LP"), providing for LP to commence an all-cash tender offer for all
outstanding shares of common stock of the Company (the "Offer") and for the
subsequent merger of LP into the Company (the "Merger");
WHEREAS, the Board of Directors of the Company has determined
that the Offer and the Merger are fair to and in the best interests of the
Company and its stockholders;
WHEREAS, the willingness of Lilly and LP to enter into the
Merger Agreement is conditioned on, among other things, the amendment of the
Rights Agreement on the terms set forth herein; and
WHEREAS, Section 26 of the Rights Agreement provides that,
among other things, prior to the Distribution Date and subject to the
restrictions set forth in the penultimate sentence of such Section, the Company
may, and the Rights Agent shall, if the Company so directs, supplement or amend
any provisions of the Rights Agreement without the approval of any holders of
certificates representing shares of Common Stock;
NOW, THEREFORE, in consideration of the premises and mutual
agreements set forth in the Rights Agreement and this Amendment, the parties
hereby agree as follows:
1. Section 1 of the Rights Agreement is hereby amended
by adding the following definitions thereto:
"Letter Agreements" shall have the meaning set forth in the
Merger Agreement.
"Merger" shall mean the merger of LP into the Company as
contemplated by the Merger Agreement.
"Merger Agreement" shall mean the Agreement and Plan of
Merger, dated as of March 4, 1996, by and among Lilly, LP and the
Company, as the same may be amended in accordance with the terms
thereof.
"Offer" shall have the meaning set forth in the Merger
Agreement.
"LP" shall mean LP Acquisition Corporation, a Delaware
corporation and a wholly-owned subsidiary of Lilly,
<PAGE> 2
"Lilly" shall mean Lilly Industries, Inc., an Indiana
corporation.
2. Section 1(a) of the Rights Agreement is hereby
amended by adding to the end thereof the following:
"Notwithstanding anything to the contrary contained herein,
neither Lilly nor LP shall be or become an "Acquiring Person" (and no
Stock Acquisition Date shall occur) as a result of (i) the
announcement, commencement or consummation of the Offer, (ii) the
execution of the Merger Agreement (or any amendment thereto in
accordance with the terms thereof) or the consummation of the
transactions contemplated thereby (including, without limitation, the
Offer and the Merger), or (iii) the execution of the Letter Agreements
or the consummation of the transactions or exercise of any power
contemplated thereby (including, without limitation, the tendering or
voting of shares of Common Stock in the manner contemplated thereby
and the grant of a limited proxy in furtherance thereof)."
3. Section 3(a) of the Rights Agreement is hereby
amended by adding to the end thereof the following:
"Notwithstanding anything to the contrary contained herein, no
Distribution Date shall occur as a result of (i) the announcement,
commencement or consummation of the Offer, (ii) the execution of the
Merger Agreement (or any amendment thereto in accordance with the
terms thereof) or the consummation of the transactions contemplated
thereby (including, without limitation, the Offer and the Merger), or
(iii) the execution of the Letter Agreements or the consummation of
the transactions or exercise of any power contemplated thereby
(including, without limitation, the tendering or voting of shares of
Common Stock in the manner contemplated thereby and the grant of a
limited proxy in furtherance thereof), and no Distribution Date will,
in any event, occur prior to the effective time of the Merger or the
earlier termination of the Merger Agreement."
4. Section 7(a) of the Rights Agreement is hereby
amended by replacing the word "earlier" in its first occurrence with the word
"earliest", by deleting the word "or" immediately prior to the symbol "(ii)",
and by replacing the words "(the earlier of (i) and (ii), being herein referred
to as the "Expiration Date")" with the following:
"and (iii) immediately prior to the effective time of the
Merger (the earliest of (i), (ii) and (iii) being herein referred to
as the "Expiration Date")."
5. Section 11 of the Rights Agreement is hereby amended
by adding to the end thereof the following:
"(n) Notwithstanding anything to the contrary contained
herein, the provisions of this Section 11 will not apply to or be
triggered by (i) the announcement, commencement or consummation of the
Offer, (ii) the execution of the Merger Agreement (or any amendment
thereto in accordance with the terms thereof) or the consummation of
the transactions contemplated thereby (including,
-2-
<PAGE> 3
without limitation, the Offer and the Merger), or (iii) the execution
of the Letter Agreements or the consummation of the transactions or
exercise of any power contemplated thereby (including, without
limitation, the tendering or voting of shares of Common Stock in the
manner contemplated thereby and the grant of a limited proxy in
furtherance thereof)."
6. Section 13 of the Rights Agreement is hereby amended
by adding to the end thereof the following:
"(d) Notwithstanding anything to the contrary contained
herein, the provisions of this Section 13 will not apply to or be
triggered by the execution of the Merger Agreement or any amendment
thereto or the consummation of the transactions contemplated thereby
(including, without limitation, the Merger)."
7. The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this Amendment.
8. The term "Agreement" as used in the Rights Agreement
shall be deemed to refer to the Rights Agreement as amended by this Amendment
No. 2.
9. Except as set forth herein, the Rights Agreement
shall remain in full force and effect and shall be otherwise unaffected hereby.
10. This Amendment No. 2 may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 2 to be duly executed, all as of the day and year first above
written.
GUARDSMAN PRODUCTS, INC.
By /s/ Charles E. Bennett
----------------------------
Its President and CEO
-------------------------
CHEMICAL BANK, as Rights Agent
By /s/ Eric Leason
----------------------------
Its Vice President
-------------------------
-3-
<PAGE> 1
CONFIDENTIALITY AGREEMENT
An interest has been indicated by the undersigned parties (the
"Parties") to receive non-public and confidential information ("evaluation
material") relating to a potential purchase, investment, partnership, venture,
licensing, or other agreement ("possible agreement") between the companies.
In consideration of the opportunity to receive this information, the
Parties agree to observe the following conditions as a binding and contractual
obligation of confidentiality.
1. All information obtained by either party through the
evaluation process shall be treated as confidential and will be used solely for
investigating a possible agreement. It is agreed that the Parties shall limit
disclosure of any evaluation material to those individuals within the Parties'
organization having a need to know such information. The Parties agree not to
use in any way or disclose, directly or indirectly, any evaluation material to
any third party without receiving prior written authorizations from the other
party. The Party receiving the information shall not, however, be liable for
any disclosure or use of information:
(a) that was known to the receiving party prior to
receiving the information under this Agreement;
(b) that was generally available to the public before the
receiving party received the information under this
Agreement;
(c) that was received from a third party having no
obligations to either of the parties to this
Agreement to hold the information in confidence;
(d) that has been in the public domain or becomes
generally available through no act or failure to act
on the part of the party receiving the information;
or
(e) after December 31, 1998.
2. The Parties will, and will cause their representatives to,
refrain from disclosing to any person either the fact that discussions or
negotiations are taking place concerning a possible agreement or any of the
terms, conditions or other facts with respect to any such possible agreement,
including the status thereof.
3. At the request of either party, or in the event that it is
decided not to proceed with the possible agreement which is the subject of
this agreement within a reasonable time, the Parties shall promptly redeliver
all written evaluation material and any other written material containing or
reflecting any information in the evaluation material and will not retain any
copies, extracts or other reproductions in whole or in part of such written
material. Also, all documents, memoranda, notes and other writings whatsoever
based on the information in the
<PAGE> 2
evaluation material shall be destroyed, and such destruction shall be certified
in writing to the other party by an authorized officer supervising such
destruction.
4. The Parties agree they will not solicit to employ or do
business with any of the other party's current employees or sales
representatives so long as they are employed or otherwise doing business during
the period in which there are discussions conducted pursuant hereto and for a
period of one year thereafter without obtaining the prior written consent of
the other party.
5. The Parties agree that any evaluation material (either written
or oral) will be used solely for the purpose of evaluating a possible agreement
and will not be used in any way detrimental to the other party.
6. The Parties agree that for a period of three years from the
date of this agreement, neither party will make an unsolicited public offer for
any interest in the other, unless there is a pending offer for the other party
by another, or offers have been solicited by the party from others.
7. In the event of a breach of this Agreement by one party, the
other party may be entitled, in addition to all other rights and remedies
available to it under applicable law, to injunctive relief restraining such
breach, and/or to enforce specific performance of the provisions of this
Agreement.
LILLY INDUSTRIES, INC. GUARDSMAN PRODUCTS, INC.
Officer /s/ Roman J. Klusas Officer /s/ Charles E. Bennett
------------------------------- ------------------------------
Roman J. Klusas, Vice President Charles E. Bennett, President
and Chief Financial Officer and Chief Executive Officer
Date December 13, 1995 Date December 13, 1995
---------------------------------- --------------------------------
-2-
<PAGE> 1
March 4, 1996
Mr. Irwin Wayne Uran
121 Saratoga Avenue, Apt. #4212
Santa Clara, California 95051
Dear Mr. Uran:
The Board of Directors of Guardsman Products, Inc.
("Guardsman") has been in discussion with Lilly Industries, Inc. ("Lilly")
concerning the acquisition of Guardsman by Lilly. I am very pleased to inform
you that Lilly is prepared to make a firm offer to purchase all of the
outstanding stock of Guardsman at a price of $23.00 per share (the
"Transaction"). The Transaction will be accomplished by a cash tender offer,
to be followed by a merger at the same price, and is detailed in a definitive
agreement intended to be entered into with Guardsman later today.
As I am sure you can appreciate, Lilly and Guardsman have
spent considerable amounts of time and money in pursuing this Transaction and
we both believe it provides an extremely attractive opportunity for all
Guardsman stockholders. However, in situations like this where one or a few
holders own a significant percentage of a company's stock, it is appropriate to
confirm the support of those holders before a transaction is officially agreed
to and announced. In fact, we recognize you as an extremely important
stockholder of Guardsman, and we will not proceed with the Transaction unless
we have your support.
If you do support the Transaction which Guardsman's Board of
Directors has negotiated on behalf of all stockholders, we would ask that, as
an inducement to us to enter into a definitive agreement providing for the
Transaction, you evidence such support by committing to the following:
1. To validly tender into the tender offer, and not withdraw, all shares
of Guardsman stock that you beneficially own, which you represent to
be approximately 3,420,700 shares all of which are owned free and
clear of all liens.
2. If requested by us, to vote all of your shares of Guardsman stock in
favor of the described Transaction, and against any action or
arrangement which would interfere with the successful completion of
the Transaction.
<PAGE> 2
3. To not sell, transfer or grant voting rights with respect to, or agree
to sell, transfer or grant voting rights with respect to, any of your
shares of Guardsman stock other than as part of the Transaction, and
likewise to not purchase any additional shares of Guardsman while the
Transaction is pending.
4. To not solicit or encourage the making of any other proposal intended
to lead to the acquisition of your shares of Guardsman stock or any
other extraordinary transaction involving Guardsman.
In consideration for your entering into this agreement, which
you represent you are free to do without violating any commitments to any other
party, we agree to indemnify you and hold you harmless from and against any and
all claims by third parties or Lilly (and its affiliates), judgments, fines,
penalties, liabilities, fees and expenses (including, without limitation,
reasonable attorneys' fees) that may be asserted against you or incurred by you
in connection with your entering into this letter agreement or your compliance
with the terms hereof, provided that such indemnity would not protect you
against (i) any violations of law (other than violations alleged to have
occurred as a result of your compliance with the terms and conditions of this
letter) or (ii) any breach by you of your commitments in this letter.
To evidence your agreement with the foregoing, and to allow us
to proceed with the contemplated transaction in reliance on such undertakings,
please sign this letter in the place indicated below and sign the proxy
attached to this letter, which proxy is coupled with an interest. Once signed,
this letter will become our binding agreement unless both of us elect to modify
or terminate it in writing. Your commitments will remain in effect until the
described Transaction is successfully completed or the definitive agreement
which we will sign with Guardsman is terminated (either by us or Guardsman) in
accordance with its terms. Unless otherwise agreed by both of us in writing,
our undertaking to indemnify and hold you harmless as set forth in the
immediately preceding paragraph shall survive any termination of this
agreement, the definitive agreement or the tender offer for a period of three
years, although the indemnity will continue to cover any claims that may arise
during that three-year period. This agreement will become void and of no
effect if the referenced definitive agreement is not entered into before March
9, 1996. We thank you for your support.
LILLY INDUSTRIES, INC.
By /s/ Roman J. Klusas
---------------------------
Its Vice President and CFO
----------------------
AGREED AND ACCEPTED AS OF THE
4TH DAY OF MARCH, 1996
/s/ Irwin Wayne Uran
- ---------------------
Irwin Wayne Uran
<PAGE> 1
March 4, 1996
Mr. James L. Sadler
7310 37th Avenue
Moline, Illinois 61265
Dear Mr. Sadler:
The Board of Directors of Guardsman Products, Inc.
("Guardsman") has been in discussion with Lilly Industries, Inc. ("Lilly")
concerning the acquisition of Guardsman by Lilly. I am very pleased to inform
you that Lilly is prepared to make a firm offer to purchase all of the
outstanding stock of Guardsman at a price of $23.00 per share (the
"Transaction"). The Transaction will be accomplished by a cash tender offer,
to be followed by a merger at the same price, and is detailed in a definitive
agreement intended to be entered into with Guardsman later today.
As I am sure you can appreciate, Lilly and Guardsman have
spent considerable amounts of time and money in pursuing this Transaction and
we both believe it provides an extremely attractive opportunity for all
Guardsman stockholders. However, in situations like this where one or a few
holders own a significant percentage of a company's stock, it is appropriate to
confirm the support of those holders before a transaction is officially agreed
to and announced. In fact, we recognize you as an extremely important
stockholder of Guardsman, and we will not proceed with the Transaction unless
we have your support.
If you do support the Transaction which Guardsman's Board of
Directors has negotiated on behalf of all stockholders, we would ask that, as
an inducement to us to enter into a definitive agreement providing for the
Transaction, you evidence such support by committing to the following:
1. To validly tender into the tender offer, and not withdraw, all shares
of Guardsman stock that you beneficially own, which you represent to
be approximately 757,880 shares all of which are owned free and
clear of all liens.
2. If requested by us, to vote all of your shares of Guardsman stock in
favor of the described Transaction, and against any action or
arrangement which would interfere with the successful completion of
the Transaction.
3. To not sell, transfer or grant voting rights with respect to, or agree
to sell, transfer or grant voting rights with respect to, any of your
shares of Guardsman stock other than as part of the Transaction, and
likewise to not purchase any additional shares of Guardsman while the
Transaction is pending.
<PAGE> 2
4. To not solicit or encourage the making of any other proposal intended
to lead to the acquisition of your shares of Guardsman stock or any
other extraordinary transaction involving Guardsman.
In consideration for your entering into this agreement, which
you represent you are free to do without violating any commitments to any other
party, we agree to indemnify you and hold you harmless from and against any and
all claims by third parties or Lilly (and its affiliates), judgments, fines,
penalties, liabilities, fees and expenses (including, without limitation,
reasonable attorneys' fees) that may be asserted against you or incurred by you
in connection with your entering into this letter agreement or your compliance
with the terms hereof, provided that such indemnity would not protect you
against (i) any violations of law (other than violations alleged to have
occurred as a result of your compliance with the terms and conditions of this
letter) or (ii) any breach by you of your commitments in this letter.
To evidence your agreement with the foregoing, and to allow us
to proceed with the contemplated transaction in reliance on such undertakings,
please sign this letter in the place indicated below and sign the proxy
attached to this letter, which proxy is coupled with an interest. Once signed,
this letter will become our binding agreement unless both of us elect to modify
or terminate it in writing. Your commitments will remain in effect until the
described Transaction is successfully completed or the definitive agreement
which we will sign with Guardsman is terminated (either by us or Guardsman) in
accordance with its terms. Unless otherwise agreed by both of us in writing,
our undertaking to indemnify and hold you harmless as set forth in the
immediately preceding paragraph shall survive any termination of this
agreement, the definitive agreement or the tender offer for a period of three
years, although the indemnity will continue to cover any claims that may arise
during that three-year period. This agreement will become void and of no
effect if the referenced definitive agreement is not entered into before March
9, 1996. We thank you for your support.
LILLY INDUSTRIES, INC.
By /s/ Roman J. Klusas
---------------------------
Its Vice President and CFO
-----------------------
AGREED AND ACCEPTED AS OF THE
4TH DAY OF MARCH, 1996
/s/ James L. Sadler
- ------------------------
James L. Sadler
<PAGE> 1
March 4, 1996
Mr. John H. Sadler
5402 24th Avenue
Moline, Illinois 61265
Dear Mr. Sadler:
The Board of Directors of Guardsman Products, Inc.
("Guardsman") has been in discussion with Lilly Industries, Inc. ("Lilly")
concerning the acquisition of Guardsman by Lilly. I am very pleased to inform
you that Lilly is prepared to make a firm offer to purchase all of the
outstanding stock of Guardsman at a price of $23.00 per share (the
"Transaction"). The Transaction will be accomplished by a cash tender offer,
to be followed by a merger at the same price, and is detailed in a definitive
agreement intended to be entered into with Guardsman later today.
As I am sure you can appreciate, Lilly and Guardsman have
spent considerable amounts of time and money in pursuing this Transaction and
we both believe it provides an extremely attractive opportunity for all
Guardsman stockholders. However, in situations like this where one or a few
holders own a significant percentage of a company's stock, it is appropriate to
confirm the support of those holders before a transaction is officially agreed
to and announced. In fact, we recognize you as an extremely important
stockholder of Guardsman, and we will not proceed with the Transaction unless
we have your support.
If you do support the Transaction which Guardsman's Board of
Directors has negotiated on behalf of all stockholders, we would ask that, as
an inducement to us to enter into a definitive agreement providing for the
Transaction, you evidence such support by committing to the following:
1. To validly tender into the tender offer, and not withdraw, all shares
of Guardsman stock that you beneficially own, which you represent to
be approximately 773,440 shares all of which are owned free and
clear of all liens.
2. If requested by us, to vote all of your shares of Guardsman stock in
favor of the described Transaction, and against any action or
arrangement which would interfere with the successful completion of
the Transaction.
3. To not sell, transfer or grant voting rights with respect to, or agree
to sell, transfer or grant voting rights with respect to, any of your
shares of Guardsman
<PAGE> 2
stock other than as part of the Transaction, and likewise to not
purchase any additional shares of Guardsman while the Transaction is
pending.
4. To not solicit or encourage the making of any other proposal intended
to lead to the acquisition of your shares of Guardsman stock or any
other extraordinary transaction involving Guardsman.
In consideration for your entering into this agreement, which
you represent you are free to do without violating any commitments to any other
party, we agree to indemnify you and hold you harmless from and against any and
all claims by third parties or Lilly (and its affiliates), judgments, fines,
penalties, liabilities, fees and expenses (including, without limitation,
reasonable attorneys' fees) that may be asserted against you or incurred by you
in connection with your entering into this letter agreement or your compliance
with the terms hereof, provided that such indemnity would not protect you
against (i) any violations of law (other than violations alleged to have
occurred as a result of your compliance with the terms and conditions of this
letter) or (ii) any breach by you of your commitments in this letter.
To evidence your agreement with the foregoing, and to allow us
to proceed with the contemplated transaction in reliance on such undertakings,
please sign this letter in the place indicated below and sign the proxy
attached to this letter, which proxy is coupled with an interest. Once signed,
this letter will become our binding agreement unless both of us elect to modify
or terminate it in writing. Your commitments will remain in effect until the
described Transaction is successfully completed or the definitive agreement
which we will sign with Guardsman is terminated (either by us or Guardsman) in
accordance with its terms. Unless otherwise agreed by both of us in writing,
our undertaking to indemnify and hold you harmless as set forth in the
immediately preceding paragraph shall survive any termination of this
agreement, the definitive agreement or the tender offer for a period of three
years, although the indemnity will continue to cover any claims that may arise
during that three-year period. This agreement will become void and of no
effect if the referenced definitive agreement is not entered into before March
9, 1996. We thank you for your support.
LILLY INDUSTRIES, INC.
By /s/ Roman J. Klusas
------------------------------
Its Vice President and CFO
--------------------------
AGREED AND ACCEPTED AS OF THE
4TH DAY OF MARCH, 1996
/s/ John H. Sadler
- --------------------
John H. Sadler
<PAGE> 1
GUARDSMAN PRODUCTS, INC. PROXY
The undersigned hereby appoints Lilly Industries, Inc., an
Indiana corporation ("Lilly"), as Proxy, with full power of substitution, and
hereby authorizes Lilly to represent and to vote as designated below, all of
the shares of Common Stock of Guardsman Products, Inc. ("Guardsman") which the
undersigned is entitled to vote at any meeting of stockholders, however called,
or with respect to any action proposed to be taken by written consent of the
stockholders of Guardsman.
1. Proposal to approve the merger of LP Acquisition Corporation
("Purchaser") with and into Guardsman according to the terms set forth
in the Agreement and Plan of Merger among Guardsman, Purchaser and
Lilly (the "Merger Agreement").
/X / FOR / / AGAINST
2. Proposals to take any action or make any agreement or arrangement that
would result in a breach of the Merger Agreement by Guardsman.
/ / FOR /X / AGAINST
3. Proposals to take any action or make any agreement or arrangement that
would interfere with or delay the Offer or the Merger (as those terms
are defined in the Merger Agreement).
/ / FOR /X / AGAINST
This Proxy has been executed concurrently with a letter
agreement from the undersigned to Lilly dated as of March 4, 1996 (the "Letter
Agreement"). This Proxy is irrevocable and terminates only upon completion of
the earlier to occur of (i) the revocation of the letter agreement in
accordance with its terms, (ii) the merger of Guardsman and Purchaser pursuant
to the Merger Agreement, (iii) the termination of the Merger Agreement in
accordance with its terms, or (iv) the termination of the Letter Agreement by
Lilly.
Dated: March 4, 1996
Signature: /s/ Irwin Wayne Uran
----------------------
Irwin W. Uran
<PAGE> 1
GUARDSMAN PRODUCTS, INC. PROXY
The undersigned hereby appoints Lilly Industries, Inc., an
Indiana corporation ("Lilly"), as Proxy, with full power of substitution, and
hereby authorizes Lilly to represent and to vote as designated below, all of
the shares of Common Stock of Guardsman Products, Inc. ("Guardsman") which the
undersigned is entitled to vote at any meeting of stockholders, however called,
or with respect to any action proposed to be taken by written consent of the
stockholders of Guardsman.
1. Proposal to approve the merger of LP Acquisition Corporation
("Purchaser") with and into Guardsman according to the terms set forth
in the Agreement and Plan of Merger among Guardsman, Purchaser and
Lilly (the "Merger Agreement").
/X / FOR / / AGAINST
2. Proposals to take any action or make any agreement or arrangement that
would result in a breach of the Merger Agreement by Guardsman.
/ / FOR /X / AGAINST
3. Proposals to take any action or make any agreement or arrangement that
would interfere with or delay the Offer or the Merger (as those terms
are defined in the Merger Agreement).
/ / FOR /X / AGAINST
This Proxy has been executed concurrently with a letter
agreement from the undersigned to Lilly dated as of March 4, 1996 (the "Letter
Agreement"). This Proxy is irrevocable and terminates only upon completion of
the earlier to occur of (i) the revocation of the letter agreement in
accordance with its terms, (ii) the merger of Guardsman and Purchaser pursuant
to the Merger Agreement, (iii) the termination of the Merger Agreement in
accordance with its terms, or (iv) the termination of the Letter Agreement by
Lilly.
Dated: March 4, 1996
Signature: /s/ James L. Sadler
--------------------
James L. Sadler
<PAGE> 1
GUARDSMAN PRODUCTS, INC. PROXY
The undersigned hereby appoints Lilly Industries, Inc., an
Indiana corporation ("Lilly"), as Proxy, with full power of substitution, and
hereby authorizes Lilly to represent and to vote as designated below, all of
the shares of Common Stock of Guardsman Products, Inc. ("Guardsman") which the
undersigned is entitled to vote at any meeting of stockholders, however called,
or with respect to any action proposed to be taken by written consent of the
stockholders of Guardsman.
1. Proposal to approve the merger of LP Acquisition Corporation
("Purchaser") with and into Guardsman according to the terms set forth
in the Agreement and Plan of Merger among Guardsman, Purchaser and
Lilly (the "Merger Agreement").
/X/ FOR / / AGAINST
2. Proposals to take any action or make any agreement or arrangement that
would result in a breach of the Merger Agreement by Guardsman.
/ / FOR /X/ AGAINST
3. Proposals to take any action or make any agreement or arrangement that
would interfere with or delay the Offer or the Merger (as those terms
are defined in the Merger Agreement).
/ / FOR /X/ AGAINST
This Proxy has been executed concurrently with a letter
agreement from the undersigned to Lilly dated as of March 4, 1996 (the "Letter
Agreement"). This Proxy is irrevocable and terminates only upon completion of
the earlier to occur of (i) the revocation of the letter agreement in
accordance with its terms, (ii) the merger of Guardsman and Purchaser pursuant
to the Merger Agreement, (iii) the termination of the Merger Agreement in
accordance with its terms, or (iv) the termination of the Letter Agreement by
Lilly.
Dated: March 4, 1996
Signature: /s/ John H. Sadler
--------------------
John H. Sadler
<PAGE> 1
GUARDSMAN PRODUCTS, INC. [GUARDSMAN LOGO]
Corporate Offices
3033 Orchard Vista Drive, S.E.
Suite 200
P.O. Box 1521
Grand Rapids, MI 49501-1521
616 957 2600
616 957 1236 FAX
March 8, 1996
Dear Stockholder:
I am pleased to inform you that on March 4, 1996, Guardsman Products, Inc.
entered into a merger agreement with Lilly Industries, Inc. pursuant to which a
wholly-owned subsidiary of Lilly has today commenced a tender offer to purchase
all outstanding shares of Guardsman common stock at a price of $23.00 per share
in cash. Under the merger agreement, the tender offer will be followed by a
merger of Lilly's subsidiary into Guardsman. Any Guardsman shares that are not
acquired through the tender offer will be converted in the merger into the right
to receive $23.00 per share in cash.
YOUR BOARD OF DIRECTORS, BY UNANIMOUS VOTE, APPROVED THE MERGER AGREEMENT
AND DETERMINED THAT THE TENDER OFFER AND MERGER ARE FAIR TO, AND IN THE BEST
INTERESTS OF, GUARDSMAN AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS, SUBJECT TO ITS FIDUCIARY DUTIES, UNANIMOUSLY RECOMMENDS THAT ALL
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES TO LILLY'S SUBSIDIARY
PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the enclosed Schedule 14D-9,
including the opinion of its financial advisor (a copy of which is included as
an exhibit to the Schedule 14D-9).
Accompanying this letter is the referenced Schedule 14D-9, the written
opinion of the Company's financial advisor, and the Offer to Purchase and
related materials of Lilly and its subsidiary, including a Letter of Transmittal
for use in tendering your shares. These documents set forth the terms and
conditions of the tender offer and provide instructions as to how you can tender
your shares. I urge you to read the enclosed materials carefully and consider
all the factors set forth therein before making your decision with respect to
the offer.
On behalf of your Board of Directors and the Company's management, I thank
you for your continued support over Guardsman's long history.
Very truly yours,
/s/ PAUL K. GASTON
Paul K. Gaston
Chairman of the Board
<PAGE> 1
[GOLDMAN, SACHS LETTERHEAD]
PERSONAL AND CONFIDENTIAL
March 4, 1996
Board of Directors
Guardsman Products, Inc.
3033 Orchard Vista S.E.
Grand Rapids, MI 49546
Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $1.00 per share (the "Shares"), of
Guardsman Products, Inc. (the "Company") of the $23.00 per Share in cash
proposed to be paid to such holders in the Lilly Offer and the Lilly Merger (as
defined below) pursuant to the Agreement and Plan of Merger dated as of March 4,
1996 by and among Lilly Industries, Inc. ("Lilly"), LP Acquisition Corporation
("LP Acquisition"), a wholly owned subsidiary of Lilly, and the Company (the
"Lilly Merger Agreement").
The Lilly Merger Agreement provides for a tender offer for all of the Shares
(the "Lilly Offer") pursuant to which LP Acquisition will pay $23.00 per Share
in cash for each Share accepted. The Lilly Merger Agreement further provides
that following completion of the Lilly Offer, LP Acquisition will be merged with
and into the Company (the "Lilly Merger") and each then outstanding Share (other
than Shares already owned by Lilly or LP Acquisition or held in the treasury of
the Company or by any wholly owned subsidiary of the Company) will be converted
into the right to receive $23.00 in cash or any higher price per Share paid in
the Lilly Offer.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having acted as its financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Lilly Merger
Agreement.
In connection with this opinion, we have reviewed, among other things, the Lilly
Merger Agreement, Annual Reports to Stockholders and Annual Reports on Form 10-K
of the Company for the four years ended December 31, 1994, audited consolidated
financial statements for the five years ended December 31, 1995; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q; certain other
communications from the Company to its stockholders; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects. In addition, we have reviewed the reported price and trading
activity for the Shares, compared certain financial and stock market information
for the Company with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the coatings industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
<PAGE> 2
We have relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by us for
purposes of this opinion. In addition, we have not made an independent
evaluation or appraisal of the assets and liabilities of the Company or any of
its subsidiaries and we have not been furnished with any such evaluation or
appraisal.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the $23.00 per
Share in cash to be received by the holders of Shares in the Lilly Offer and the
Lilly Merger is fair to such holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
GOLDMAN, SACHS & CO.
<PAGE> 1
ANNEX I
GUARDSMAN PRODUCTS, INC.
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND RULE 14F-1 THEREUNDER
------------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS
REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
This Information Statement is being furnished in connection with the
possible designation by Lilly Industries, Inc., an Indiana corporation
("Parent"), after completion of the Offer (defined below), of persons to be
elected to the Board of Directors (the "Board") of Guardsman Products, Inc., a
Delaware corporation (the "Company"), other than at a meeting of the
stockholders of the Company, pursuant to an Agreement and Plan of Merger dated
as of March 4, 1996 (the "Merger Agreement") among the Company, Parent and LP
Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of
Parent (the "Purchaser").
Pursuant to the Merger Agreement, the Purchaser has commenced a cash tender
offer to purchase all outstanding shares of Common Stock, $1.00 par value, of
the Company (the "Shares") and the associated Preferred Stock Purchase Rights
issued pursuant to the Rights Agreement, dated as of August 8, 1986, as amended,
between the Company and Chemical Bank, as Rights Agent, at a purchase price of
$23.00 per Share (or any higher price per Share paid in the Offer) (the "Offer
Price") net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated March 8, 1996 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which, together with the
Offer to Purchase and any amendments or supplements thereto, collectively
constitute the "Offer"). Capitalized terms used but not otherwise defined in
this Information Statement have the meanings given to them in the Schedule 14D-9
to which this Information Statement is attached. The Schedule 14D-9 is
incorporated herein by reference.
Under the Merger Agreement, promptly upon payment by the Purchaser of
Shares purchased pursuant to the Offer constituting at least a majority of the
outstanding Shares, the Company, at Parent's request, will cause its Board to
include a number of Parent's designees such that the designees constitute a
percentage of the Board as nearly equal as practicable to the percentage of
outstanding Shares beneficially owned by Parent, which will be at least a
majority. Parent has agreed that the Company may retain, and that Parent will
cause to be retained, at least three incumbent directors until the time that the
Merger becomes effective.
IF THE PURCHASER DOES NOT ACQUIRE ANY SHARES PURSUANT TO THE OFFER OR
TERMINATES THE OFFER, OR IF THE MERGER AGREEMENT IS TERMINATED IN ACCORDANCE
WITH ITS TERMS BY PARENT, THE PURCHASER OR THE COMPANY BEFORE THE APPOINTMENT OF
PARENT'S DESIGNEES, PARENT WILL NOT HAVE ANY RIGHT UNDER THE MERGER AGREEMENT TO
HAVE ITS DESIGNEES APPOINTED TO THE BOARD.
VOTING SECURITIES
The Shares are the only class of voting securities of the Company
outstanding. Each Share is entitled to one vote on each matter to be considered
at a meeting of the stockholders, including the election of directors. As of
February 28, 1996, there were 9,638,663 Shares outstanding (including 38,888
Shares held pursuant to
<PAGE> 2
the Escrow Agreement dated January 30, 1995 among the Company, Soil Shield
International, Inc., and First of America Bank-Michigan, as escrow agent).
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of February 28, 1996, the following persons were known to the Company to
be beneficial owners of more than 5 percent of the outstanding Shares:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER(1) OWNERSHIP OF SHARES PERCENT OF CLASS(1)
- ----------------------------------------------------- ---------------------- -------------------
<S> <C> <C>
Irwin Wayne Uran..................................... 3,420,700(2) 35.49%
121 Saratoga Avenue
Santa Clara, CA 95051
James L. Sadler...................................... 757,880(3)(4)(5) 7.86%
7310 37th Avenue
Moline, IL 61265
John H. Sadler....................................... 773,440(4)(6) 8.02%
5402 24th Avenue
Moline, IL 61265
Gabelli Funds, Inc................................... 489,600(7) 5.08%
One Corporate Center
Rye, New York 10580
</TABLE>
- ---------------
(1) Percent of Class is based on the 9,638,663 Shares outstanding on February
28, 1996 plus, with respect to each stockholder, the number of Shares that
may be acquired upon the exercise of stock options held by that stockholder
that are exercisable within 60 days of February 28, 1996.
(2) The Company has been informed that Mr. Uran possesses directly the sole
power to vote and dispose of, as record owner, all of these Shares.
(3) Based on Schedule 13D dated March 6, 1996 (sole voting and dispositive
power, except as provided in note (4)).
(4) The Company acquired Moline Paint Manufacturing Co. effective August 31,
1994, under an Agreement and Plan of Merger ("Agreement"). The Agreement
provided that Messrs. James L. and John H. Sadler, as selling shareholders,
would each receive, among other consideration, 750,000 Shares. These Shares
are subject to an eight-year Stockholder Agreement dated August 31, 1994,
which provides that at any time after the expiration of one year after the
date of the Stockholder Agreement, the Sadlers may request registration of
these Shares for the purpose of making an underwritten public offering. The
Company is obligated to pay certain registration expenses associated with
these Shares as set forth in the Stockholder Agreement. The Company and the
Sadlers have agreed that these Shares will be sold in a manner intended to
effect a broad public distribution. Accordingly, any sale of these Shares is
subject to certain restrictions, including obtaining the prior written
consent of the Company. The Company's Board of Directors has approved the
sale of such Shares pursuant to the Merger Agreement.
(5) This number includes 7,880 Shares that may be acquired upon the exercise of
stock options exercisable within 60 days of February 28, 1996.
(6) Based on Schedule 13D dated March 6, 1996 (sole voting and dispositive
power, except as provided in note (4)).
(7) Based on Schedule 13D dated April 10, 1995 (sole voting and dispositive
power). This number includes 232,800 Shares owned by GAMCO Investors, Inc.,
a wholly-owned subsidiary of Gabelli Funds, Inc.
2
<PAGE> 3
The following table shows the beneficial ownership of Shares as of February
28, 1996, by each of the Company's directors, Parent's designees for appointment
as director, named executive officers (as defined in the Summary Compensation
Table) and by all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP OF SHARES
--------------------------------------
NAME OF SHARES STOCK PERCENT OF
BENEFICIAL OWNER OWNED(1) OPTIONS(2) TOTAL CLASS(3)
- ------------------------------------------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Paul K. Gaston................................... 24,062 (4) 69,695 93,757 *
Charles E. Bennett............................... 35,441 47,770 83,211 *
John Russell Fowler.............................. 31,732 23,445 55,177 *
K. Kevin Hepp.................................... 25,251 23,445 48,696 *
George R. Kempton................................ 3,750 19,695 23,445 *
Winthrop C. Neilson.............................. 8,866 (5) 23,445 32,311 *
James L. Sadler.................................. 750,000 (6) 7,880 757,880 7.86%
Robert W. Schult................................. -- 7,880 7,880 *
Robert D. Tuttle................................. 10,488 19,695 30,183 *
Edward D. Corlett................................ 3,315 31,117 34,432 *
Henry H. Graham, Jr.............................. -- 10,000 10,000 *
Everette L. Martin............................... 3,614 26,485 30,099 *
Keith C. Vander Hyde, Jr......................... 4,219 25,566 29,785 *
Larry H. Dalton.................................. -- -- -- --
William C. Dorris................................ -- -- -- --
Douglas W. Huemme................................ -- -- -- --
Roman J. Klusas.................................. -- -- -- --
Kenneth L. Mills................................. -- -- -- --
Ned L. Fox....................................... -- -- -- --
Robert A. Taylor................................. -- -- -- --
All Directors and Executive Officers as a
Group.......................................... 900,738 336,118 1,236,856 12.40%
</TABLE>
- ---------------
* Less than 1 percent.
(1) Except as otherwise disclosed, Shares owned represent shares for which the
beneficial owner has sole voting and investment power.
(2) Shares in this column may be acquired by the exercise of stock options
exercisable within 60 days of February 28, 1996.
(3) Percent of Class is based on the 9,638,663 Shares outstanding on February
28, 1996 plus, with respect to each stockholder, the number of Shares that
may be acquired upon the exercise of stock options held by that stockholder
that are exercisable within 60 days of February 28, 1996.
(4) Includes 100 Shares held by Mr. Gaston's wife as custodian for a grandchild.
Mr. Gaston disclaims beneficial ownership of these Shares.
(5) Includes 368 Shares owned by Mr. Neilson's wife. Mr. Neilson disclaims
beneficial ownership of these Shares.
(6) Mr. Sadler has agreed to certain restrictions on these Shares that may limit
his dispositive power in certain instances not applicable to the Merger
Agreement. See note (4) to the first table in this Information Statement for
more information.
CHANGE OF CONTROL
In connection with the execution of the Merger Agreement, Irwin Wayne Uran,
James L. Sadler and John H. Sadler (the "Major Shareholders"), who the Company
has been informed collectively beneficially own approximately 48 percent of the
outstanding Shares on a fully diluted basis, have each entered into letter
agreements with Parent regarding their respective Shares (each, a "Letter
Agreement"). Copies of the Letter
3
<PAGE> 4
Agreements are attached as Exhibit 5 to the Schedule 14D-9 to which this
Information Statement is attached. In each Letter Agreement, the Major
Stockholder agrees (i) to validly tender into the Offer, and not withdraw, all
Shares beneficially owned by him; (ii) if requested by Parent, to vote all of
his Shares in favor of the transactions contemplated by the Merger Agreement,
and against any action or arrangement that would interfere with the successful
completion of those transactions; (iii) to not sell, transfer or grant voting
rights with respect to, or agree to sell, transfer or grant voting rights with
respect to, any of his Shares other than as part of the transactions
contemplated by the Merger Agreement, and likewise to not purchase any
additional Shares while those transactions are pending; and (iv) to not solicit
or encourage the making of any other proposal intended to lead to the
acquisition of his Shares or any other extraordinary transaction involving the
Company. Each Letter Agreement provides that it will remain in effect until the
transactions contemplated by the Merger Agreement, including the Offer and the
Merger, are successfully completed or the Merger Agreement is terminated (either
by Parent or the Company) in accordance with its terms.
In the Letter Agreements Parent agrees to indemnify and hold the Major
Stockholders harmless from and against any and all claims by third parties or
Parent (and its affiliates), judgments, fines, penalties, liabilities, fees and
expenses (including, without limitation, reasonable attorneys' fees) that may be
asserted against or incurred by the Major Stockholders in connection with their
entering into the Letter Agreements or their compliance with the terms thereof,
except that such indemnity would not protect them against (i) any violations of
law (other than violations alleged to have occurred as a result of their
compliance with the terms and conditions of the Letter Agreements) or (ii) any
breach by them of their commitments in the Letter Agreements. In the Merger
Agreement, the Company agrees to indemnify and hold Parent harmless from and
against any liability, cost, or expense (including reasonable attorneys' fees)
incurred by it in providing the indemnification required under the Letter
Agreements, except that the Company's indemnity obligation will terminate upon
the purchase of Shares by Parent pursuant to the Offer. In the event that any
claim is made which gives rise or may give rise to the Company's foregoing
indemnity obligation, Parent has agreed to promptly notify the Company and the
Company will be entitled to assume the defense, settlement or other disposition
of the claim.
In addition, each Major Stockholder has granted to Parent a proxy to vote
his Shares for approval of the Merger and against any action, agreement or
arrangement that would result in a breach of the Merger Agreement or delay or
interfere with the Offer or the Merger. A form of that proxy is attached as
Exhibit 6 to the Schedule 14D-9 to which this Information Statement is attached.
The proxy is irrevocable and terminates upon the first to occur of (i)
consummation of the Merger, (ii) termination of the Merger Agreement in
accordance with its terms or (iii) termination of the Letter Agreement by
Parent.
Pursuant to the Merger Agreement, Parent has caused the Purchaser to
commence the Offer to purchase the Shares, the terms of which are more fully
described in the Offer to Purchase and in the Schedule 14D-9 to which this
Information Statement is attached. According to information supplied by Parent,
(i) the total amount of funds required by the Purchaser to consummate the Offer
and the Merger and to pay related fees and expenses is estimated to be
approximately $246,500,000, and (ii) the Purchaser intends to obtain those funds
from capital contributions and/or loans from the working capital of Parent.
DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The current Board is divided into three classes. One class of directors is
elected each year at the Annual Meeting of Stockholders. Once elected, absent
their death, resignation, retirement, disqualification or removal from office,
directors serve for terms of three years or until their successors are duly
elected and qualified.
The Company's executive officers are appointed annually by and serve at the
pleasure of the Board.
4
<PAGE> 5
CERTAIN INFORMATION CONCERNING THE PARENT DESIGNEES
Parent has provided the Company with the following information concerning
those persons who may be designated as directors of the Company following
consummation of the Offer. The Company assumes no responsibility for the
accuracy or completeness of such information.
<TABLE>
<CAPTION>
DESIGNEES PRINCIPAL OCCUPATION: DIRECTORSHIPS(1)(2)(3) AGE
- ------------------------------ ------------------------------------------------------ ---
<S> <C> <C>
Larry H. Dalton............... Mr. Dalton has served as Vice President -- Operations 48
and Manufacturing of Parent since July, 1994. Prior to
his current position with Parent, Mr. Dalton served as
General Manager of Parent's Indianapolis Division from
prior to 1991 to July, 1994.
William C. Dorris............. Mr. Dorris has served as a director of Parent since 53
1989. He has served as Vice President -- Corporate
Development of Parent since July, 1994. Prior to his
current position with Parent, Mr. Dorris served as
General Manager of Parent's Dallas Division from 1993
to July, 1994; as General Manager of Parent's
Templeton Division from 1991 to July, 1994; and as
General Manager of Parent's High Point Division from
prior to 1991 to July, 1994.
Douglas W. Huemme............. Mr. Huemme has served as a director of Parent since 54
1990. He has served as Chairman, President and Chief
Executive Officer of Parent since July, 1991; and as
President and Chief Operating Officer of Parent from
prior to 1991 to July, 1991. Mr. Huemme is also a
director of two publicly held corporations (other than
Parent): First Indiana Corporation and The Somerset
Group, Inc.
Roman J. Klusas............... Mr. Klusas has served as a director of Parent since 49
1988. He has served as Vice President, Chief Financial
Officer and Secretary of Parent since prior to 1991.
Kenneth L. Mills.............. Mr. Mills has served as director of Corporate 47
Accounting of Parent since October, 1993; and as
Assistant Secretary of Parent since prior to 1991. He
has also served Parent as Treasurer from prior to 1991
to October, 1993.
Ned L. Fox.................... Mr. Fox has served as Vice President and General 54
Manager -- Specialty Coatings Strategic Business Unit
of Parent since June, 1994; General Manager of
Parent's Gel Coat business and acting General Manager
of the Paulsboro and Templeton locations since prior
to 1991 to 1994.
Robert A. Taylor.............. Mr. Taylor has served as Vice President and General 42
Manager -- Wood Coatings Strategic Business Unit of
Parent since April, 1994. Prior to joining Parent, Mr.
Taylor served as Vice President -- Specialty and
Container Coatings of Akzo Corporation, a manufacturer
of industrial coatings, from 1992 to 1994; and as
Managing Director, Southeast Asian Operations of Akzo
Corporation from prior to 1991 to 1992.
</TABLE>
- ---------------
(1) Except as noted, each person listed has been engaged in the same principal
occupation for over five years.
(2) Except as noted, no designee is a director of any other company which has a
class of securities registered pursuant to Section 12 of the Exchange Act
or subject to Section 15(d) of the Exchange Act, or any company registered
as an investment company under the Investment Company Act of 1940.
(3) Parent is a manufacturer of industrial coatings and speciality chemical
products.
5
<PAGE> 6
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table shows certain information with respect to each director
and executive officer of the Company:
<TABLE>
<CAPTION>
INCUMBENT DIRECTORS PRINCIPAL SERVICE AS A
(TERMS EXPIRING IN 1998) OCCUPATION(1) DIRECTOR(2)
- ------------------------------ ----------------------------- -----------------------------
<S> <C> <C>
George R. Kempton............. Chairman of the Board and Since 1988; also a director
Age 62 Chief Executive Officer, of Kysor Industrial
Kysor Industrial Corporation, Corporation, Simpson
a multinational manufacturer Industries, Inc. and JLG
of transportation and Industries, Inc.
commercial refrigeration
products.
James L. Sadler(3)............ Retired; formerly President Since 1994.
Age 52 and Chief Operating Officer,
Moline Paint Manufacturing
Co., a manufacturer of
industrial coatings.
Robert W. Schult(4)........... President, Nestle Food Since 1994.
Age 46 Company, the largest of
Nestle USA Inc.'s operating
companies, a manufacturer and
marketer of food products
(since 1991); Senior Vice
President, Nestle Food
Company (1989 to 1991).
<CAPTION>
INCUMBENT DIRECTORS PRINCIPAL SERVICE AS A
(TERMS EXPIRING IN 1997) OCCUPATION(1) DIRECTOR(2)
- ------------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Paul K. Gaston................ Chairman of the Board of the Since 1986; also a director
Age 62 Company (since 1994); of Kysor Industrial
Partner, Warner Norcross & Corporation.
Judd LLP, attorneys (Partner
from 1965 to 1993, Managing
Partner from 1988 to 1992).
Winthrop C. Neilson........... Managing Director, Neil- Since 1969.
Age 62 son/Hetrick Consulting Group
(previously known as Cameron,
Towey, Neilson before 1991),
an international investor
relations firm.
Robert D. Tuttle.............. Retired; formerly Chairman of Since 1987; also a director
Age 70 the Board, SPX Corporation, of Walbro Corporation, CMS
manufacturer and distributor Energy Corporation and
of automotive components, Woodhead Industries, Inc.
diagnostic equipment,
specialty tools and
industrial hardware to
worldwide markets.
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
INCUMBENT DIRECTORS PRINCIPAL SERVICE AS A
(TERMS EXPIRING IN 1996) OCCUPATION(1) DIRECTOR(2)
- ------------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Charles E. Bennett............ President and Chief Executive Since 1989.
Age 49 Officer of the Company (since
1993); President and Chief
Operating Officer of the
Company (1990 to 1992); Vice
President of Finance,
Secretary and Treasurer of
the Company (1988 to 1989);
Vice President, Coatings
Group of the Company (1985 to
1988).
John Russell Fowler........... Retired; formerly Chairman of Since 1983; also a director
Age 77 the Board, Jacobson Stores, of Tecumseh Products Company.
Inc., apparel retailers
(1993); Chairman of the Board
and Chief Executive Officer,
Jacobson Stores, Inc. (1982
to 1992).
K. Kevin Hepp(5).............. Retired; formerly Senior Vice Since 1979.
Age 79 President, Owens-Illinois,
Inc., manufacturer of
packaging products.
<CAPTION>
EXECUTIVE OFFICERS PRINCIPAL
WHO ARE NOT DIRECTORS OCCUPATION(1)
- ------------------------------ -----------------------------
<S> <C> <C>
Edward D. Corlett............. Corporate Vice President and
Age 42 General Manager, Metal
Coatings Group of the Company
(since 1994); Corporate Vice
President and Chief Financial
Officer of the Company (1991
to 1994); Vice President,
Secretary and Treasurer of
the Company (1990 to 1994).
Henry H. Graham, Jr........... Corporate Vice President of
Age 45 Finance, Chief Financial
Officer and Treasurer of the
Company (since January 1995);
President, Graham
Enterprises, Inc., a business
and financial consulting firm
(1989 to 1995).
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS PRINCIPAL
WHO ARE NOT DIRECTORS OCCUPATION(1)
- ------------------------------ -----------------------------
<S> <C> <C>
Everette L. Martin............ Corporate Vice President and
Age 60 General Manager, Wood
Coatings Group of the Company
(since 1994); Corporate Vice
President, Coatings Group of
the Company (1992 to 1994);
Vice President/General Sales
Manager, Wood Coatings Group
of the Company (1991 to
1992); Coatings Group
Director of Sales, Eastern
Region of the Company (1990
to 1991).
Keith C. Vander Hyde, Jr...... Corporate Vice President,
Age 37 Consumer Products Group of
the Company (since 1992);
Vice President, Consumer
Products Group of the Company
(1989 to 1992).
</TABLE>
- ---------------
(1) Except as noted, each person listed has been engaged in the same principal
occupation for over five years.
(2) Except as noted, no director is a director of any other company which has a
class of securities registered pursuant to Section 12 of the Exchange Act or
subject to Section 15(d) of the Exchange Act, or any company registered as
an investment company under the Investment Company Act of 1940.
(3) Pursuant to an Agreement and Plan of Merger by which the Company acquired
Moline Paint Manufacturing Co. by merger effective August 31, 1994, the
Board appointed James L. Sadler, one of the selling shareholders, as a
director of the Company at a meeting in November of 1994 to a term expiring
at the Annual Meeting of Stockholders in 1995, with the understanding that
the proxy statement for that 1995 meeting would include Mr. Sadler on the
slate of nominees for election to the Board for a three-year term expiring
in 1998.
(4) At its meeting in November of 1994, the Board appointed Robert W. Schult as
a director of the Company to a term expiring at the Annual Meeting of
Stockholders in 1995, with the understanding that the proxy statement for
that meeting would include Mr. Schult on the slate of nominees for election
to the Board for a three-year term expiring in 1998.
(5) Mr. Hepp, who has served on the Board since 1979 and whose elected term
expired in 1995, was appointed by the Board, and elected at the 1995 Annual
Meeting of Stockholders, to fill the unexpired term of Keith C. Vander Hyde
that expires at the annual meeting in 1996.
8
<PAGE> 9
ORGANIZATION OF THE BOARD
The Board of Directors has seven standing committees: the Audit Committee;
the Organization/Compensation Committee; the Finance Committee; the Nominating
Committee; the Environmental Affairs Committee; the Stock Option Committee; and
the Strategic Opportunities and Stockholder Enhancement Committee. The following
information describes each committee of the Board of Directors as it was
constituted as of December 31, 1995.
The Audit Committee consisted of Robert D. Tuttle, Chairman, John Russell
Fowler, Paul K. Gaston, George R. Kempton and James L. Sadler. The Audit
Committee met twice in 1995. Each year the Audit Committee reviews the upcoming
audit plan submitted by the independent auditors with respect to the scope of
procedures that will be performed and the fee that will be charged. The Audit
Committee also reviews the results of the independent audit each year, including
any associated recommendations on internal controls. In addition, the Committee
meets regularly with the Company's internal auditor.
The Organization/Compensation Committee consisted of Winthrop C. Neilson,
Chairman, John Russell Fowler, Paul K. Gaston, K. Kevin Hepp and Robert W.
Schult. The Organization/Compensation Committee met four times in 1995. The
Organization/Compensation Committee establishes the salary levels of the
Company's officers, reviews the compensation of certain middle management
employees and reviews the Company's organizational structure including its
personnel policies and programs.
The Finance Committee consisted of K. Kevin Hepp, Chairman, Charles E.
Bennett, Paul K. Gaston, Winthrop C. Neilson and Robert D. Tuttle. The Finance
Committee met twice in 1995. The Finance Committee reviews the capital structure
and financing needs of the Company and submits recommendations to the Board. The
Finance Committee also reviews the Company's employee benefit plans and
insurance programs.
The Nominating Committee consisted of George R. Kempton, Chairman, Charles
E. Bennett, Paul K. Gaston and Robert W. Schult. The Nominating Committee met
once in 1995. The Nominating Committee considers and evaluates the
qualifications of potential candidates for the Board and recommends appropriate
candidates to the full Board. No nominations by stockholders will be accepted in
connection with the transactions contemplated by the Merger Agreement.
The Environmental Affairs Committee consisted of James L. Sadler, Chairman,
Charles E. Bennett, Paul K. Gaston and George R. Kempton. Robert H. Ripley, the
Company's Vice President, Corporate Environmental and Technical Affairs, served
as an ex-officio member of this committee. The Environmental Affairs Committee
met once in 1995. The Environmental Affairs Committee monitors and reports to
the Board on the Company's compliance with environmental legislation and
regulations.
The Stock Option Committee consisted of Winthrop C. Neilson, Chairman, John
Russell Fowler, K. Kevin Hepp and Robert W. Schult. The Stock Option Committee
met twice in 1995. The Stock Option Committee is responsible for the
administration of the Company's various stock option plans and awards stock
options to officers and other management employees under the Company's various
stock option plans.
The Strategic Opportunities and Stockholder Enhancement Committee consisted
of George R. Kempton, Chairman, Paul K. Gaston, James L. Sadler and Robert D.
Tuttle. This Committee met once in 1995. Founded in 1995, this Committee is
responsible for analyzing potential synergistic acquisitions and divestitures,
domestic and international strategic alliances, and mergers.
The Board met ten times in 1995. During 1995, each director (except for Mr.
Schult) attended at least 75 percent of the aggregate of (i) the total number of
meetings of the Board held while he was a director and (ii) the total number of
meetings of all committees of the Board on which he served during the period of
his service.
9
<PAGE> 10
COMPENSATION OF DIRECTORS
General Compensation. During 1995, each director was paid $4,000 per
quarter plus an additional $1,000 for each Board meeting and $500 for each
committee meeting attended. The Chairmen of each committee received 150 percent
of the regular meeting fee for each meeting chaired by him. Salaried officers
who serve as directors do not receive these fees.
Under the Company's Retirement Plan for Directors, as amended and restated,
in which all directors are eligible to participate, annual retirement benefits
equal to the annual directors' fees are payable to former directors who have ten
or more years of service as a member of the Board. Board members with five to
nine years of service are entitled to those fees multiplied by a fraction, the
numerator of which is the member's number of full months of service on the Board
and the denominator of which is 120. Benefits continue for the lifetime of the
former member. If a participating director dies while in service as a director,
the director's spouse or designated beneficiary will be entitled to receive an
amount equal to the annual benefit determined under the plan, at the time of
death, multiplied by ten. If the deceased director had five to nine years of
service as a director, the benefit will be reduced by a fraction, the numerator
of which is the number of full years of service and the denominator of which is
ten. If a participating director dies after retirement and received less than
ten years' benefit payments, the director's spouse or designated beneficiary
will be entitled to receive an amount equal to ten, less the number of years and
fractional years for which benefits have been paid under the plan, multiplied by
the annual benefit determined under the plan. If an employee director leaves his
position with the Company before retirement (except after a change in control of
the Company), all benefits due under the plan are immediately forfeited. Upon a
change in control of the Company, the Company or any successor is required under
the plan to establish a "Rabbi Trust" and to fund the trust annually in an
amount necessary to pay all accrued benefits under the plan.
On March 1, 1995, each director of the Company who was not an employee of
the Company (a "Nonemployee Director") was granted options to purchase 2,625
Shares at an exercise price of $11.19 per Share, the fair market value of Shares
on the date of grant. In 1995, the stockholders of the Company adopted a formula
stock option plan under which stock options are automatically granted to each
Nonemployee Director on March 1 and September 1 of each year. Under the plan,
each Nonemployee Director received options to purchase 2,755 Shares on September
1, 1995. For each automatic grant after September 1, 1995, the number of Shares
subject to the grant will equal 105 percent of the number of Shares subject to
the previous automatic grant. The options may be exercised by each director, or
by his designated beneficiary if he should die, throughout the original terms of
the options. The plan was amended in February, 1996 to defer the automatic grant
of options scheduled to be made on March 1, 1996 until September 1, 1996,
subject to earlier termination of the plan upon the consummation of the Merger.
Compensation of the Chairman of the Board. As an outside director, Mr.
Gaston receives director fees as described above. In addition to his regular
director duties, Mr. Gaston devotes substantial time and energies to the affairs
of the Company in his role as Chairman of the Board, and has a Consulting
Agreement with the Company. The recommendations of The Wyatt Company, a
nationally recognized compensation consulting firm, were utilized by the Company
in structuring its relationship with Mr. Gaston. Pursuant to this Consulting
Agreement, Mr. Gaston received $90,000 in 1995, and deferred receipt of an
additional $80,000 for services rendered in 1995. The Consulting Agreement was
amended in 1995 to include certain "gross up" provisions, to extend its term for
an additional two years to December 31, 1998, and to provide that the Company
will periodically deposit into a trust for the benefit of Mr. Gaston certain
amounts payable under the Consulting Agreement. Either the Company or Mr. Gaston
may terminate the agreement upon 60 days' written notice, except that in certain
circumstances the Company would be obligated to continue to pay Mr. Gaston
consulting fees and deferred compensation installments for a specified period of
time. The Consulting Agreement provides that all allocations of cash and
deferred compensation after a change in control of the Company will be in the
same amount as last determined before the change in control. In 1995, Mr. Gaston
was reimbursed $10,230 for the cost of leasing an automobile.
In order to provide Mr. Gaston with a long-term incentive to serve the
Company as Chairman consistent with stockholder interests, on November 11, 1994,
he was granted an option to purchase 50,000 Shares. The option to purchase these
Shares, which was granted at an exercise price of $10.875 per share (the fair
market
10
<PAGE> 11
value of Shares on the date of grant), were to vest at a rate of 10,000 Shares
per year beginning on December 31, 1994, as long as Mr. Gaston continued his
position as Chairman of the Board. Pursuant to a 1995 amendment to the option,
all of the Shares subject to the option fully vested as of December 31, 1994.
Other Compensation of Directors. In connection with the Company's
acquisition of Moline Paint Manufacturing Co. through a merger effective August
31, 1994, James L. Sadler entered into a twelve-year Noncompetition Agreement
with the Company. Under the Noncompetition Agreement, Mr. Sadler will receive
$374,350 per year for the first four years after August 31, 1994, and $292,750
per year during the final eight years.
EXECUTIVE COMPENSATION
Summary of Compensation. Compensation on an accrual basis during 1995, 1994
and 1993 for the Chief Executive Officer of the Company and for the four most
highly compensated executive officers, other than the Chief Executive Officer,
who earned over $100,000 in salary and bonus in 1995 (the "named executive
officers") is set forth together with certain other information in the following
table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- --------- -------
NUMBER OF
SECURITIES
UNDERLYING
NAME AND OTHER ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS PAYOUTS COMPENSATION(1)
- -------------------------- ---- -------- ------- ------------ --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles E. Bennett 1995 $259,997 $51,200 26,820 40,000 $ 400
President and Chief 1994 220,004 68,000 7,150 400
Executive Officer 1993 180,250 42,120 11,590 400
Edward D. Corlett 1995 150,000 40,000 11,735 10,000 400
Vice President, Metal 1994 124,667 43,367 3,445 400
Coatings Group 1993 101,917 35,560 6,347 400
Henry H. Graham, Jr. 1995 115,000 30,000 6,966(2) 10,000 17,054(3)
Vice President of Finance
and Chief Financial
Officer
Everette L. Martin 1995 150,000 17,000 12,465 13,000 400
Vice President, Wood 1994 150,014 54,779 4,474(4) 3,515 19,244(5)
Coatings Group 1993 117,500 32,848 6,505 400
Keith C. Vander Hyde, Jr. 1995 150,000 40,000 11,455 10,000 400
Vice President, 1994 125,000 27,246 3,265 400
Consumer Products Group 1993 96,917 33,847 6,110 400
</TABLE>
- ---------------
(1) All Other Compensation includes the Company's matching contributions under
the Guardsman Products, Inc. Security Builder 401(k) Plan.
(2) This amount includes $1,101 representing the gross-up for federal income
taxes on taxable moving expenses and $5,865 representing imputed interest
with respect to the interest-free loan described in note (3).
(3) Mr. Graham joined the Company in January 1995. In conjunction with his move
to Grand Rapids, Mr. Graham received $5,365 for real estate fees and closing
costs on his Grand Rapids residence, and $11,699 for temporary living and
miscellaneous expenditures. In addition, the Company made an interest-free
loan to Mr. Graham for $154,500, the entire principal amount of which was
outstanding at December 31, 1995. The loan is to be repaid from the proceeds
of the sale of Mr. Graham's prior residence or, if the residence has not
been sold before March 31, 1996, through the transfer of ownership of the
residence to the Company.
11
<PAGE> 12
(4) This amount includes $3,624 representing the gross-up for federal income
taxes on taxable moving expenses, and $850 representing imputed interest
with respect to the tax-free loan described in note(5).
(5) During 1994, Mr. Martin relocated to the Company's High Point, North
Carolina facility in his new role as Vice President of the Wood Coatings
Group. In conjunction with this move, Mr. Martin received $12,944 for real
estate fees and closing costs on his Grand Rapids residence ("Residence"),
$3,500 representing the difference between the actual proceeds received and
the appraised value of his Residence and $2,400 for miscellaneous home
repair and redecorating expenditures. In addition, the Company made an
interest-free loan to Mr. Martin for $170,000, which was outstanding for
approximately one month and was secured by a mortgage on his Residence.
Executive Employment Agreements. Messrs. Bennett, Corlett, Graham and
Vander Hyde each have an Employment Agreement with the Company. These agreements
automatically renew annually in May of each year, unless the Board gives notice
at least 60 days before the anniversary date of each agreement that the
agreement will not be renewed. The annual salary for each executive is
determined each year by the Organization/Compensation Committee of the Board of
Directors and the minimum amounts in effect in 1995 for Messrs. Bennett,
Corlett, Graham and Vander Hyde were $260,000, $150,000, $120,000 and $150,000,
respectively. If any of these officers is terminated without cause within three
years after a change in control of the Company, the officer will receive his
annual compensation on a monthly basis and fringe benefits for the period
remaining between the date of termination and three years after the date of the
change in control of the Company. In August 1995, Mr. Martin entered into a new
employment agreement with the Company that expires on December 31, 1997. The
minimum annual salary under the agreement for 1995 was $150,000. If Mr. Martin's
employment with the Company is terminated without cause before the agreement
expires, he will receive his annual compensation (based on $100,000 per year
beginning in 1996) on a monthly basis and fringe benefits for the remaining term
of the agreement.
COMPENSATION PURSUANT TO PLANS
Stock Options Granted During 1995. The following table sets forth certain
information concerning stock options granted during 1995 to the named executive
officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
- --------------------------------------------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED(1) YEAR PER SHARE DATE 0% 5% 10%
- ------------------------- ---------- ------------- --------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles E. Bennett....... 16,985 9.3% $ 10.9375 2/17/2005 $ 0 $116,832 $296,075
9,835 5.4% 13.75 9/1/2005 0 85,046 215,524
Edward D. Corlett........ 7,590 4.1% 10.9375 2/17/2005 0 52,208 132,306
4,145 2.3% 13.75 9/1/2005 0 35,843 90,833
Henry H. Graham, Jr. .... 2,000 1.1% 11.25 1/16/2005 0 14,150 35,859
4,000 2.2% 10.9375 2/17/2005 0 27,514 69,726
4,000 2.2% 13.75 9/1/2005 0 34,589 87,656
Everette L. Martin....... 7,990 4.4% 10.9375 2/17/2005 0 54,959 139,278
4,475 2.4% 13.75 9/1/2005 0 38,697 98,065
Keith C. Vander Hyde, 7,360 4.0% 10.9375 2/17/2005 0 50,626 128,296
Jr. ...................
4,095 2.2% 13.75 9/1/2005 0 35,411 89,738
</TABLE>
- ---------------
(1) The above options were granted on February 17, 1995 and September 1, 1995
(and with respect to Mr. Graham, January 16, 1995), at the fair market value
of Shares on the date of grant, and vest six
12
<PAGE> 13
months following the date of grant. The options may be exercised within
three months of the executive leaving his position or within the original
term of the option, by the executive or his beneficiary, in the event of
disability or death.
The Company's stock option plans provide that an employee may borrow from
the Company up to 100 percent of the option price to exercise a stock option or
hold stock acquired through the Company's stock option plans. Currently
outstanding loans bear interest at the prime rate per annum with interest
payable quarterly. Upon exercise of an option through the use of an installment
loan, all outstanding loan balances are consolidated and the resultant principal
is payable monthly over a 60-month period commencing on the date on which the
most recent option to which the loan relates is exercised. All loans are secured
by a pledge of the Shares obtained upon exercise of the applicable option. The
outstanding loan balance as of February 1, 1996 and the maximum amount
outstanding since January 1, 1995 for Mr. Bennett were $81,600 and $97,300,
respectively. Outstanding loan balances since January 1, 1995 for Messrs.
Corlett and Vander Hyde were less than $4,320 and $210, respectively. Messrs.
Graham and Martin did not have any stock option loans outstanding during the
last fiscal year.
The Company's stock option plans provide that all unexpired stock options
become immediately vested and exercisable upon a change of control of the
Company unless individual stock option agreements provide otherwise.
Stock Options Exercised and Year-End Option Values. The following table
sets forth certain information concerning the aggregated option exercises during
1995 and the number of outstanding options held as of December 31, 1995, by each
of the named executive officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END YEAR-END
----------------- -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------- --------------- -------- ----------------- -----------------
<S> <C> <C> <C> <C>
Charles E. Bennett....................... 2,500 $0 37,935/9,835 $61,195/$0
Edward D. Corlett........................ 0 0 26,972/4,145 45,735/ 0
Henry H. Graham, Jr...................... 0 0 6,000/4,000 14,000/ 0
Everette L. Martin....................... 0 0 22,010/4,475 49,898/ 0
Keith C. Vander Hyde, Jr................. 0 0 21,471/4,095 40,401/ 0
</TABLE>
Performance Award Plan. The following table shows performance award
allotments granted in 1995, payable in 1998, for each of the named executive
officers under the Company's Performance Award Plan:
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE
PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK-PRICE-BASED
SHARES, UNITS OTHER PERIOD PLANS
OR OTHER UNTIL MATURATION --------------------
NAME RIGHTS(1) OR PAYOUT TARGET MAXIMUM
- --------------------------------------------- -------------- ---------------- -------- --------
<S> <C> <C> <C> <C>
Charles E. Bennett........................... 70% 3 Years $154,000 $184,800
Edward D. Corlett............................ 35% 3 Years 45,000 54,000
Henry H. Graham, Jr.......................... 35% 3 Years 42,000 50,400
Everette L. Martin........................... 35% 3 Years 52,000 62,400
Keith C. Vander Hyde, Jr..................... 35% 3 Years 44,000 52,800
</TABLE>
13
<PAGE> 14
- -------------------------
(1) Under the Performance Award Plan, key employees may earn incentive
compensation based upon achievement of specified levels of average
Company income before income taxes over a three-year performance period.
The numbers reported in this column represent the percentage of each
officer's base salary for the 1994 fiscal year that may be earned as bonus
compensation under the plan if the specified levels of average Company
income before income taxes are achieved. The target level of average
Company income before income taxes (the "Base") was determined by the
Organization/Compensation Committee. If higher or lower levels of average
Company income before income taxes are achieved during the three-year
performance period, the percentage of 1994 fiscal year base salary to be
received by each officer as bonus compensation will be correspondingly
higher or lower. Bonuses are conditioned upon achieving a minimum, or
"threshold," percentage of the Base. No bonuses are payable until the
threshold of 80 percent of the Base is exceeded. Bonuses are also capped
and may not exceed 120 percent of the percentage of 1994 fiscal year base
salary reported in this column. The Base was established at the beginning
of 1995 for the period ending on the last day of the Company's 1997 fiscal
year.
A total of $98,000 in performance award bonuses were earned by key
employees under the Performance Award Plan for the three-year period ended
December 31, 1995. The applicable bonus amounts are included in Long-Term
Compensation Payouts in the Summary Compensation Table for the named executive
officers.
(d) Retirement Plans. The Company maintains the Guardsman Products, Inc.
Non-Bargaining Employees' Retirement Income Plan. The amount of compensation
used in determining benefits under a defined benefit plan has been limited by
the Internal Revenue Code of 1986, as amended (the "Code"), since 1989. The
amount of the limit for 1996 is $150,000. The Code also limits the maximum
annual pension from a defined benefit plan to $120,000.
The Company maintains a Pension Restoration Plan to provide participants of
the Supplemental Executive Retirement Plan, discussed below, with pension
benefits on compensation in excess of the $150,000 limit set by the Code.
Benefits under the Pension Restoration Plan are calculated by first determining
the amount of a participant's benefit payable under the Non-Bargaining
Employees' Retirement Income Plan, without reduction for any compensation limit
under the Code, and then subtracting the amount of the participant's actual
benefit payable under the Non-Bargaining Employees' Retirement Plan.
The following pension plan table shows the estimated annual benefits
payable upon retirement under the Non-Bargaining Employees' Retirement Income
Plan and, if applicable, the Pension Restoration Plan:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE -----------------------------------------------------
REMUNERATION 15 20 25 30 AND OVER
- ------------ -------- -------- -------- -----------
<S> <C> <C> <C> <C>
$100,000........................ $ 20,167 $ 26,890 $ 33,612 $ 40,334
150,000......................... 31,417 41,890 52,362 62,834
200,000......................... 42,667 56,890 71,112 85,334
250,000......................... 53,917 71,890 89,862 107,834
300,000......................... 65,167 86,890 108,612 130,334
350,000......................... 76,417 101,890 127,362 152,834
400,000......................... 87,667 116,890 146,112 175,334
450,000......................... 98,917 131,890 164,862 197,834
500,000......................... 110,167 146,890 183,612 220,334
</TABLE>
All of the above annual benefits are subject to reductions for early
retirement but are not subject to deduction for Social Security benefits.
14
<PAGE> 15
The plans provide annual retirement benefits equal to .9 percent of a
participant's average annual compensation plus .6 percent of the participant's
average annual compensation in excess of covered compensation (average of
maximum social security base), multiplied by the participant's years of credited
service (not to exceed 30 years). Average annual compensation for a participant
is the average of the participant's compensation, including salary, annual bonus
and amounts earned under the Performance Award Plan, for the highest five
consecutive years before retirement. These components of average annual
compensation for purposes of the plan would include amounts consistent with
those set forth under the captions "Salary" and "Bonus" in the Summary
Compensation Table included in this Information Statement, plus any amounts that
may be paid under the Company's Performance Award Plan for the given year. If
there were amounts paid under the Performance Award Plan, as there were for the
plan year ended December 31, 1995, average annual compensation for purposes of
the plan could differ significantly from the amounts set forth under the
captions "Salary" and "Bonus" in the Summary Compensation Table in this
Information Statement. The plans also provide for death, disability and
termination benefits. Since payments to the plans are computed on an actuarial
basis, there are no allocations to individual participants. Substantially all
full-time employees of the Company in the United States are participants in the
Non-Bargaining Employees' Retirement Income Plan or similar plans.
The years of credited service for the named executive officers are fifteen
years for Mr. Bennett, seven years for Mr. Corlett, one year for Mr. Graham,
thirty years for Mr. Martin and twelve years for Mr. Vander Hyde.
The Company also has a Supplemental Executive Retirement Plan (the "SERP")
to provide various key management employees with deferred compensation
commencing upon retirement from the Company at normal or early retirement age.
The SERP also provides benefits in the event of death or disability. The
following table shows the estimated annual benefits payable upon retirement
under the SERP:
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE ---------------------------
REMUNERATION 10 15 AND OVER
- ------------ ------- -----------
<S> <C> <C>
$100,000................................................. $12,500 $ 20,000
150,000................................................. 18,750 30,000
200,000................................................. 25,000 40,000
250,000................................................. 31,250 50,000
300,000................................................. 37,500 60,000
350,000................................................. 43,750 70,000
400,000................................................. 50,000 80,000
450,000................................................. 56,250 90,000
500,000................................................. 62,500 100,000
</TABLE>
All of the above annual benefit amounts are subject to reductions for early
retirement.
Benefits under the SERP are calculated at 12.5 percent of average annual
compensation when a participant attains ten years of credited service increasing
to a maximum of twenty percent of average annual compensation at fifteen years
of credited service. Average annual compensation for a participant is the
average of the participant's annual salary and bonus (but excluding amounts
earned under the Performance Award Plan) for the highest five consecutive years
before retirement. Average annual compensation for purposes of the SERP are
substantially similar to the sum of the amounts shown under the captions
"Salary" and "Bonus" in the Summary Compensation Table in this Information
Statement. The years of credited service under this plan for the named executive
officers are twelve years for Mr. Bennett, five years for Mr. Corlett, one year
for Mr. Graham, twelve years for Mr. Martin and four years for Mr. Vander Hyde.
15
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Organization/Compensation Committee is charged with the duty of
reviewing the organizational structure and personnel policies, plans and
programs of the Company, including administration of the Company's executive
compensation program. The Organization/Compensation Committee is composed of
Winthrop C. Neilson, John Russell Fowler, Paul K. Gaston and K. Kevin Hepp. Mr.
Gaston, Chairman of the Board of the Company, has entered into a three-year
Consulting Agreement with the Company, effective January 1, 1994, under which he
received $90,000 in 1995, and deferred receipt of an additional $80,000 for
services rendered in 1995. The Consulting Agreement was amended in 1995 to
include certain "gross up" provisions, to extend its term for an additional two
years to December 31, 1998, and to provide that the Company will periodically
deposit into a trust for the benefit of Mr. Gaston certain amounts payable under
the Consulting Agreement. Either the Company or Mr. Gaston may terminate the
agreement upon 60 days' written notice, except that in certain circumstances the
Company would be obligated to continue to pay Mr. Gaston consulting fees and
deferred compensation installments for a specified period of time. The
Consulting Agreement provides that all allocations of cash and deferred
compensation after a change in control of the Company will be in the same amount
as last determined before the change in control. In 1995 Mr. Gaston was
reimbursed $10,230 for the cost of leasing an automobile.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1995, Henry H. Graham, Jr. joined the Company as its Vice
President of Finance, Chief Financial Officer and Treasurer. In conjunction with
his employment, the Company made an interest-free loan to Mr. Graham in the
amount of $154,500 for the purchase of a residence. As of February 28, 1996, the
outstanding principal balance on this loan remained at $154,500. The loan is to
be repaid from the proceeds of the sale of Mr. Graham's prior residence or, if
the residence has not been sold before March 31, 1996, through the transfer of
ownership of the residence to the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10 percent of the Company's Shares, to
file reports of ownership and changes in ownership of the Company's Shares with
the Securities and Exchange Commission and the New York Stock Exchange.
Directors, officers and greater than 10 percent beneficial owners are required
by Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file.
Based solely on its review of the copies of such reports received by it, or
written representations from certain reporting persons that no other filings
were required for those persons, the Company believes that all filing
requirements applicable to its directors, officers and greater than 10 percent
beneficial owners were satisfied in 1995.
INDEMNITY AGREEMENTS
The Company has entered into Indemnity Agreements with Charles E. Bennett,
Edward D. Corlett, Henry H. Graham, Jr., Everette L. Martin and Keith C. Vander
Hyde, Jr., and with each director and an advisory director of the Company
("Executives"). A copy of the form of the Indemnity Agreement was included as an
exhibit to the Company's Form 10-K Annual Report for the year ended December 31,
1986, filed with the Securities and Exchange Commission. The Indemnity
Agreements indemnify each Executive against all expenses incurred in connection
with any action or investigation involving the Executive by reason of his
position with the Company (or with another entity at the Company's request). The
Executives will also be indemnified for costs, including judgments, fines and
penalties, indemnifiable under applicable law or under the terms of any current
or future liability insurance policy maintained by the Company that covers the
Executives. An Executive involved in a derivative suit will be indemnified for
expenses and amounts paid in settlement. Indemnification is dependent in every
instance on the Executive meeting the standards of conduct
16
<PAGE> 17
set forth in the Indemnity Agreements. In the event of a potential change in
control, the Company may fund a trust to satisfy its anticipated indemnification
obligations.
The Company's Retirement Plan for Directors, as amended and restated,
provides that the Company will indemnify each director and former director of
the Company against, and pay, any liability or expense, including attorneys'
fees, incurred by such director or former director in enforcing his rights under
the plan.
The Merger Agreement provides that from and after the Effective Time,
Parent will indemnify, defend and hold harmless, and will cause the Surviving
Corporation (including, if necessary, providing the Surviving Corporation with
sufficient funds) to indemnify, defend and hold harmless, the present and former
officers, directors (including the Company's Advisory Director), employees and
agents of the Company and its subsidiaries against all losses, claims, damages,
expenses or liabilities arising out of actions or omissions or alleged actions
or omissions occurring at or before the Effective Time to the same extent and on
the same terms and conditions (including with respect to advancement of
expenses) provided for in the Company's Certificate of Incorporation and By-laws
and agreements in effect at the date of the Merger Agreement (to the extent
consistent with applicable law). Further, Parent has agreed that for six years
after the Effective Time, Parent will cause to be maintained in effect the
current policies of directors' and officers' liability insurance maintained by
the Company (except that Parent may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions that are no less
advantageous) with respect to claims arising from facts or events that occurred
before the Effective Time; provided, however, that Parent will not be obligated
to make annual premium payments for such insurance to the extent the premiums
exceed 175 percent of the annual premiums paid as of the date the Merger
Agreement by the Company for such insurance (the "Maximum Amount"). If the
amount of the annual premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, Parent and the Surviving Corporation will
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to the Maximum Amount.
In the Letter Agreements Parent agrees to indemnify the Major Stockholders
and hold them harmless from and against any and all claims by third parties or
Parent (and its affiliates), judgments, fines, penalties, liabilities, fees and
expenses (including, without limitation, reasonable attorneys' fees) that may be
asserted against or incurred by the Major Stockholders in connection with their
entering into the Letter Agreements or their compliance with the terms thereof,
except that such indemnity would not protect the Major Stockholders against (i)
any violations of law (other than violations alleged to have occurred as a
result of their compliance with the terms and conditions of the Letter
Agreements) or (ii) any breach by them of their commitments in the Letter
Agreements. In the Merger Agreement, the Company agrees to indemnify and hold
Parent harmless from and against any liability, cost, or expense (including
reasonable attorneys' fees) incurred by it in providing the indemnification
required under the Letter Agreements, except that the Company's indemnity
obligation will terminate upon the purchase of Shares by Parent pursuant to the
Offer. In the event that any claim is made which gives rise or may give rise to
the Company's foregoing indemnity obligation, Parent has agreed to promptly
notify the Company and the Company will be entitled to assume the defense,
settlement or other disposition of the claim.
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