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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
INSTRON CORPORATION
(Name of the Issuer)
ISN ACQUISITION CORPORATION
KIRTLAND CAPITAL PARTNERS III L.P.
KIRTLAND PARTNERS LTD.
KIRTLAND CAPITAL COMPANY III LLC
<TABLE>
<S> <C>
GEORGE S. BURR JONATHAN L. BURR
HELEN L. BURR THE JONATHAN L. BURR TRUST -- 1965
THE HAROLD HINDMAN TRUST -- 1969 YAHYA GHARAGOZLOU
HAROLD HINDMAN ARTHUR D. HINDMAN
JAMES M. MCCONNELL WILLIAM J. MILLIKEN
JOSEPH E. AMARAL LINTON A. MOULDING
KENNETH L. ANDERSEN JANE ELIZABETH MOULDING
JOHN R. BARRETT NORMAN L. SMITH
</TABLE>
INSTRON CORPORATION
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
0004577761
(CUSIP Number of Class of Securities)
<TABLE>
<S> <C> <C>
Kirtland Capital Partners III L.P. Instron Corporation James M. McConnell
c/o Raymond A. Lancaster c/o James M. McConnell Joseph E. Amaral
2550 SOM Center Road 100 Royall Street Kenneth L. Andersen
Suite 105 Canton, MA 02021 John R. Barrett
Willoughby Hills, OH 44904 (781) 828-2500 Jonathan L. Burr
(440) 585-9010 The Jonathan L. Burr
Trust -- 1965
Kirtland Partners Ltd. Yahya Gharagozlou
Kirtland Capital Company III LLC Arthur D. Hindman
ISN Acquisition Corporation George S. Burr William J. Milliken
c/o Kirtland Capital Partners III L.P. Helen L. Burr Linton A. Moulding
c/o Raymond A. Lancaster The Harold Hindman Jane Elizabeth Moulding
2550 SOM Center Road Trust -- 1969 Norman L. Smith
Suite 105 Harold Hindman c/o Instron Corporation
Willoughby Hills, OH 44904 c/o Instron Corporation 100 Royall Street
(440) 585-9010 100 Royall Street Canton, MA 02021
Canton, MA 02021 (781) 828-2500
(781) 828-2500
</TABLE>
WITH COPIES TO:
<TABLE>
<S> <C> <C> <C>
Stuart M. Cable, P.C. Charles W. Hardin, Jr. John R. Utzschneider Thomas J. Dougherty
Joseph L. Johnson III, P.C. Jones, Day, Reavis & Pogue Bingham Dana LLP Skadden, Arps, Slate,
James A. Matarese 901 Lakeside Avenue 150 Federal Street Meagher & Flom LLP
Goodwin, Procter & Hoar LLP Cleveland, OH 44114 Boston, MA 02110 One Beacon Street
Exchange Place (216) 586-3939 (617) 951-8000 Boston, MA 02108
Boston, MA 02109 (617) 573-4800
(617) 570-1000
</TABLE>
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
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TRANSACTION VALUE* AMOUNT OF FILING FEE
- -----------------------------------------------------------------------------------------------
<S> <C>
$151,662,752 $30,333
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</TABLE>
* For purposes of calculating the filing fee only. Calculated in accordance with
Rule 0-11(b)(2) under the Securities Exchange Act of 1934, as amended. Assumes
the purchase of 6,653,238 shares of Common Stock, par value $1.00 per share,
of Instron Corporation at $22.00 per share and the purchase of underlying
options to purchase Common Stock for an aggregate of $5,291,516.
[X] Check box if any of the fee is offset as provided by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid. Identify
the previous filing by registration statement number, or the form or schedule
and the date of its filing.
Amount previously paid: $30,333
Form or registration no.: Preliminary Proxy Statement on Schedule 14A (filed
concurrently with this Schedule 13E-3)
Filing party: Instron Corporation
Date filed: May 26, 1999
<PAGE> 2
This Rule 13e-3 Transaction Statement (this "Statement") is being filed
with the Securities and Exchange Commission (the "Commission") in connection
with the merger (the "Merger") of ISN Acquisition Corporation ("MergerCo") with
and into Instron Corporation ("Instron"), with Instron continuing as the
surviving corporation (the "Surviving Corporation"), pursuant to an Agreement
and Plan of Merger dated as of May 6, 1999 (the "Merger Agreement") by and among
Instron, MergerCo and Kirtland Capital Partners III L.P., the parent of MergerCo
("Kirtland"). Under the Merger Agreement, each share of common stock, par value
$1.00 per share, of Instron (the "Instron Common Stock") outstanding immediately
prior to the Merger, other than shares held by Instron, its subsidiaries,
MergerCo or dissenting Instron stockholders, will be canceled and converted
automatically into the right to receive $22.00 in cash without interest. In
addition, certain members of Instron's management and their affiliates (the
"Management Investors") and certain members of Instron's Board of Directors
and/or their affiliates (the "Other Investors") who or which are also
stockholders of Instron will exchange some of their shares of Instron Common
Stock for equity in the Surviving Corporation and will have certain of their
stock options assumed by the Surviving Corporation. Accordingly, upon
consummation of the Merger, the entire equity interest in Instron as the
Surviving Corporation will be owned by Kirtland and certain of its affiliates,
the Management Investors and the Other Investors. James M. McConnell, Joseph E.
Amaral, Kenneth L. Andersen, John R. Barrett, Jonathan L. Burr, The Jonathan L.
Burr Trust -- 1965, Yahya Gharagozlou, Arthur D. Hindman, William J. Milliken,
Linton A. Moulding, Jane Elizabeth Moulding and Norman L. Smith are the
Management Investors. George S. Burr, Helen L. Burr and The Harold Hindman
Trust -- 1969 are the Other Investors. Harold Hindman is filing this Statement
solely in his capacity as trustee of The Harold Hindman Trust -- 1969. He is
not, in his individual capacity, one of the Other Investors.
Concurrently with the filing of this Statement, Instron has filed with the
Commission a preliminary Proxy Statement on Schedule 14A (the "Proxy Statement")
in connection with a special meeting of the stockholders of Instron at which
such stockholders will be asked to approve the Merger Agreement.
The following cross reference sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement of
the information required to be included in response to the items of this
Statement. The information in the Proxy Statement which is attached hereto as
Exhibit (d)(3), including all appendices thereto, is hereby expressly
incorporated herein by reference and the responses to each item are qualified in
their entirety by the provisions of the Proxy Statement.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN CAPTION OR LOCATION
SCHEDULE 13E-3 IN THE PROXY STATEMENT
-------------- ----------------------
<S> <C>
Item 1(a) Cover Page and "Summary -- The Companies"
Item 1(b) Cover Page, "Summary -- Record Date; Voting Power,"
"Historical Market Information" and "The Special
Meeting -- Record Date and Quorum Requirement"
Item 1(c)-(d) "Historical Market Information"
Item 1(e) *
Item 1(f) "Principal Stockholders and Stock Ownership of Management
and Others" and Appendix D to the Proxy Statement
Item 2(a)-(d) and (g) "Summary -- The Companies" and "Certain Information
Concerning MergerCo and the Investor Group"
Item 2(e)-(f) *
Item 3(a)(1) "Special Factors -- Background of the Merger," "-- Conflicts
of Interest" and Appendix D to the Proxy Statement
</TABLE>
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* Not applicable or answer is negative
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
ITEM IN CAPTION OR LOCATION
SCHEDULE 13E-3 IN THE PROXY STATEMENT
-------------- ----------------------
<S> <C>
Item 3(a)(2) "Special Factors -- Background of the Merger" and
"-- Conflicts of Interest"
Item 3(b) "Special Factors -- Background of the Merger" and
"-- Conflicts of Interest"
Item 4(a) "Questions and Answers about the Merger," "Summary -- Terms
of the Merger Agreement," "-- Share Ownership of Instron
Following the Merger," "-- Conflicts of Interest,"
"-- Appraisal Rights," "Special Factors -- Certain Effects
of the Merger," "-- Financing of the Merger," "-- Conflicts
of Interest," "The Special Meeting -- Effective Time of the
Merger and Payment for Shares," "The Merger," "Appraisal
Rights" and Appendix A to the Proxy Statement
Item 4(b) "Questions and Answers about the Merger," "Summary -- Share
Ownership of Instron Following the Merger," "-- Conflicts of
Interest," "-- Appraisal Rights," "Special
Factors -- Purpose and Reasons of the Investor Group for the
Merger," "-- Conflicts of Interest," "-- Certain Effects of
the Merger," "The Merger" and "Appraisal Rights"
Item 5(a)-(b) *
Item 5(c) "Special Factors -- Conflicts of Interest" and "-- Conduct
of Instron's Business After the Merger"
Item 5(d) "Historical Market Information," "Special Factors -- Conduct
of Instron's Business After the Merger" and "The
Merger -- Terms of the Merger Agreement -- Covenants"
Item 5(e) "Special Factors -- Certain Effects of the Merger,"
"-- Financing of the Merger" and "-- Conduct of Instron's
Business After the Merger"
Item 5(f)-(g) "Special Factors -- Certain Effects of the Merger"
Item 6(a) "Special Factors -- Financing of the Merger"
Item 6(b) "The Merger -- Estimated Fees and Expenses of the Merger"
Item 6(c) "Special Factors -- Financing of the Merger"
Item 6(d) *
Item 7(a)-(c) "Questions and Answers about the Merger," "Summary,"
"Special Factors -- Background of the Merger," "-- The
Special Committee's and the Instron Board's Recommendation,"
"-- Opinion of Financial Advisor," "-- Purpose and Reasons
of the Investor Group for the Merger" and "-- Conflicts of
Interest"
Item 7(d) "Questions and Answers about the Merger," "Summary,"
"Special Factors -- Background of the Merger," "-- Purpose
and Reasons of the Investor Group for the Merger,"
"-- Conflicts of Interest," "-- Certain Effects of the
Merger," "--Financing of the Merger," "-- Conduct of
Instron's Business After the Merger," "Appraisal Rights,"
"Federal Income Tax Consequences" and "Principal
Stockholders and Stock Ownership of Management and Others"
Item 8(a)-(b) "Questions and Answers about the Merger,"
"Summary -- Recommendations," "-- Opinion of Financial
Advisor," "-- Conflicts of Interest," "-- Appraisal Rights,"
"Special Factors -- Background of the Merger," "-- The
Special Committee's and the Instron Board's Recommendation,"
"-- Opinion of Financial Advisor," "-- Position of the
Investor Group as to Fairness of the Merger," "-- Conflicts
of Interest" and "Appraisal Rights"
</TABLE>
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<TABLE>
<S> <C>
* Not applicable or answer is negative
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
ITEM IN CAPTION OR LOCATION
SCHEDULE 13E-3 IN THE PROXY STATEMENT
-------------- ----------------------
<S> <C>
Item 8(c) "Questions and Answers about the Merger," "Summary -- Vote
Required," "The Special Meeting -- Voting Procedures" and
"The Merger -- Terms of the Merger Agreement -- Conditions."
Item 8(d) "Questions and Answers about the Merger," "Special
Factors -- Background of the Merger," "-- The Special
Committee's and the Instron Board's Recommendation" and
"-- Opinion of Financial Advisor"
Item 8(e) "Questions and Answers about the Merger," "Summary --
Recommendations," "Special Factors -- Background of the
Merger" and
"-- The Special Committee's and the Instron Board's
Recommendation"
Item 8(f) "Special Factors -- Background of the Merger"
Item 9(a)-(c) "Summary -- Recommendations," "-- Opinion of Financial
Advisor," "Special Factors -- Background of the Merger,"
"-- The Special Committee's and the Instron Board's
Recommendation," "-- Opinion of Financial Advisor,"
"-- Conflicts of Interest" and Appendix B to the Proxy
Statement
Item 10(a) "Principal Stockholders and Stock Ownership of Management
and Others"
Item 10(b) "Principal Stockholders and Stock Ownership of Management
and Others" and Appendix D to the Proxy Statement
Item 11 "Questions and Answers about the Merger," "Summary -- Terms
of the Merger Agreement," "Special Factors -- Background of
the Merger,"
"-- Conflicts of Interest," "-- Financing of the Merger,"
"The Special Meeting -- Voting Agreement," "The Merger" and
Appendix A to the Proxy Statement
Item 12(a)-(b) "Summary -- Recommendations," "-- Share Ownership of Instron
Following the Merger," "-- Conflicts of Interest," "Special
Factors -- Background of the Merger," "-- The Special
Committee's and the Instron Board's Recommendation,"
"-- Conflicts of Interest," "-- Purpose and Reasons of the
Investor Group for the Merger," "-- Financing of the Merger"
and "The Special Meeting -- Voting Agreement"
Item 13(a) "Summary -- Appraisal Rights," "The Special
Meeting -- Voting Procedures," "Appraisal Rights" and
Appendix C to the Proxy Statement
Item 13(b)-(c) *
Item 14(a) "Selected Historical Consolidated Financial Data" and
"Unaudited Pro Forma Condensed Consolidated Financial
Data -- Ratio of Earnings to Fixed Charges"
Item 14(b) "Unaudited Pro Forma Condensed Consolidated Financial Data"
Item 15(a)-(b) "Summary -- Effects of the Merger," "-- Financing of the
Merger," "Special Factors -- Conflicts of Interest,"
"-- Certain Effects of the Merger," "-- Financing of the
Merger," "-- Conduct of Instron's Business After the
Merger," "The Special Meeting -- Proxy Solicitation" and
"The Merger"
Item 16 Proxy Statement
Item 17(a)-(f) *
</TABLE>
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* Not applicable or answer is negative.
4
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The information set forth on the cover page to the Proxy Statement and
in the section entitled "Summary -- The Companies" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth on the cover page to the Proxy Statement and
in the sections entitled "Summary -- Record Date; Voting Power," "Historical
Market Information" and "The Special Meeting -- Record Date and Quorum
Requirement" of the Proxy Statement is incorporated herein by reference.
(c)-(d) The information set forth in the section entitled "Historical
Market Information" of the Proxy Statement is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in the section entitled "Principal
Stockholders and Stock Ownership of Management and Others" of the Proxy
Statement and in Appendix D to the Proxy Statement is incorporated herein by
reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed jointly by Instron, MergerCo,
Kirtland, the Management Investors and the Other Investors. The information set
forth in the sections entitled "Summary -- The Companies" and "Certain
Information Concerning MergerCo and the Investor Group" of the Proxy Statement
is incorporated herein by reference.
(e), (f) None of the persons or entities with respect to whom information
is required by this item has during the last five years (i) been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(ii) been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the sections entitled "Special
Factors -- Background of the Merger" and "-- Conflicts of Interest" of the Proxy
Statement and in Appendix D to the Proxy Statement is incorporated herein by
reference.
(a)(2) The information set forth in the sections entitled "Special
Factors -- Background of the Merger" and "-- Conflicts of Interest" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in the sections entitled "Special
Factors -- Background of the Merger" and "-- Conflicts of Interest" of the Proxy
Statement is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary -- Terms of the Merger Agreement," "-- Share
Ownership of Instron Following the Merger," "-- Conflicts of Interest,"
"-- Appraisal Rights," "Special Factors -- Certain Effects of the Merger,"
"-- Financing of the Merger," "-- Conflicts of Interest," "The Special
Meeting -- Effective Time of the Merger and Payment for Shares," "The Merger"
and "Appraisal Rights" of the Proxy Statement and Appendix A to the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary -- Share Ownership of Instron Following the
Merger," "-- Conflicts of Interest," "-- Appraisal Rights," "Special
Factors -- Purpose and Reasons of the Investor Group for the Merger,"
"-- Conflicts of Interest," "-- Certain Effects of the Merger," "The Merger" and
"Appraisal Rights" of the Proxy Statement is incorporated herein by reference.
5
<PAGE> 6
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(b) Not applicable.
(c) The information set forth in the sections entitled "Special
Factors -- Conflicts of Interest" and "--Conduct of Instron's Business After the
Merger" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth in the sections entitled "Historical Market
Information," "Special Factors -- Conduct of Instron's Business After the
Merger" and "The Merger -- Terms of the Merger Agreement -- Covenants" of the
Proxy Statement is incorporated herein by reference.
(e) The information set forth in the sections entitled "Special
Factors -- Certain Effects of the Merger," "-- Financing of the Merger" and
"-- Conduct of Instron's Business After the Merger" of the Proxy Statement is
incorporated herein by reference.
(f)-(g) The information set forth in the section entitled "Special
Factors -- Certain Effects of the Merger" of the Proxy Statement is incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the section entitled "Special
Factors -- Financing of the Merger" of the Proxy Statement is incorporated
herein by reference.
(b) The information set forth in the section entitled "The
Merger -- Estimated Fees and Expenses of the Merger" of the Proxy Statement is
incorporated herein by reference.
(c) The information set forth in the section entitled "Special
Factors -- Financing of the Merger" of the Proxy Statement is incorporated
herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary," "Special Factors -- Background of the
Merger," "-- The Special Committee's and the Instron Board's Recommendation,"
"-- Opinion of Financial Advisor," "-- Purpose and Reasons of the Investor Group
for the Merger" and "-- Conflicts of Interest" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary," "Special Factors -- Background of the
Merger," "-- Purpose and Reasons of the Investor Group for the Merger,"
"-- Conflicts of Interest," "-- Certain Effects of the Merger," "-- Financing of
the Merger," "-- Conduct of Instron's Business After the Merger," "Appraisal
Rights," "Federal Income Tax Consequences" and "Principal Stockholders and Stock
Ownership of Management and Others" of the Proxy Statement is incorporated
herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary -- Recommendations," "-- Opinion of
Financial Advisor," "-- Conflicts of Interest," "-- Appraisal Rights," "Special
Factors -- Background of the Merger," "-- The Special Committee's and the
Instron Board's Recommendation," "-- Opinion of Financial Advisor," "-- Position
of the Investor Group as to Fairness of the Merger," "-- Conflicts of Interest"
and "Appraisal Rights" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary -- Vote Required," "The Special
Meeting -- Voting Procedures" and "The Merger -- Terms of the Merger
Agreement -- Conditions" of the Proxy Statement is incorporated herein by
reference.
(d) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Special Factors -- Background of the Merger,"
"-- The Special Committee's and the Instron Board's Recommendation" and
"-- Opinion of Financial Advisor" of the Proxy Statement is incorporated herein
by reference.
(e) The information set forth in the sections entitled "Questions and
Answers about the Merger," "Summary -- Recommendations," "Special
Factors -- Background of the Merger" and "-- The Special
6
<PAGE> 7
Committee's and the Instron Board's Recommendation" of the Proxy Statement is
incorporated herein by reference.
(f) The information set forth in the section entitled "Special
Factors -- Background of the Merger" of the Proxy Statement is incorporated
herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in the sections entitled
"Summary -- Recommendations," "-- Opinion of Financial Advisor," "Special
Factors -- Background of the Merger," "-- The Special Committee's and the
Instron Board's Recommendation," "-- Opinion of Financial Advisor" and
"-- Conflicts of Interest" of the Proxy Statement and in Appendix B to the Proxy
Statement is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in the section entitled "Principal
Stockholders and Stock Ownership of Management and Others" of the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in the section entitled "Principal
Stockholders and Stock Ownership of Management and Others" of the Proxy
Statement and in Appendix D to the Proxy Statement is incorporated herein by
reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in the sections entitled "Questions and Answers
about the Merger," "Summary -- Terms of the Merger Agreement," "Special
Factors -- Background of the Merger," "-- Conflicts of Interest," "-- Financing
of the Merger," "The Special Meeting -- Voting Agreement" and "The Merger" of
the Proxy Statement and in Appendix A to the Proxy Statement is incorporated
herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth in the sections entitled
"Summary -- Recommendations," "-- Share Ownership of Instron Following the
Merger," "-- Conflicts of Interest," "Special Factors -- Background of the
Merger," "-- The Special Committee's and the Instron Board's Recommendation,"
"-- Purpose and Reasons of the Investor Group for the Merger," "-- Financing of
the Merger" and "The Special Meeting -- Voting Agreement" of the Proxy Statement
is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the sections entitled
"Summary -- Appraisal Rights," "The Special Meeting -- Voting Procedures" and
"Appraisal Rights" of the Proxy Statement and in Appendix C to the Proxy
Statement is incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The relevant financial information set forth in the sections entitled
"Selected Historical Consolidated Financial Data" and "Unaudited Pro Forma
Condensed Consolidated Financial Data -- Ratio of Earnings to Fixed Charges" of
the Proxy Statement is incorporated herein by reference.
(b) The information set forth in the section entitled "Unaudited Pro Forma
Condensed Consolidated Financial Data" of the Proxy Statement is incorporated
herein by reference.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)-(b) The information set forth in the sections entitled
"Summary -- Effects of the Merger," "-- Financing of the Merger," "Special
Factors -- Conflicts of Interest," "-- Certain Effects of the Merger,"
"-- Financing of the Merger," "-- Conduct of Instron's Business After the
Merger," "The Special Meeting -- Proxy Solicitation" and "The Merger" of the
Proxy Statement is incorporated herein by reference.
7
<PAGE> 8
ITEM 16. ADDITIONAL INFORMATION.
The entirety of the Proxy Statement is incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
* (a)(1) Letter dated May 3, 1999 from National City Bank to Kirtland.
(b)(1) Opinion of The Beacon Group Capital Services, LLC dated May 6,
1999 (included as Appendix B to the Proxy Statement, which is filed
herewith as Exhibit (d)(3)).
* (b)(2) Financial Analysis Presentation materials prepared by The Beacon
Group Capital Services, LLC in connection with its presentation to the
Board of Directors of Instron and its Opinion dated as of May 4, 1999.
(b)(3) Financial Analysis Presentation materials prepared by The Beacon
Group Capital Services, LLC in connection with its presentation to the
Board of Directors of Instron dated as of August 11, 1998.
(b)(4) Financial Analysis Presentation materials prepared by The Beacon
Group Capital Services, LLC in connection with its presentation to the
Board of Directors of Instron dated as of March 10, 1999.
(b)(5) Financial Analysis Presentation materials prepared by The Beacon
Group Capital Services, LLC in connection with its presentation to the
Special Committee of the Board of Directors of Instron dated as of April
7, 1999.
(c)(1) Agreement and Plan of Merger dated as of May 6, 1999 by and among
Instron, MergerCo and Kirtland (included as Appendix A to the Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
* (c)(2) Letter Agreement dated as of May 6, 1999 by and among Kirtland and
the Management Investors.
* (c)(3) Letter Agreement dated as of May 6, 1999 by and among Kirtland,
Instron and the Other Investors.
* (c)(4) Voting Agreement dated as of May 6, 1999 by and among Kirtland,
MergerCo, the Management Investors and certain of their affiliates, and
the Other Investors and certain of their affiliates.
* (c)(5) Form of Stockholders Agreement.
* (c)(6) Form of Amendment to Restricted Stock Award Agreement.
* (c)(7) Form of Instron Corporation 1999 Stock Option Plan.
* (c)(8) Form of Incentive Stock Option Agreement.
* (c)(9) Form of Nonqualified Stock Option Agreement.
* (c)(10) Form of Amendment to Instron Corporation 1992 Stock Incentive
Plan.
* (c)(11) Form of Amendment to Nonqualified Stock Option Agreement.
* (c)(12) Form of Amendment to Incentive Stock Option Agreement.
(d)(1) Letter to Stockholders (included in the Proxy Statement, which is
filed herewith as Exhibit (d)(3)).
(d)(2) Notice of Special Meeting of Stockholders (included in the Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
(d)(3) Proxy Statement.
(d)(4) Form of Proxy.
(d)(5) Press Release issued by Instron and Kirtland dated as of May 7,
1999 (incorporated by reference to the Current Report on Form 8-K filed
by Instron on May 12, 1999).
(d)(6) Form of Voting Instruction Card.
(e) Text of Sections 85 to 98 of Chapter 156B of the General Laws of
Massachusetts (included as Appendix C to the Proxy Statement, which is filed
herewith as Exhibit (d)(3)).
(f) Not applicable.
* Previously filed
8
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SIGNATURES
After due inquiry and to the best of our knowledge and belief, each of the
undersigned certifies that the information set forth in this Statement is true,
complete and correct.
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INSTRON CORPORATION
Dated: July 22, 1999 By: /s/ LINTON A. MOULDING
--------------------------------------------
Name: Linton A. Moulding
Title: Chief Financial Officer
ISN ACQUISITION CORPORATION
Dated: July 22, 1999 By: /s/ THOMAS N. LITTMAN
--------------------------------------------
Name: Thomas N. Littman
Title: Treasurer
KIRTLAND CAPITAL PARTNERS III L.P.
By: Kirtland Partners Ltd., its General
Partner
Dated: July 22, 1999 By: /s/ THOMAS N. LITTMAN
--------------------------------------------
Name: Thomas N. Littman
Title: Vice President
GEORGE S. BURR
Dated: July 22, 1999 /s/ GEORGE S. BURR
--------------------------------------------
HELEN L. BURR
Dated: July 22, 1999 /s/ HELEN L. BURR
--------------------------------------------
THE HAROLD HINDMAN TRUST -- 1969
Dated: July 22, 1999 By: /s/ HAROLD HINDMAN
--------------------------------------------
Name: Harold Hindman
Title: Trustee
Dated: July 22, 1999 By: /s/ ROBERT N. SHAPIRO
--------------------------------------------
Name: Robert N. Shapiro
Title: Trustee
JAMES M. MCCONNELL
Dated: July 22, 1999 /s/ JAMES M. MCCONNELL
--------------------------------------------
JOSEPH E. AMARAL
Dated: July 22, 1999 /s/ JOSEPH E. AMARAL
--------------------------------------------
</TABLE>
9
<PAGE> 10
<TABLE>
<S> <C>
KENNETH L. ANDERSEN
Dated: July 22, 1999 /s/ KENNETH L. ANDERSEN
--------------------------------------------
JOHN R. BARRETT
Dated: July 22, 1999 /s/ JOHN R. BARRETT
--------------------------------------------
JONATHAN L. BURR
Dated: July 22, 1999 /s/ JONATHAN L. BURR
--------------------------------------------
THE JONATHAN L. BURR TRUST -- 1965
Dated: July 22, 1999 By: /s/ JONATHAN L. BURR
--------------------------------------------
Name: Jonathan L. Burr
Title: Beneficiary
YAHYA GHARAGOZLOU
Dated: July 22, 1999 /s/ YAHYA GHARAGOZLOU
--------------------------------------------
ARTHUR D. HINDMAN
Dated: July 22, 1999 /s/ ARTHUR D. HINDMAN
--------------------------------------------
WILLIAM J. MILLIKEN
Dated: July 22, 1999 /s/ WILLIAM J. MILLIKEN
--------------------------------------------
LINTON A. MOULDING
Dated: July 22, 1999 /s/ LINTON A. MOULDING
--------------------------------------------
JANE ELIZABETH MOULDING
Dated: July 22, 1999 /s/ JANE ELIZABETH MOULDING
--------------------------------------------
NORMAN L. SMITH
Dated: July 22, 1999 /s/ NORMAN L. SMITH
--------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C>
HAROLD HINDMAN
Dated: July 22, 1999 /s/ HAROLD HINDMAN
--------------------------------------------
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
KIRTLAND PARTNERS LTD.
Dated: July 22, 1999 By: /s/ THOMAS N. LITTMAN
--------------------------------------------
Name: Thomas N. Littman
Title: Vice President
KIRTLAND CAPITAL COMPANY III LLC
Dated: July 22, 1999 By: Kirtland Partners Ltd., its managing
member
By: /s/ THOMAS N. LITTMAN
--------------------------------------------
Name: Thomas N. Littman
Title: Vice President
</TABLE>
12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<S> <C>
*(a)(1) Letter dated May 3, 1999 from National City Bank to Kirtland
Capital Partners III L.P.
(b)(1) Opinion of The Beacon Group Capital Services, LLC dated May
6, 1999 (included as Appendix B to the Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
*(b)(2) Financial Analysis Presentation materials prepared by The
Beacon Group Capital Services, LLC in connection with its
presentation to the Board of Directors of Instron and its
Opinion dated as of May 4, 1999.
(b)(3) Financial Analysis Presentation materials prepared by The
Beacon Group Capital Services, LLC in connection with its
presentation to the Board of Directors of Instron dated as
of August 11, 1998.
(b)(4) Financial Analysis Presentation materials prepared by The
Beacon Group Capital Services, LLC in connection with its
presentation to the Board of Directors of Instron dated as
of March 10, 1999.
(b)(5) Financial Analysis Presentation materials prepared by The
Beacon Group Capital Services, LLC in connection with its
presentation to the Special Committee of the Board of
Directors of Instron dated as of April 7, 1999.
(c)(1) Agreement and Plan of Merger dated as of May 6, 1999 by and
among Instron, MergerCo and Kirtland (included as Appendix A
to the Proxy Statement, which is filed herewith as Exhibit
(d)(3)).
*(c)(2) Letter Agreement dated as of May 6, 1999 by and among
Kirtland and the Management Investors.
*(c)(3) Letter Agreement dated as of May 6, 1999 by and among
Kirtland, Instron and the Other Investors.
*(c)(4) Voting Agreement dated as of May 6, 1999 by and among
Kirtland, MergerCo, the Management Investors and certain of
their affiliates, and the Other Investors and certain of
their affiliates.
*(c)(5) Form of Stockholders Agreement.
*(c)(6) Form of Amendment to Restricted Stock Award Agreement.
*(c)(7) Form of Instron Corporation 1999 Stock Option Plan.
*(c)(8) Form of Incentive Stock Option Agreement.
*(c)(9) Form of Nonqualified Stock Option Agreement.
*(c)(10) Form of Amendment to Instron Corporation 1992 Stock
Incentive Plan.
*(c)(11) Form of Amendment to Nonqualified Stock Option Agreement.
*(c)(12) Form of Amendment to Incentive Stock Option Agreement.
(d)(1) Letter to Stockholders (included in the Proxy Statement,
which is filed herewith as Exhibit (d)(3)).
(d)(2) Notice of Special Meeting of Stockholders (included in the
Proxy Statement, which is filed herewith as Exhibit (d)(3)).
(d)(3) Proxy Statement.
(d)(4) Form of Proxy.
(d)(5) Press Release issued by Instron and Kirtland, dated as of
May 7, 1999 (incorporated by reference to the Current Report
on Form 8-K filed by Instron on May 12, 1999).
(d)(6) Form of Voting Instruction Card.
(e) Text of Sections 85 to 98 of Chapter 156B of the General
Laws of Massachusetts (included as Appendix C to the Proxy
Statement, which is filed herewith as Exhibit (d)(3)).
</TABLE>
* Previously filed
<PAGE> 1
Exhibit (B)(3)
Highly Confidential
THE BEACON GROUP CAPITAL SERVICES, LLC
PROJECT PARACHUTE - Presentation To The Board Of Directors
August 11, 1998
<PAGE> 2
PROJECT PARACHUTE
Confidential
Table of Contents
I. Executive Summary
II. Summary Overview
III. Summary Stock Trading Analysis
IV. Overview of Strategic Alternatives
A. Status Quo/Add-On Acquisitions
B. Significant Acquisitions
C. Leveraged Recapitalization
D. Merger
E. Sale of the Company
Appendices
A. Analysis at Various Prices
B. Analysis of Comparable Companies
C. Analysis of Comparable Transactions
D. Discounted Cash Flow Analysis
E. Leveraged Recapitalization Analysis
F. Review of Merger Market
August 11, 1998 2 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 3
EXECUTIVE SUMMARY Confidential
Executive Summary
/ / Based on management's recent success in substantially improving
operating margins and in undertaking significant growth initiatives
such as IST and the SATEC acquisition, Parachute is well positioned as
the world's leading full-service materials testing company
/ / However, with modest expected growth in materials testing, a
decreasing number of attractive acquisition candidates, and an illiquid
stock, substantially improving the Company's market value without
undertaking significant, perhaps risky strategic initiatives may prove
difficult
/ / With the current economic environment and stock market potentially
peaking, and the most robust mergers and acquisitions market in
history, it is an opportune time for Parachute's Board and management
to seriously consider a full range of strategic and financial
alternatives for the Company
/ / Beacon has been asked to evaluate the Company's strategic and financial
alternatives to:
- Maximize shareholder value
- Create options for shareholders to achieve liquidity
August 11, 1998 3 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 4
SUMMARY OVERVIEW Confidential
Parachute Is A Leader In The Estimated $2 Billion(a) Worldwide
Materials Testing Equipment Market, Which Is Mature And Expected
To Grow Only 4% Per Annum Until 2001(b)
/ / Sales of universal testers, the industry subsegment in which Parachute
specializes, are expected to drive the industry growth
/ / Given the multifaceted applications for universal testers, their sales
are expected to grow through both the general demand for material
testers as well as through gaining market share from other less
multifunctional testing equipment
/ / Higher demand and growth is possible if the continuation of economic
development in Asia and Latin America leads to increased need in these
regions for material testing equipment
Notes:
(a) Source: Parachute management
(b) Source: Frost & Sullivan. Projections are for domestic mechanical testing
equipment market
August 11, 1998 4 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 5
SUMMARY OVERVIEW Confidential
With Declining Growth Rates, The Domestic Market For Materials
Testing Equipment Is Expected To Grow From $560 Million In 1998 To
$612 Million By 2001
Total Domestic Mechanical Testing Equipment Market: Revenue Forecasts ($MM)
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Revenues % Annual Growth
-------- ---------------
<S> <C> <C>
1991........................ 440.7
1992........................ 450.5 2.2%
1993........................ 461.0 2.3%
1994........................ 475.2 3.1%
1995........................ 491.6 3.4%
1996........................ 510.5 3.9%
1997........................ 531.1 4.0%
1998........................ 552.9 4.1%
1999........................ 973.4 3.7%
2000........................ 592.9 3.4%
2001........................ 612.1 3.2%
</TABLE>
Note:
Source: Frost & Sullivan
August 11, 1998 5 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 6
SUMMARY OVERVIEW Confidential
The Industry's Growth Is Being Driven By Four Significant Trends
/ / A greater emphasis by manufacturers on Total Quality Management ("TQM")
- More manufacturers are finding that they can cut long-term
production costs and substantially lower the costs associated with
defending product liability claims by investing more in quality
management and control processes
/ / Greater attention by end users of manufactured components to
standardization (e.g., ISO standards)
/ / A shift in the materials used in manufacturing from metals to plastics
and composites
- While metals will continue to constitute a significant portion
of raw material used in manufacturing, many producers are
finding that they can substitute plastics and advanced
composites in many applications
- This will lead to a greater need for testing as manufacturers
ascertain the feasibility of substituting plastics/composites
with less well-documented strengths and characteristics for
metals
/ / A growing demand for computerized and automated testing equipment
August 11, 1998 6 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 7
SUMMARY OVERVIEW Confidential
The Need To Sell Broader Lines Of Testing Equipment And Systems At Reasonable
Costs Has Precluded The Entrance Of Additional Competitors Into The Market, And
Has Sparked Consolidation
/ / Companies are acquiring smaller niche-oriented businesses to extend
their product offerings and to attempt to capitalize on economies of
scale
<TABLE>
<CAPTION>
Announcement
Date Target Acquiror Business Description
---- ------ -------- --------------------
<S> <C> <C> <C>
06/03/98 SATEC Systems Instron Materials testing equipment focusing on metals, aerospace, and
automotive industries
06/01/98 Performance Controls MTS Systems Manufactures high performance power amplifiers for factory
automation applications
05/06/98 Nano Instruments MTS Systems Manufactures Nano Identer brand systems for testing surfaces
and thin films
05/02/97 Dynatup (unit of GRC) Instron Manufactures impact testers for the plastics industry
04/17/97 Technitrol AMETEK Manufactures line of measurement and testing devices including
gauges and test stands
11/18/96 Carl Schenck Instron Formed JV for structures testing business and acquired
servohydraulic line
03/28/96 TA Instruments Waters Corporation Analytical instruments which measure response of materials to
thermal and stress change
09/15/95 Data Measurement Measurex Corp Thickness measuring and detecting electronic instruments and
control systems
</TABLE>
August 11, 1998 7 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 8
SUMMARY OVERVIEW Confidential
In The Context Of These Challenging Industry Dynamics, Management
Has Been Successful In Effecting A Strategy Focused On Increasing
Shareholder Value
/ / With modest industry growth prospects, management has focused on growth
through acquisitions of smaller businesses which can be leveraged into
the Company's distribution network
/ / Management has also been able to capitalize on economies of scale in
manufacturing and product development to improve the Company's overall
margins
/ / Recognizing the asset intensive nature of the business, management has
focused on improving asset management, which together with improved
margins, generates more cash flow for future acquisition-related growth
initiatives, or alternatively, debt retirement, stock repurchases, or
dividend increases
August 11, 1998 8 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 9
SUMMARY OVERVIEW Confidential
Management's Execution Of This Strategy Has Been Successful In
Improving Parachute's Operating Margins And Cash Flow
($ in millions, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ending December 31, 1993-1997
------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 CAGR
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $ 122.8 $ 136.2 $ 150.6 $ 153.1 $ 155.7 $ 161.0
Sales Growth NA 10.9% 10.6% 1.7% 1.7% 3.4% 6.1%
Gross Profit $ 53.6 $ 59.1 $ 62.4 $ 64.5 $ 64.2 $ 64.2
Gross Margin 43.6% 43.4% 41.5% 42.1% 41.2% 39.8% 4.6%
EBITDA $ 9.1 $ 13.9 $ 15.9 $ 17.1 $ 18.9 $ 22.0
EBITDA Margin 7.4% 10.2% 10.6% 11.2% 12.1% 13.7% 20.1%
EBIT $ 4.7 $ 8.0 $ 9.1 $ 10.3 $ 12.4 $ 15.6
EBIT Margin 3.8% 5.9% 6.0% 6.7% 8.0% 9.7% 27.6%
Net Income $ 2.5 $ 4.5 $ 5.0 $ 5.7 $ 7.2 $ 8.7
Net Income Margin 2.0% 3.3% 3.3% 3.7% 4.6% 5.4% 30.3%
EPS $ 0.39 $ 0.72 $ 0.78 $ 0.87 $ 1.05 $ 1.20
EPS Growth NA 84.6% 8.3% 11.5% 20.7% 14.5% 28.1%
</TABLE>
Note: 1996 results exclude a special items charge and 1998 excludes the impact
of SATEC
August 11, 1998 9 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 10
SUMMARY OVERVIEW Confidential
However, Pursuing This Strategy Further Has Limitations
/ / Other than acquiring the rest of IST, there appear to be very limited
acquisition-related growth opportunities available to the Company in
the materials testing equipment market
/ / While the Company may be able to improve SATEC's and IST's margins over
some period, it may already be reaching diminishing returns in terms of
the level of improvement it can drive in its overall business
/ / Therefore, the two most significant drivers to the Company's cash flow
growth, add-on acquisitions and margin improvement, may be limited in
the future
August 11, 1998 10 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 11
SUMMARY OVERVIEW Confidential
Management's Projections For Future Growth And Margins Reflect
These Limitations
($ in millions, except per share data)
/ / The Status Quo includes the impact of the recent SATEC acquisition and
the acquisition of the remaining interest in IST to put it on a pro
forma basis as of the beginning of 1998
<TABLE>
<CAPTION>
Fiscal Years Ending December 31, 1998-2002P 1993-1997
--------------------------------
1998P 2002P CAGR CAGR
----- ----- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 222.2 $ 266.1 4.6% 6.1%
Gross Profit $ 85.5 $ 107.2 5.8% 4.6%
Gross Margin 38.5% 40.3%
EBITDA $ 25.0 $ 35.5 9.2% 20.1%
EBITDA Margin 11.3% 13.3%
EBIT $ 17.1 $ 27.5 12.6% 27.6%
EBIT Margin 7.7% 10.3%
Net Income $ 8.3 $ 16.7 19.1% 30.3%
Net Income Margin 3.7% 6.3%
EPS $ 1.15 $ 2.19 17.5% 28.1%
Memo:
Parachute Stand Alone EPS $ 1.20 $ 1.66 8.5% --
Parachute Pro Forma w/ SATEC EPS $ 1.20 $ 1.89 12.0% --
</TABLE>
August 11, 1998 11 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 12
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
Until The Recent Downturn, Over The Past Year Parachute's Stock Has Performed
Well Relative To Market Indices, MTS, And A Peer Group Of Instrument Companies
[GRAPHIC OMITTED]
8/7/97 9/17/97 10/27/97 12/5/97
------- ------- -------- -------
Russell 2000 Index $100.00 $107.34 $101.08 $105.40
S&P 500 $100.00 $ 99.23 $ 92.29 $103.52
MTS SYS CORP COM $100.00 $122.22 $116.67 $121.83
Parachute $100.00 $109.52 $100.00 $108.73
Peer Group $100.00 $109.47 $100.52 $108.24
1/16/98 2/27/98 4/8/98 5/19/98
------- ------- ------- -------
Russell 2000 Index $102.56 $111.12 $114.36 $113.29
S&P 500 $101.18 $110.42 $115.93 $116.75
MTS SYS CORP COM $109.13 $103.57 $ 98.81 $106.35
Parachute $113.10 $108.73 $118.25 $125.40
Peer Group $105.62 $118.06 $118.19 $126.09
6/29/98 8/7/98
------- -------
Russell 2000 Index $109.19 $ 96.63
S&P 500 $119.80 $112.83
MTS SYS CORP COM $103.17 $ 92.06
Parachute $117.46 $ 90.87
Peer Group $118.13 $104.15
Note:
Peer Group includes ALOG, DNEX, ESL, FLK, KEI, MTSC, NBSC, RHEM, TNL, TSII, VWRX
- --------------------------------------------------------------------------------
August 11, 1998 12 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 13
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
Over The Past 5 Years, Parachute Has Not Performed As Well ...
[GRAPHIC OMITTED]
8/6/93 2/25/94 6/16/94 4/7/95
------- ------- -------- -------
Russell 2000 Index $100.00 $110.17 $108.83 $108.92
S&P 500 $100.00 $103.88 $105.02 $112.87
MTS SYS CORP COM $100.00 $106.96 $ 82.61 $ 81.74
Parachute $100.00 $107.23 $113.25 $113.25
Peer Group $100.00 $105.28 $111.96 $120.94
10/27/95 5/17/96 12/6/96 6/27/97
-------- ------- ------- -------
Russell 2000 Index $123.39 $151.07 $148.92 $164.43
S&P 500 $129.20 $149.08 $164.84 $197.76
MTS SYS CORP COM $ 99.13 $135.65 $140.87 $203.48
Parachute $115.66 $132.53 $125.30 $133.13
Peer Group $145.86 $186.90 $198.24 $244.36
1/16/98 8/7/98
------- -------
Russell 2000 Index $178.56 $175.83
S&P 500 $214.30 $249.77
MTS SYS CORP COM $239.13 $226.96
Parachute $171.69 $143.37
Peer Group $274.48 $281.18
Note:
Peer Group includes ALOG, DNEX, ESL, FLK, KEI, MTSC, NBSC, RHEM, TNL, TSII, VWRX
- --------------------------------------------------------------------------------
August 11, 1998 13 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 14
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
Over The Past 10 Years Parachute's Stock Has Substantially Underperformed The
Market Indices, MTS, And Its Instrument Peer Group
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
8/31/88 9/29/89 10/31/90 11/29/91
------- ------- -------- --------
<S> <C> <C> <C> <C>
Russell 2000 Index $100.00 $122.28 $ 81.53 $121.02
S & P 500 $100.00 $133.51 $116.24 $143.48
MTS SYS CORP COM $100.00 $110.81 $ 93.24 $139.87
Parachute $100.00 $ 86.00 $ 64.00 $ 78.00
Peer Group $100.00 $115.28 $ 70.32 $104.75
<CAPTION>
12/31/92 1/31/94 2/28/95 3/29/96
-------- ------- ------- -------
Russell 2000 Index $151.65 $182.87 $176.05 $226.96
S & P 500 $166.61 $184.86 $186.37 $246.83
MTS SYS CORP COM $118.92 $171.62 $132.43 $202.70
Parachute $ 80.00 $ 96.00 $100.00 $113.00
Peer Group $131.05 $122.94 $134.10 $202.50
<CAPTION>
4/30/97 5/29/98
------- -------
Russell 2000 Index $235.35 $313.31
S & P 500 $306.42 $417.11
MTS SYS CORP COM $236.49 $405.41
Parachute $ 93.00 $160.00
Peer Group $247.54 $372.97
</TABLE>
Note:
Peer Group includes ALOG, DNEX, ESL, FLK, KEI, MTSC, NBSC, RHEM, TNL, TSII,
VWRX.
- --------------------------------------------------------------------------------
August 11, 1998 14 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 15
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
Although The Company's Stock Price Has Increased Over The Past Ten Years, It Has
Done So On Very Thin Volume
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Share Price Monthly Volume in Thousands
----------- ---------------------------
<S> <C> <C>
8/31/88 $12.50 33.7
9/29/89 $10.75 43.4
10/31/90 $ 8.00 69.1
11/29/91 $ 9.75 284.5
12/31/92 $10.00 85.1
1/31/94 $12.00 52.4
2/28/95 $12.50 107.1
3/29/96 $14.13 90.8
4/30/97 $11.63 145.7
5/29/98 $20.00 120.3
</TABLE>
- --------------------------------------------------------------------------------
August 11, 1998 15 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 16
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
With Large Insider And Institutional Holdings, The Limited Public Float Has Been
A Significant Influence On The Trading History
Float (b): 3,648,418
<TABLE>
<CAPTION>
Top 10 Institutions (a) Shares Held % Shs. Outs. % Float (b)
- ----------------------- ----------- ------------ -----------
<S> <C> <C> <C>
Babson David L & Co 936,200 13.2% 25.7%
Dimensional Fund Advs. 501,700 7.1% 13.8%
Fleet Financial Group Inc. 336,800 4.8% 9.2%
Prudential Insurance Co/Amer 312,700 4.4% 8.6%
Kaplan J L Associates 193,750 2.7% 5.3%
Value Line Inc. 172,500 2.4% 4.7%
Travelers Inc. 154,650 2.2% 4.2%
Barclays Bank PLC 86,171 1.2% 2.4%
State Street Resr & Mgmt 73,700 1.0% 2.0%
Northern Trust Co/Conn 66,000 0.9% 1.8%
--------- ----- ----
Total: 2,834,171 40.1% 77.7%
Other Institutional Holders 116,025 1.6% 3.2%
--------- ----- ----
Total Institutions (c): 2,950,196 41.7% 80.9%
Insiders:
Burr and Hindman Families (d) 2,150,000 30.4% --
James McConnell 381,595 5.4% --
Other Directors and Officers (e) 389,785 5.5% --
401(k) (f) 500,000 7.1% --
--------- ----- ----
Total Insiders: 3,421,380 48.4% --
General Public 698,222 9.9% 19.1%
--------- ----- ----
Total: 7,069,798 100.0% 100.0%
========= ===== =====
</TABLE>
(a) Source: Spectrum report data as of March 31, 1998
(b) Defined as total institutional holdings plus general public holdings
(c) Total number of institutional holders is 18
(d) Source: Management's estimate
(e) Source: Proxy Statement dated May 13, 1998
(f) Estimate based on historical data
- --------------------------------------------------------------------------------
August 11, 1998 16 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 17
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
Parachute Trades At A Discount To MTS's Trading Multiples
($ in millions)
/ / While some of this discount is attributable to MTS's size, growth, and
margins, Parachute's relative lack of liquidity is also likely a significant
factor
<TABLE>
<CAPTION>
Equity Value
% Of Total As A Multiple Of: Aggregate Value As A Multiple Of:
3 Year LTM Shs. Out. ----------------- ---------------------------------
LTM Revenue EBITDA Traded LTM LTM LTM LTM
Company Revenues CAGR Margin In LTM Net Income Revenues EBITDA EBIT
- ----------- -------- ------- ------ ---------- ----------------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MTS Systems $330.1 13.9% 12.8% 64.0% 15.2 x 1.07 x 8.4 x 10.6 x
Parachute $154.1 1.7% 12.2% 22.5% 13.2 x 0.69 x 5.6 x 8.5 x
</TABLE>
Note: Parachute 3 year revenue CAGR impacted by sale of LMS and contribution of
structures to IST
- --------------------------------------------------------------------------------
August 11, 1998 17 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 18
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
The Relatively Illiquid Nature Of Parachute's Stock Has Likely Resulted In A
"Liquidity Discount" Such That Parachute's Stock Price Does Not Appropriately
Reflect The Company's Market Value
<TABLE>
<CAPTION>
Parachute MTS Systems
---------- ------------
<S> <C> <C>
Number Of Shareholders 461 1,575
LTM Avg. Daily Trading Volume (shares) 6,257 48,594
Length Of Time For Total Share Outs. To Trade 4.6 years 1.6 years
Total Number Of Shares In Float 3,648,418 18,083,891
Float As A % Of Shares Outstanding 51.6% 93.7%
Float Excl. Top 10 Institutions As A % Of Shares Outstanding 11.5% 62.8%
Market Value Of Float ($ in millions) $ 53.4 $ 293.9
Total Equity Market Value ($ in millions) $ 103.4 $ 313.6
Institutional Ownership Percentage 41.7% 45.8%
Number of Institutional Holders 18 51
Total Number Of Research Analysts Covering The Company 0 3
</TABLE>
- --------------------------------------------------------------------------------
August 11, 1998 18 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 19
SUMMARY STOCK TRADING ANALYSIS Confidential
- --------------------------------------------------------------------------------
Given The Limited Movement In The Company's Stock Price Over The Past 5 Years,
Most Shareholders Purchased The Stock At Or Below The Current Price
[GRAPHIC OMITTED]
Shares Traded (% of Total Volume) Share Price Intervals
- --------------------------------- ---------------------
9.9% ............................ $ 9.00 - $10.50
33.7% ............................ $10.50 - $12.00
64.3% ............................ $12.00 - $13.50
79.8% ............................ $13.50 - $15.00
83.8% ............................ $15.00 - $16.50
93.2% ............................ $16.50 - $18.00
98.8% ............................ $18.00 - $19.50
100.0% ............................ $19.50 - $21.00
Share Price Intervals
<TABLE>
<S> <C>
Current Shares Outstanding 7.1 MM
Total Shares Traded During Period 7.9 MM
Weighted Average Stock Price $ 13.30
</TABLE>
- --------------------------------------------------------------------------------
August 11, 1998 19 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 20
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
- --------------------------------------------------------------------------------
Beacon Has Reviewed A Full Range Of Strategic And Financial Alternatives For
Parachute
[GRAPHIC OMITTED]
PARACHUTE
- --------------------------------------------------------------------------------
Status Quo Dividend Policy Assets Capital Structure
---------- ---------------------
Add-on Acquisitions Debt/Equity Financing
Significant Acquisitions Share Repurchases
Divestitures Merger
Spin-Offs or Strategic Sale
Split-Offs LBO/Leveraged
Joint Ventures Recapitalization
- --------------------------------------------------------------------------------
August 11, 1998 20 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 21
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
BEACON AND MANAGEMENT WERE ABLE TO RULE OUT CERTAIN ALTERNATIVES
IN THE CONTEXT OF PARACHUTE'S OBJECTIVES
Alternative Primary Rationale For Elimination
----------- ---------------------------------
Divestitures - Parachute's non-core businesses
are very small and their
divestiture would be unlikely to
have significant impact on the
Company's market value
- Servohydraulical appears to be the
only underperforming core business
and it has strategic value under
the Company's current plan, but
may be a divestiture candidate in
the context of other transactions
(i.e. leveraged recapitalization)
Spin-Off/Split-Off - None of the Company's non-core
businesses are large enough to be
stand-alone public companies
Joint Ventures - Besides IST, opportunities for
significant joint ventures in the
industry are limited
Share Repurchases - While a share repurchase program
could be earnings accretive and
improve return on equity, it would
exacerbate Parachute's stock's
illiquidity and could hurt the
Company's ability to pool future
acquisitions
Debt/Equity Financings
- Without a compelling use of
proceeds, it would not be prudent
to undertake equity financing at
the Company's current stock price
or debt financings of size
August 11, 1998 21 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 22
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
FOR DISCUSSION PURPOSES ONLY, BEACON ANALYZED THE POTENTIAL FOR EACH OF THE
REMAINING ALTERNATIVES TO MAXIMIZE SHAREHOLDER VALUE
<TABLE>
<CAPTION>
PRELIMINARY ESTIMATE
STRATEGIC ALTERNATIVE OF PRESENT VALUE OF EQUITY PER SHARE
--------------------- ------------------------------------
<S> <C>
Status Quo (Acquire IST) $21.50 - $24.50
Significant Acquisition (Acquire IST/Zygo) $20.50 - $27.50
Leveraged Recapitalization (Divest IST/Servo) $26.00
Merger With MTS (Divest IST/Servo) (a) $39.00 - $41.00
Sale Of The Company (Acquire IST) $26.00 - $32.00
</TABLE>
Note:
(a) Assumes MTS purchases Parachute for $29 per share in stock. Most of the
significant incremental value created is based on the achievement of an
estimated $25 million in annual synergies.
August 11, 1998 22 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 23
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
STATUS QUO / ADD-ON ACQUISITIONS
[ ] While maintaining the status quo does not address issues with respect to
the shareholders' liquidity objectives and does not take advantage of
extremely attractive merger market conditions, the Company has recently
been successful in executing and can continue to execute its stated
corporate strategy for a period of time
[ ] Parachute can continue to focus on add-on acquisitions where it can
leverage its market position to reduce costs and increase efficiency
[ ] Parachute can also complete its acquisition of IST and focus on growth
and improving profitability in the structures business
[ ] Parachute can also invest resources to expand further into certain
international growth markets
[ ] However, with modest expected overall market growth and a decreasing
number of attractive add-on acquisitions, maintaining the status quo is
unlikely to maximize shareholder value over the long term
August 11, 1998 23 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 24
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
BEACON'S DCF ANALYSIS OF MANAGEMENT'S STATUS QUO PROJECTIONS DO
NOT SUGGEST THE POTENTIAL FOR SIGNIFICANT VALUE CREATION
($ in millions, except per share data)
[ ] The Status Quo projections include the impact of the recent SATEC
acquisition and the acquisition of the remaining interest in IST, but
exclude the impact of any future acquisitions
[ ] Assumes exit multiples of 6.0x to 7.0x, a slight premium to Parachute's
recent trading multiples
<TABLE>
<CAPTION>
Exit Multiple -- 2003 EBITDA 6.0 x 7.0 x
---------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount Rate 10.0% 11.0% 12.0% 10.0% 11.0% 12.0%
------------------------------ ------------------------------
Present Value of Cash Flows $45.5 $44.4 $43.2 $45.5 $44.4 $43.2
Present Value of Terminal Value 137.3 131.2 125.5 160.2 153.1 146.4
------------------------------- -------------------------------
Implied Aggregate Value $183 $176 $169 $206 $197 $190
============================== ===============================
Less: Net Debt (23.9) (23.9) (23.9) (23.9) (23.9) (23.9)
Implied Equity Value $159 $152 $145 $182 $174 $166
============================== ===============================
EQUITY VALUE PER SHARE $22.48 $21.46 $20.48 $25.72 $24.55 $23.44
</TABLE>
August 11, 1998 24 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 25
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
SIGNIFICANT ACQUISITIONS
[ ] The Board and management could choose to pursue a strategy of seeking out
one or more sizable acquisitions in the Company's current or related
markets that would enable Parachute to:
- Diversify its revenue mix (into new, but related product areas and
geographic markets)
- Leverage and strengthen its distribution network with broader product
offerings
- Provide opportunities to leverage its product development and
manufacturing capabilities
- Increase revenue and cash flow growth
- Improve visibility with the investment community
[ ] However, undertaking significant acquisitions entails meaningful
execution, financial, and operating risk and may require substantial
additional management resources
August 11, 1998 25 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 26
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
ZYGO CORPORATION (ZIGO)
($ in millions, except per share data)
BUSINESS DESCRIPTION
Zygo Corporation, through its divisions and wholly owned subsidiaries,
Middlefield, Technical Instrument Company (TIC), and NexStar Automation, Inc.
(NexStar) designs, develops, manufactures and markets high performance
non-contact electro-optical measuring instruments and systems, automation
systems, and components. The Middlefield division also manufactures optical
components to precise tolerances both for sale and for use as key elements in
its own products. Utilizing proprietary laser and white light optical technology
combined with advanced software and electronics, Zygo's precision non-contact
measuring instruments and systems enable manufacturers in a variety of high
technology industries to increase operating efficiencies and production yields
by identifying and collecting quantitative data on product defects, both during
and after the manufacturing process.
<TABLE>
<CAPTION>
PUBLIC MARKET VALUATION
<S> <C> <C> <C>
Current Price $11.13 Market Value $135
52-Week High $40.00 Net Debt ($21)
52-Week Low $8.50 Enterprise Value $114
1998CY EPS $0.43 1998E P/E 25.9x
1999CY EPS $1.06 1999P P/E 10.5x
</TABLE>
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Fiscal Year Ending 6/30
-----------------------
1995 1996 1997 CAGR LTM
---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C>
Revenue $32 $57 $87 64.5% $104
EBITDA 5 12 23 114.5% 24
% of Sales 15.6% 21.2% 26.4% 23.1%
EBIT 4 10 20 123.6% 21
% of Sales 12.5% 17.5% 22.9% 20.2%
E.P.S. $0.32 $0.71 $1.14 88.7% $1.22
</TABLE>
August 11, 1998 26 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 27
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
FOR DISCUSSION PURPOSES ONLY, BEACON ANALYZED THE POTENTIAL FOR
VALUE CREATION IN AN ACQUISITION OF ZYGO
($ in millions, except per share data)
[ ] This analysis employs research analysts' forecasts for Zygo, which
contemplate a recovery in calendar year 1999 from an expected decline in
operating performance in calendar year 1998
[ ] Zygo's stock price has declined significantly from a 52-week high of $40
per share to a current price of $11.125 per share and Beacon has therefore
estimated that a cash purchase price of at least $22.00 per share, or $238
million net of Zygo's cash, would be required to effect an acquisition of
Zygo
<TABLE>
<CAPTION>
Exit Multiple -- 2003 EBITDA 6.5 x 7.5 x
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount Rate 12.5% 13.0% 13.5% 12.5% 13.0% 13.5%
------------------------------ ------------------------------
Present Value of Cash Flows $97.7 $96.4 $95.2 $97.7 $96.4 $95.2
Present Value of Terminal Value 320.1 313.1 306.3 369.4 361.3 353.4
------------------------------ ------------------------------
Implied Aggregate Value $418 $410 $401 $467 $458 $449
=============================== ==============================
Less: Net Debt (263.8) (263.8) (263.8) (263.8) (263.8) (263.8)
Implied Equity Value $154 $146 $138 $203 $194 $185
=============================== ==============================
EQUITY VALUE PER SHARE $21.79 $20.61 $19.47 $28.76 $27.43 $26.13
</TABLE>
August 11, 1998 27 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 28
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
LEVERAGED RECAPITALIZATION
[ ] Effectively a sale of the Company to an outside investor group, but the
current public shareholders would retain at least a 10% fully-diluted
interest in the Company post-transaction
[ ] This structure has effectively replaced LBO's with most public company
transactions (and many others) because it insures recapitalization
accounting whereby goodwill is avoided at the Company level, which is
considered beneficial for future public market exit alternatives
[ ] Investor group seeks to aggressively maximize cash flow and use the right
combination of debt and equity in the financing of the transaction to
maximize the value of the equity
[ ] Significant Company ownership by senior management (and sometimes a
broader group of employees) typically is an important part of the
transaction structure in order to align the incentives of the new owners
and management
[ ] New investor group typically will desire voting control of the Company and
will be active at the board level in setting strategy and monitoring
operations
[ ] New investor group typically anticipates exit in approximately three to
five years
- Subsequent recapitalization
- Sale of the Company
- Public offering
August 11, 1998 28 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 29
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
CONSIDERATIONS REGARDING A LEVERAGED RECAPITALIZATION
[ ] May yield higher long-term value to shareholders who maintain a continuing
interest than a sale if Company meets or exceeds current projections
[ ] Allows shareholders to diversify a large percentage or all of their
holdings in the Company
[ ] Very high level of confidentiality can be maintained pre-announcement
[ ] Opportunity to preserve Company culture and style
[ ] While the Company's strong market position and stable cash flow should
prove attractive to a financial partner, the Company's modest growth
prospects and economic sensitivity may be concerns
[ ] Management will have more significant stock ownership, creating powerful
incentives to maximize value
[ ] Any financial partner will seek assurances regarding the commitment and
depth of the management team
[ ] Any continuing investment in pro forma Company is riskier due to leverage
[ ] Highly leveraged capital structure of pro forma Company may require
operating and/or strategic skills unfamiliar to the Company
[ ] Beacon's preliminary analysis, based on management's projections and
certain market-based financing assumptions, suggests that a leveraged
recapitalization, while attractive, may not achieve the highest valuation
for Parachute's shareholders
August 11, 1998 29 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 30
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
LEVERAGED RECAPITALIZATION ANALYSIS
($ in millions)
[ ] At a price of $26.00 per share, an equity investor could achieve a target
five-year median IRR of 25% to 30% in a leveraged recapitalization of
Parachute
[ ] The analysis assumes that current shareholders retain 10% of the
fully-diluted ownership of the Company post-transaction, subject to
dilution from management options
[ ] The analysis employs management's status quo financial projections,
assuming the divestiture of the Company's interest in IST for $4.0 million
and the divestiture of the servohydraulical business for approximately its
book value
[ ] Terminal values were obtained using a range of EBITDA multiples of 8.0x -
10.0x
<TABLE>
<CAPTION>
Use of Funds
- ------------
<S> <C>
Purchase $178
Refinance Debt 21
Fees & Expenses 7
----
Total Uses $206
====
Five-Year IRR
- -------------
Equity Investor 27.9%
Senior Debt Repaid
- ------------------
Year 5 50.8%
</TABLE>
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT INTEREST %OWNERSHIP
- ---------------- ------ -------- ----------
<S> <C> <C> <C>
Cash on Hand $11 5.0% --
Revolver 21 6.5% --
Term Loan 35 8.8% --
Senior Notes 35 9.8% --
Subordinated Debt 47 10.5% --
Investor Equity 56 -- 81.0%
----
Total Sources $206
====
</TABLE>
<TABLE>
<S> <C>
Coverage Ratios PF1998
- --------------- ------
EBITDA / Net Interest 2.1x
Total Debt / EBITDA 5.2
</TABLE>
August 11, 1998 30 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 31
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
MERGER
Merged Merger
Parachute - - - > Entity < - - - Partner
(owned roughly 50/50 by the
two Shareholder Groups)
[ ] Pursue a merger (i.e., combination with a partner of similar entity value)
that could immediately provide Parachute with further revenue
diversification and increased critical mass
- Create a company with multiple complementary core business lines
- Leverage the combined resources by streamlining distribution channels,
product development efforts, and manufacturing facilities
[ ] Seek to create immediate revenue and cost-saving synergies
- Cross-selling opportunities through the combined distribution network
- Increase customer penetration through coordinated marketing
- Reduction in overhead
- Improve capacity utilization
August 11, 1998 31 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 32
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
CONSIDERATIONS REGARDING A MERGER
[ ] Potential to realize significant value for Parachute shareholders through
participation in synergy created by merging the two companies
[ ] Combined entity should provide more liquid market for common
stockholders
[ ] Should give management the chance to operate a larger entity with
potentially greater opportunities
[ ] With Parachute's niche market orientation, it may be difficult to
identify many attractive merger partners of similar entity value with
truly complementary businesses
[ ] A number of Parachute employees may lose their jobs in a streamlining
effort
[ ] In a merger, it is often hard to maintain parity among the two management
teams and these "social" issues create a high degree of risk
[ ] Projected merger synergies are often difficult to realize in practice and
Parachute stockholders will likely have to bear that risk for some time
before the full benefits of a merger are reflected in the stock price
August 11, 1998 32 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 33
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
MTS Systems Corporation
($ in millions, except per share data)
Business Description
MTS Systems is the world's leading manufacturer of testing and simulation
systems that determine the mechanical behavior of materials, products, and
structures. MTS systems are used by automobile, construction, aerospace,
petroleum, and other companies to test products and analyze results. For its
measurement and automation business segment, MTS produces servomotors,
controllers, and amplifiers used in factory automation and sensors for fluid
levels. More than half of MTS' sales are from overseas, with Europe and the Far
East each accounting for about one-fourth of sales.
<TABLE>
<CAPTION>
PUBLIC MARKET VALUATION
-----------------------
<S> <C> <C> <C>
Current Price $16.25 Market Value $314
52-Week High $19.00 Net Debt $40
52-Week Low $14.50 Enterprise Value $354
1998CY EPS $1.14 1998E P/E 14.3x
1999CY EPS $1.29 1999P P/E 12.6x
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL SUMMARY (a)
---------------------
FISCAL YEAR ENDING 9/30
-----------------------
1995 1996 1997 CAGR LTM
---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C>
Revenue $234 $261 $303 13.9% $330
EBITDA 24 31 39 28.2% 42
% of Sales 10.3% 11.8% 13.0% 12.8%
EBIT 17 23 31 35.7% 33
% of Sales 7.2% 8.8% 10.2% 10.1%
E.P.S. $0.58 $0.74 $0.96 28.7% $1.07
</TABLE>
Notes:
(a) As reported for fiscal years ending September 30
August 11, 1998 33 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 34
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
FOR DISCUSSION PURPOSES ONLY, BEACON ANALYZED THE POTENTIAL FOR
VALUE CREATION IN A MERGER WITH MTS
($ in millions, except per share data)
[ ] The analysis assumes Parachute's shareholders receive $29.00 per share in
MTS stock, reflecting a control premium, and share in the benefits of
potential annual synergies which management preliminarily estimates could
be $25 million
[ ] In order to mitigate antitrust concerns, Parachute's interest in IST and
its servohydraulical business are assumed to be divested
[ ] Beacon has increased the discount rate in its analysis to reflect
uncertainties with respect to the timing and achievement of the synergies
in such a transaction. Nonetheless, it should be noted that the synergies
still represent most of the incremental value created
<TABLE>
<CAPTION>
Exit Multiple -- 2003 EBITDA 7.5 x 8.0 x
----------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount Rate 13.5% 14.0% 14.5% 13.5% 14.0% 14.5%
----------------------------- ----------------------------------
Present Value of Cash Flows $173.3 $171.0 $168.8 $173.3 $171.0 $168.8
Present Value of Terminal Value 599.3 586.3 573.6 639.3 625.4 611.8
----------------------------- ----------------------------------
Implied Aggregate Value $773 $757 $742 $813 $796 $781
============================= ===================================
Less: Net Debt (63.6) (63.6) (63.6) (63.6) (63.6) (63.6)
Implied Equity Value $709 $694 $679 $749 $733 $717
============================= ===================================
% of Equity Value to Parachute Holders $280.3 $274.3 $268.3 $296.1 $289.7 $283.5
EQUITY VALUE PER SHARE $39.65 $38.79 $37.96 $41.88 $40.98 $40.09
</TABLE>
August 11, 1998 34 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 35
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
SALE OF THE COMPANY
[ ] All of the Company's equity or assets are sold
[ ] Consideration received could be cash and/or securities issued by the buyer
[ ] Sale process can be designed to fit anywhere along a continuum of
confidentiality
- Controlled process with a highly selective group of buyers
- Bilateral negotiation with a single buyer
[ ] Process should be designed to balance objectives
- Maximization of value
- Confidentiality
- Minimum disruption to Company
- Preservation of key factors responsible for past success of Company
August 11, 1998 35 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 36
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
CONSIDERATIONS REGARDING A SALE OF THE COMPANY
[ ] Sale for cash delivers 100% diversification of current Company value to all
shareholders
[ ] A controlled sale process is often the best way to maximize current
proceeds
[ ] Sale for stock may be structured to defer substantial capital gains tax at
the time of the transaction
[ ] Merger with appropriate buyer could enhance Company's strategic position
[ ] Risk of competitive damage from dissemination of private information about
Company's business during the sale process
[ ] Process can be disruptive to Company's on-going business
[ ] Execution uncertain as to value received
August 11, 1998 36 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 37
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
PRELIMINARY SUMMARY VALUATION
($ in millions, except per share data)
<TABLE>
<CAPTION>
PRELIMINARY
VALUATION RANGES
---------------------------------------------------
TOTAL TOTAL EQUITY VALUE
ENTERPRISE EQUITY PER SHARE
VALUATION BENCHMARK VALUE RANGE(a) VALUE RANGE(a) RANGE(b)
------------------- -------------- -------------- --------
<S> <C> <C> <C>
Comparable Public Company $213 - $238 $189 - $214 $26.63 -$30.15
Analysis
Comparable Transaction Analysis $225 - $250 $201 - $226 $28.32 -$31.85
Discounted Cash Flow Analysis $219 - $263 $195 - $239 $27.64 -$33.83
Leveraged Recapitalization Analysis $209 $185 $26.00
----------- ----------- --------------
Preliminary Beacon Estimate $209 - $251 $185 - $227 $26.00 -$32.00
----------- ----------- --------------
</TABLE>
Notes:
(a) Assumes $23.9 million of net debt, including IST's debt and debt related to
the SATEC acquisition.
(b) Assumes 7.1 million diluted shares outstanding based on treasury method of
accounting for options.
August 11, 1998 37 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 38
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
- --------------------------------------------------------------------------------
FOR DISCUSSION PURPOSES ONLY, BEACON ANALYZED THE POTENTIAL FOR EACH OF THE
REMAINING ALTERNATIVES TO MAXIMIZE SHAREHOLDER VALUE
<TABLE>
<CAPTION>
PRELIMINARY ESTIMATE
OF PRESENT VALUE OF
STRATEGIC ALTERNATIVE EQUITY PER SHARE
- --------------------------------------------- --------------------
<S> <C>
Status Quo (Acquire IST) $21.50 - $24.50
Significant Acquisition (Acquire IST/Zygo) $20.50 - $27.50
Leveraged Recapitalization (Divest IST/Servo) $26.00
Merger With MTS (Divest IST/Servo)(a) $39.00 - $41.00
Sale Of The Company (Acquire IST) $26.00 - $32.00
</TABLE>
Note:
- -----
(a) Assumes MTS purchases Parachute for $29 per share in stock. Most of the
significant incremental value created is based on the achievement of an
estimated $25 million in annual synergies.
- --------------------------------------------------------------------------------
August 11, 1998 38 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 39
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
For Discussion Purposes, Beacon Developed A Preliminary List of Potential
Strategic Partners
/ / Beacon started with a very broad list of potential strategic partners
which included a wide range of instrument and related companies
/ / From this broader list, Beacon selected a group of companies as
representative of the types of companies Beacon would recommend
approaching in a targeted sale process
/ / This list should be refined in conjunction with Parachute, based on the
following criteria:
- Strategic fit and likely level of interest
- Financial capability and size
- Attractiveness of the prospective partner's stock as potential
currency if a tax-free transaction is desired
- Senior management and culture
August 11, 1998 39 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 40
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
Preliminary List Of Potential Strategic Partners
($ in millions)
<TABLE>
<CAPTION>
Name Market Cap. Net Sales Comments
---- ----------- --------- --------
<S> <C> <C> <C>
Altana AG (Germany) $2,754 $1,486 Manufacturer of pharmaceuticals and chemicals. Owns Byk-Gardner,
a manufacturer of impact material test equipment
AMETEK, Inc. $854 $971 Manufacturer of electrical and electro-mechanical products and
materials, engineered for niche markets. Offers line of
servohydraulical materials testers through Mansfield & Green
subsidiary. Announced agreement to buy Test & Measurement products
business of Technitrol
Asea Brown Boveri, Ltd. Private $31,265 Joint venture between Asea AB (Sweden) and BBC Brown
(Switzerland/Sweden) Boveri Ltd. (Switzerland), both of which are publicly held. Operates
in seven business segments, including Industrial and Building Systems,
Power Generation, Power Transmission and Distribution, Transportation,
Financial Services, and Other
AVL (Austria) Private $135 Primarily a manufacturer of engine turbine components, but has
diversified operations and presently offers line of materials testing
equipment
Bodycote International $1,615 $336 Operates in four industry segments: heat treatment and
PLC (England) brazing, hot isostatic processing, materials testing services,
and anti-corrosion coatings. Through its MTS
International, Ltd. subsidiary offers materials testing
services, primarily in Europe
</TABLE>
August 11, 1998 40 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 41
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
Preliminary List Of Potential Strategic Partners (continued)
($ in millions)
<TABLE>
<CAPTION>
Name Market Cap. Net Sales Comments
---- ----------- --------- --------
<S> <C> <C> <C>
Bowthorpe PLC (U.K.) $1,384 $883 Designer and manufacturer of specialized electronic and electrical
products used in the construction, environmental, automotive, computer
and telecommunications industries. Products include rheology
instruments, recording systems, cooling/thermal devices, avionic
instruments and specialized components. Has historically been very
acquisitive
Brown & Sharpe $144 $322 Manufactures metrology products and systems ranging from
Manufacturing Company hand tools for simple measuring tasks to complex integrated
systems of hardware and software. Historical origins of company
is as a machine tool manufacturer, but recently
repositioned to focus on metrology. Three management units:
Measuring Systems Group, Precision Measuring
Instruments Division, and Custom Metrology Division. Rejected
takeover offer from Thermo Electron for $15.50 in May 1998
Carl Schenck AG $113 $589 Formed joint venture with Parachute. Although it sold its
(Germany) materials test division to Parachute as part of the transaction,
its current relationship with Parachute could lead to
other strategic alliances such as a merger
Danaher Corp. $4,614 $2,238 Manufactures tools and components and process/environmental controls.
Products include hand tools, drill chucks, wheel service equipment,
motion, temperature, pressure, level, flow and power reliability and
control devices. Has recently been actively acquiring in the testing
industry
</TABLE>
August 11, 1998 41 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 42
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
Preliminary List Of Potential Strategic Partners (continued)
($ in millions)
<TABLE>
<CAPTION>
Name Market Cap. Net Sales Comments
---- ----------- --------- --------
<S> <C> <C> <C>
Emerson Electric Co. $27,448 $13,175 Operates in two business units: commercial and industrial components
and systems, and appliance and construction-related components. Owns
Buehler and Krautkramer Branson, two manufacturers of materials testing
equipment. Recently acquired Computational Systems Inc. and signed an
agreement to buy Westinghouse's process-control unit
Fairey Group PLC (U.K.) $461 $521 Manufactures advanced electronic controls, and in-line process
instrumentation and filtration systems. Fairey's
electronics companies provide sensors, gauges, controls and
instrumentation. Target industries include food processing,
fiber optics, industrial processing, transportation, energy,
telecommunications, electronics, medical/pharmaceutical,
construction, and packaging
Fisher Scientific $518 $2,210 Analytical instrumentation company primarily involved in the
International, Inc. distribution and manufacturing of laboratory equipment and supplies,
including diagnostic test supplies, glassware, laboratory instruments
and equipment, microscopes, spectrophotometers and other related
products. Recently undertook a leveraged recapitalization
General Signal Corporation $1,702 $1,685 Manufacturer of equipment for the Process Controls, Electrical
Controls, and Industrial Technology Industries. Relationship with a top
provider of electrical instrumentation equipment could help Parachute
gain market share
</TABLE>
August 11, 1998 42 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 43
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
Preliminary List Of Potential Strategic Partners (continued)
($ in millions)
<TABLE>
<CAPTION>
Name Market Cap. Net Sales Comments
---- ----------- --------- --------
<S> <C> <C> <C>
Mitsutoyo Corporation Private $385 Manufactures and sells precision machinery, including
(Japan) materials test equipment. Competes through Mitsutoyo and
MTI brand equipment. May be seeking to expand presence
internationally
Moog, Inc. $287 $518 Manufacturer of high performance electrohydraulic control
systems for industrial, aerospace and government
applications. Offers component products to end users who
design their own material test equipment, may consider a
downstream strategic partnership with Parachute
MTS Systems, Inc. $277 $330 Provider of engineering services, equipment and software for
application in research, product development, quality
control and production. Operates in two business units:
Mechanical Testing and Simulation, and Factory
Automation. Direct competitor of Parachute
Oxford Instruments PLC $222 $286 Divided into two principal operating units: superconductivity products
(U.K.) and analytical instrumentation. Analytical instrumentation unit offers
microanalysis, nuclear measurement, industrial analysis, x-ray
technology, medical systems and plasma technology products
</TABLE>
August 11, 1998 43 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 44
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
Preliminary List Of Potential Strategic Partners (continued)
($ in millions)
<TABLE>
<CAPTION>
Name Market Cap. Net Sales Comments
---- ----------- --------- --------
<S> <C> <C> <C>
Parker Hannifin $3,753 $4,633 Manufacturer of motion control products, including fluid
Corporation power systems, electromechanical controls, and related
components. Offers component products to end users who
design their own material test equipment, may consider a
downstream strategic partnership with Parachute
Perkin Elmer Corporation $2,950 $1,479 Develops, manufactures and sells analytical instrumentation for
determining composition and molecular structure of chemical substances,
and other instruments such as spectrophotometers, thermal analyzers,
flame photometers and related products
Rockwell Corporation $7,774 $7,665 Diversified company involved in research, development, and
manufacturing in four business areas: electronics, aerospace,
automotive, and graphic systems. Electronics division includes
industrial automation equipment and systems. Partnership would bring
Parachute Rockwell's industrial customer base and benefits associated
with relationship with worldwide industrial manufacturer
Shimadzu Corp. (Japan) $864 $1,116 Manufacturer of scientific and process equipment, medical
systems and equipment, and aircraft equipment and industrial
machinery. Offers materials testing equipment and services to
the Japanese/Asian market and worldwide
Staveley Industries PLC $203 $470 International engineering group operating in three primary
(U.K.) business areas: measurement technologies, mechanical and
electrical building services, and salt products. During
financial restructuring, sold its Weight-Tronix measuring
equipment unit to management.
</TABLE>
August 11, 1998 44 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 45
OVERVIEW OF STRATEGIC ALTERNATIVES Confidential
Preliminary List Of Potential Strategic Partners (continued)
($ in millions)
<TABLE>
<CAPTION>
Name Market Cap. Net Sales Comments
---- ----------- --------- --------
<S> <C> <C> <C>
Thermo Instrument $2,451 $1,671 Developer, manufacturer and marketer of analytical,
Systems Inc. environmental monitoring, and process control instruments
used to detect and measure air pollution, nuclear
radioactivity, complex chemical compounds, toxic metals and
other elements. May be interested in expanding instrumentation
product line into materials testing equipment
Varian Associates $1,088 $1,463 Developer, manufacturer and marketer of products and services
for health care, scientific and industrial research, and
environmental monitoring. Principal business segments are:
health care systems, analytical instruments, and semiconductor
production equipment
Waters Corporation $1,763 $545 Developer, manufacturer and distributor of liquid
chromatography instruments, chromatography columns, sample
injectors, data management software and related equipment. In
1996 acquired TA Instruments, a manufacturer of analytical
instruments which measure the response of materials to thermal
and stress changes
</TABLE>
August 11, 1998 45 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 46
PRELIMINARY VALUATION MATERIALS Confidential
Analysis At Various Prices (a)
($ in millions, except per share data)
<TABLE>
<S> <C> <C> <C> <C>
Price per Share $ 14.63 $ 25.00 $ 26.00 $ 27.00
Premium to Market -- 70.9% 77.8% 84.6%
Shares Outstanding 7.1 7.1 7.1 7.1
Equity Value $ 103.4 $ 176.7 $ 183.8 $ 190.9
Net Debt 23.9 23.9 23.9 23.9
------- ------- ------- -------
Aggregate Value $ 127.3 $ 200.6 $ 207.7 $ 214.8
<S> <C> <C> <C> <C> <C>
Price per Share $ 28.00 $ 29.00 $ 30.00 $ 31.00 $ 32.00
Premium to Market 91.5% 98.3% 105.1% 112.0% 118.8%
Shares Outstanding 7.1 7.1 7.1 7.1 7.1
Equity Value $ 198.0 $ 205.0 $ 212.1 $ 219.2 $ 226.2
Net Debt 23.9 23.9 23.9 23.9 23.9
------- ------- ------- ------- -------
Aggregate Value $ 221.9 $ 228.9 $ 236.0 $ 243.1 $ 250.1
</TABLE>
<TABLE>
<CAPTION>
Operating
Statistic Multiples of Aggregate Value
--------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998E Revenues $222.2 0.57 x 0.90 x 0.93 x 0.97 x 1.00 x 1.03 x 1.06 x 1.09 x 1.13 x
1998E EBITDA 25.0 5.1 8.0 8.3 8.6 8.9 9.2 9.4 9.7 10.0
1999E EBITDA 27.3 4.7 7.4 7.6 7.9 8.1 8.4 8.7 8.9 9.2
1998E EBIT 17.1 7.5 11.8 12.2 12.6 13.0 13.4 13.8 14.2 14.7
</TABLE>
<TABLE>
<CAPTION>
Multiples of Equity Value
-------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998E Net Income $ 8.3 12.5 x 21.4 x 22.2 x 23.1 x 23.9 x 24.8 x 25.7 x 26.5 x 27.4 x
1999E Net Income 10.2 10.2 17.4 18.1 18.8 19.5 20.1 20.8 21.5 22.2
Book Value 77.4 1.34 2.28 2.37 2.47 2.56 2.65 2.74 2.83 2.92
</TABLE>
Notes:
(a) Includes impact of the acquisition of SATEC and 100% of IST.
August 11, 1998 46 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 47
PRELIMINARY VALUATION MATERIALS Confidential
Analysis Of Comparable Companies
($ in millions, except per share data)
<TABLE>
<CAPTION>
Price
Share Price As a Multiple of:
----------------------------
LTM as of Equity Aggregate LTM 1998E CY 1999E CY
Company Ticker Ended 8/7/98 Value (a) Value (b) EPS EPS (c) EPS (c)
- ------- ------ ----- ------ --------- --------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Modern Controls, Inc. (*) (h) MOCO 6/30/98 $5.75 $37.1 $31.7 13.5 x NA NA
MTS Systems Corporation (*) (g) MTSC 6/30/98 $16.25 $313.6 $353.3 15.2 14.3 12.6
</TABLE>
<TABLE>
<CAPTION>
Equity
Value As a Aggregate Value
Multiple of: As a Multiple of:
-------------- ----------------------------------------------
Tangible LTM LTM LTM Tangible Net EBITDA
Company Book Value (d) Sales EBITDA EBIT Cap. Emp. (e) Margin
- ------- -------------- ----- ------ ---- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Modern Controls, Inc. (*) (h) 2.41 x 1.97 x 7.5 x 8.0 x 3.17 x 26.4%
MTS Systems Corporation (*) (g) 2.31 1.07 8.4 10.6 2.01 12.8%
</TABLE>
<TABLE>
<CAPTION>
Price
As a Multiple of:
Share Price ----------------------------
LTM as of Equity Aggregate LTM 1998E CY 1999E CY
Memo: Ended 8/7/98 Value (a) Value (b) EPS EPS (c) EPS (c)
----- ------ --------- --------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Parachute (*) (f) 6/30/98 $14.63 $103.4 $106.1 13.2 x NA NA
</TABLE>
<TABLE>
<CAPTION>
Equity
Value As a Aggregate Value
Multiple of: As a Multiple of:
-------------- ----------------------------------------------
Tangible LTM LTM LTM Tangible Net EBITDA
Memo: Book Value (d) Sales EBITDA EBIT Cap. Emp. (e) Margin
-------------- ----- ------ ---- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Parachute (*) (f) 1.42 x 0.69 x 5.6 x 8.5 x 1.44 x 12.2%
</TABLE>
Notes:
(*) Excludes extraordinary gains/charges.
(a) Equity Value = Number of Shares Outstanding (calculated using the treasury
method and including assumed conversion of convertible preferred stock) x Price
per Share
(b) Aggregate Value = Equity Value plus Net Debt, where Net Debt equals Debt,
Preferred Stock, and Minority Interest, less Cash
(c) Source: Dain Rauscher Wessels estimates
(d) Tangible Book Value = Book Value minus Intangibles
(e) Tangible Net Capital Employed = Tangible Book Value plus Net Debt
(f) LTM EBIT and EBITDA are calculated using the LTM Revenues taken from the
press release and holding margins constant. Balance Sheet information is from
the 3/31/98 10-Q.
(g) Most recent figures from press release dated 7/28/98
(h) Most recent figures from press release dated 7/17/98 except Cash which is
taken from latest 10Q
August 11, 1998 47 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 48
PRELIMINARY VALUATION MATERIALS Confidential
Descriptions Of Comparable Companies
Modern Controls, Inc.
Business Description
Modern Controls designs, manufactures, and markets precision measurement and
control instruments and systems. The company's Permeation Products division
makes instruments that measure the rate at which oxygen, carbon dioxide, and
water vapor permeate packages and packaging materials. These instruments are
used by manufacturers of paper, plastics and coatings, and users of such
packaging materials in the food and beverage, pharmaceutical, and chemical
industries. Modern Controls's Weighing Products division makes tablet weighing
and sorting devices and automatic balances. They are used to detect deviations
in the weight of pharmaceutical capsules and to reject capsules outside an
acceptable range.
MTS Systems Corporation
Business Description
MTS Systems is the world's leading manufacturer of testing and simulation
systems that determine the mechanical behavior of materials, products, and
structures. MTS systems are used by automobile, construction, aerospace,
petroleum, and other companies to test products and analyze results. For its
measurement and automation business segment, MTS produces servomotors,
controllers, and amplifiers used in factory automation and sensors for fluid
levels. More than half of MTS' sales are from overseas, with Europe and the Far
East each accounting for about one-fourth of sales.
August 11, 1998 48 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 49
PRELIMINARY VALUATION MATERIALS Confidential
Analysis Of Comparable Transactions
($ in millions)
<TABLE>
<CAPTION>
Equity Consideration
Consideration As a Multiple of:
-------------------- -------------------------
Announcement Target/Aquiror LTM
Date (Target Business Description) Equity Aggregate Net Income Book Value
---- ----------------------------- ------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
8/9/88 Buehler International Inc./Investor Group $63.4 $56.5 16.3 x 1.22 x
(Manufacturer of equipment for material
analysis and material testing) (a)
5/1/89 Laboratory Data Control (Milton Roy)/Thermo
Instrument Systems, Inc. $22.0 $22.0 30.3 (*) 1.68
(Liquid chromotography instruments) (b)
12/1/91 Hamilton Division (Hamilton Industries)/
Fischer Scientific $90.0 $85.0 10.0 2.97
(Laboratory systems for scientific research centers)
1/15/93 Spectra-Physics Analytical, Inc./Thermo
Instrument Systems, Inc. $69.0 $68.0 13.5 4.55
(Liquid chromotography and capillary
electrophoresis equipment) (c)
3/16/94 EnviroTech Measurements & Controls Companies/Thermo
Instrument $87.3 $86.9 NM 0.99
(Process control, process measurement, and
laboratory analytical products)
2/7/95 EPRO/Credence Systems Corporation $32.6 $30.6 13.0 8.43 (*)
(Automatic test equipment used in memory
integrated circuit industry)
3/2/95 Scientific Instruments Division of Fisons plc/Thermo
Instrument Systems L122.6 L145.6 NM 1.65
(Analytical instruments for industrial and
research applications)
4/10/95 Explorations Products Group of Western
Geophysical (Litton)/Input/Output $121.3 $121.0 NM 2.03
(Seismic land and marine exploration products)
9/6/95 Megatest Corporation/Teradyne, Inc. $215.4 $216.4 NM 3.22
(Automatic test equipment used in integrated
circuit industry)
9/15/95 Data Measurement Corp./Measurex Corp. $29.8 $32.9 21.0 2.52
(Thickness measuring and detecting electronic
instruments and control systems)
3/28/96 TA Instruments, Inc./Waters Corporation $84.0 $117.5 30.0 (*) NM
(Analytical instruments which measure response
of materials to thermal and stress changes)
5/16/96 Gatan International, Inc./Roper Industries Inc. $33.7 $49.4 NM NM
(Instruments and software used to extend performance
of electron microscopes)
8/29/97 Gems Sensors (IMO Industries)/Danaher Corp. $85.0 $88.3 16.9 NM
(Level, flow, and pressure measuring and
controlling devices)
12/29/97 Computational Systems Inc./Emerson Electric Inc. $150.3 $151.3 36.6 (*) 4.33
(Measuring devices and advanced predictive
maintenance products)
5/29/98 Digital Instruments/Veeco Instruments Inc. $162.3 $175.1 11.8 13.5 (*)
(High resolution instruments that image and measure
surface topography)
Aggregate Consideration
As a Multiple of:
-------------------------------------------------
Announcement Target/Aquiror LTM LTM LTM Net Book
Date (Target Business Description) Sales EBITDA EBIT Capital
---- ----------------------------- ----- ------ ---- -------
<S> <C> <C> <C> <C> <C>
8/9/88 Buehler International Inc./Investor Group 0.75 x 7.2 x 9.8 x 1.46 x
(Manufacturer of equipment for material
analysis and material testing) (a)
5/1/89 Laboratory Data Control (Milton Roy)/Thermo
Instrument Systems, Inc. 0.92 11.7 (*) 18.2 (*) 1.68
(Liquid chromotography instruments) (b)
12/1/91 Hamilton Division (Hamilton Industries)/
Fischer Scientific 0.83 7.7 9.8 3.36
(Laboratory systems for scientific research centers)
1/15/93 Spectra-Physics Analytical, Inc./Thermo
Instrument Systems, Inc. 1.00 7.7 9.5 4.79
(Liquid chromotography and capillary
electrophoresis equipment) (c)
3/16/94 EnviroTech Measurements & Controls Companies/Thermo
Instrument 0.68 NM NM 1.43
(Process control, process measurement, and
laboratory analytical products)
2/7/95 EPRO/Credence Systems Corporation 2.17 7.5 7.6 16.05 (*)
(Automatic test equipment used in memory
integrated circuit industry)
3/2/95 Scientific Instruments Division of Fisons plc/Thermo
Instrument Systems 0.64 42.8 (*) NM 1.50
(Analytical instruments for industrial and
research applications)
4/10/95 Explorations Products Group of Western
Geophysical (Litton)/Input/Output 1.07 NM NM 2.12
(Seismic land and marine exploration products)
9/6/95 Megatest Corporation/Teradyne, Inc. 2.39 NM NM 3.19
(Automatic test equipment used in integrated
circuit industry)
9/15/95 Data Measurement Corp./Measurex Corp. 1.18 12.3 14.5 2.28
(Thickness measuring and detecting electronic
instruments and control systems)
3/28/96 TA Instruments, Inc./Waters Corporation 2.48 10.1 14.4 7.0 (*)
(Analytical instruments which measure response
of materials to thermal and stress changes)
5/16/96 Gatan International, Inc./Roper Industries Inc. 1.94 9.0 39.3 (*) 3.35
(Instruments and software used to extend performance
of electron microscopes)
8/29/97 Gems Sensors (IMO Industries)/Danaher Corp. 1.12 NA 14.3 NM
(Level, flow, and pressure measuring and
controlling devices)
12/29/97 Computational Systems Inc./Emerson Electric Inc. 2.43 16.6 (*) 24.3 (*) 4.24
(Measuring devices and advanced predictive
maintenance products)
5/29/98 Digital Instruments/Veeco Instruments Inc. 3.41 11.7 12.1 7.1 (*)
(High resolution instruments that image and measure
surface topography)
</TABLE>
<TABLE>
<CAPTION>
Equity Consideration Aggregate Consideration
As a multiple of: As a multiple of:
------------------------ ------------------------------------------------------
LTM LTM LTM LTM Net Book
Net Income Book Value Sales EBITDA EBIT Capital
Statistics ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mean: 14.6 x 2.52 x 1.53 x 9.1 x 11.5 x 2.67 x
Median: 13.5 2.27 1.12 8.3 11.0 2.28
High: 21.0 4.55 3.41 12.3 14.5 4.79
Low: 10.0 0.99 0.64 7.2 7.6 1.43
</TABLE>
Notes:
(*) Multiples excluded from calculation of the mean, median, high, and low.
(a) Buehler was 76% acquired by an investor group. Transaction analyzed as
if entire Company had been acquired for $12.50 per share
(b) Net income estimated by taxing operating income at 40%
(c) Does not include royalty income as operating income or operating revenues
August 11, 1998 49 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 50
PRELIMINARY VALUATION MATERIALS CONFIDENTIAL
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
($ in millions, except per share data)
[ ] The analysis employs management's status quo financial projections,
including the acquisition of SATEC and the remaining 49% of IST
[ ] The analysis also assumes discount rates of 10% to 12% and year five
EBITDA terminal multiples of 8.0x to 10.0x
<TABLE>
<CAPTION>
Exit Multiple -- 2003 EBITDA 8.0 x 10.0 x
- ---------------------------- ------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount Rate 10.0% 11.0% 12.0% 10.0% 11.0% 12.0%
------- ------- ------- ------- ------- -------
Present Value of Cash Flows $ 45.5 $ 44.4 $ 43.2 $ 45.5 $ 44.4 $ 43.2
Present Value of Terminal Value 183.1 175.0 167.3 228.8 218.7 209.1
------- ------- ------- ------- ------- -------
Implied Aggregate Value $ 229 $ 219 $ 211 $ 274 $ 263 $ 252
======= ======= ======= ======= ======= =======
Less: Net Debt (23.9) (23.9) (23.9) (23.9) (23.9) (23.9)
Implied Equity Value $ 205 $ 195 $ 187 $ 250 $ 239 $ 228
======= ======= ======= ======= ======= =======
EQUITY VALUE PER SHARE $ 28.95 $ 27.64 $ 26.40 $ 35.43 $ 33.83 $ 32.31
</TABLE>
AUGUST 11, 1998 50 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 51
PRELIMINARY VALUATION MATERIALS CONFIDENTIAL
- --------------------------------------------------------------------------------
LEVERAGED RECAPITALIZATION ANALYSIS
($ in millions)
[ ] At a price of $26.00 per share, an equity investor could achieve a target
five-year median IRR of 25% to 30% in a leveraged recapitalization of
Parachute
[ ] The analysis assumes that current shareholders retain 10% of the
fully-diluted ownership of the Company post-transaction, subject to
dilution from management options
[ ] The analysis employs management's status quo financial projections,
assuming the divestiture of the Company's interest in IST for $4.0 million
and the divestiture of the servohydraulical business for approximately its
book value
[ ] Terminal values were obtained using a range of EBITDA multiples of 8.0x -
10.0x
<TABLE>
<CAPTION>
Use of Funds
- ------------
<S> <C>
Purchase $178
Refinance Debt 21
Fees & Expenses 7
----
Total Uses $206
====
Five-Year IRR
Equity Investor 27.9%
Senior Debt Repaid
Year 5 50.8%
</TABLE>
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT INTEREST %OWNERSHIP
- ---------------- ------ -------- ----------
<S> <C> <C> <C>
Cash on Hand $ 11 5.0% --
Revolver 21 6.5% --
Term Loan 35 8.8% --
Senior Notes 35 9.8% --
Subordinated Debt 47 10.5% --
Investor Equity 56 -- 81.0%
----
Total Sources $206
====
</TABLE>
<TABLE>
<CAPTION>
Coverage Ratios PF1998
- --------------- ------
<S> <C>
EBITDA / Net Interest 2.1x
Total Debt / EBITDA 5.2
</TABLE>
AUGUST 11, 1998 51 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 52
REVIEW OF MERGER MARKET CONFIDENTIAL
- --------------------------------------------------------------------------------
OBSERVATIONS REGARDING THE MERGER MARKET
[ ] In the first half of 1998, the total value of announced U.S. mergers and
acquisitions was $772.5 billion, nearly three times the $285.1 billion in
the first half of 1997 and breaking the all-time record for a full year,
set in 1997
[ ] Significant recent merger activity has been generated by a confluence of
market and economic events:
- Stock market at all time high
- Availability of acquisition financing
- Economic and business confidence
- Strong corporate earnings growth
- Financial buyers have raised record amounts of institutional
capital
- Strategic buyers are seeking critical mass and geographical
market expansion
- European corporations are experiencing recovering earnings and
are once again becoming aggressive acquirors
AUGUST 11, 1998 52 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 53
REVIEW OF MERGER MARKET CONFIDENTIAL
- --------------------------------------------------------------------------------
OBSERVATIONS REGARDING THE MERGER MARKET (CONTINUED)
HISTORICAL REVIEW OF M&A TRANSACTIONS COMPLETED
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Value of Deals
Number of Deals ($ billion)
--------------- --------------
<S> <C> <C>
1987 .................. 2,302 ..................... $163.7
1988 .................. 2,258 ..................... $246.9
1989 .................. 2,366 ..................... $221.1
1990 .................. 2,074 ..................... $108.2
1991 .................. 1,877 ..................... $ 71.2
1992 .................. 2,574 ..................... $ 96.7
1993 .................. 2,663 ..................... $176.4
1994 .................. 2,997 ..................... $226.7
1995 .................. 3,510 ..................... $356.0
1996 .................. 5,848 ..................... $495.0
1997 .................. 7,800 ..................... $694.7
</TABLE>
Source: Mergerstat
AUGUST 11, 1998 53 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 54
REVIEW OF MERGER MARKET CONFIDENTIAL
- --------------------------------------------------------------------------------
OBSERVATIONS REGARDING THE MERGER MARKET (CONTINUED)
[ ] While transaction multiples have increased somewhat over the past ten
years, the differential between these multiples and the S&P 500 trading
multiples (the premium) has narrowed. In addition, a meaningful
differential exists between public and private market transaction
multiples
HISTORICAL REVIEW OF P/E MULTIPLES OFFERED
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Public Private Average
Companies(a) S&P 500 Companies(a) P/E Offered in Transactions
------------ ------- ------------ ---------------------------
<S> <C> <C> <C> <C>
1988 .......... 18.3x ..... 12.4x ..... 12.8x ............. 21.6x
1989 .......... 18.4x ..... 13.3x ..... 12.7x ............. 20.9x
1990 .......... 17.1x ..... 15.2x ..... 13.2x ............. 20.1x
1991 .......... 15.9x ..... 18.6x ..... 8.5x ............. 20.0x
1992 .......... 18.1x ..... 24.2x ..... 17.6x ............. 22.7x
1993 .......... 19.7x ..... 23.4x ..... 22.0x ............. 24.4x
1994 .......... 19.8x ..... 19.9x ..... 22.0x ............. 24.5x
1995 .......... 19.4x ..... 16.6x ..... 15.5x ............. 23.8x
1996 .......... 21.7x ..... 19.2x ..... 17.7x ............. 26.2x
1997 .......... 25.0x ..... 22.4x ..... 17.0x ............. 27.4x
</TABLE>
NOTES:
Source: Mergerstat Review 1998
(a) Represents median P/E multiple offered
AUGUST 11, 1998 54 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 1
Exhibit (b)(4)
HIGHLY CONFIDENTIAL
THE BEACON GROUP CAPITAL SERVICES, LLC
PROJECT PARACHUTE
PRESENTATION TO THE BOARD OF DIRECTORS
MARCH 10, 1999
<PAGE> 2
PROJECT PARACUTE HIGHLY CONFIDENTIAL
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
<S> <C> <C>
I. Summary Of The Sale Process 1
II. Timetable - Steps Followed To Date 2
III. Summary Of Contact Activity 3
IV. Summary Of Preliminary Indications Of Interest Received 6
V. Parties Attending Management Presentations 8
VI. Management Presentation Considerations 9
VII. Overview Of Formal Proposals Received 13
VIII. Valuation Considerations 15
IX. Detailed Proposed Timetable 18
X. Next Steps 19
APPENDICES
A. Background On Leveraged Recapitalizations 20
B. Analysis At Various Prices And Comparable Company Analysis 26
C. Formal Proposal Letters Received 29
</TABLE>
MARCH 10, 1999 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 3
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SUMMARY OF THE SALE PROCESS
DECISION TO PROCEED
[Arrow pointing down]
1. Approach Potential Buyers
2. Qualify Buyers With Indications Of Price
3. Management Presentations
4. Follow-up Due Diligence And Analysis By Buyers
5. SELECT FINAL ROUND PARTICIPANTS
6. Final Due Diligence Phase
7. Select Buyer - Final Negotiations & Documentation
[Arrow pointing down]
CLOSING
MARCH 10, 1999 1 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 4
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
PROJECT PARACHUTE TIMETABLE - STEPS FOLLOWED TO DATE
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
WEEK OF: 24-Aug. 31-Aug. 7-Sep. 14-Sep. 21-Sep. 28-Sep.
1 2 3 4 5 6 RESPONSIBILITY
<S> <C> <C> <C> <C> <C> <C> <C>
1. TBG DUE DILIGENCE
a) Create working group list X TBG
b) Review required information X TBG,P
c) Identify due diligence issues and questions X X TBG
2. MARKETING
a) Descriptive Memorandum (DM)
i) Outline/initial drafting X X X TBG
ii) Draft to Company X TBG
iii) Comments from Company X X X TBG, P
iv) Revisions X X X TBG, P
v) Final draft TBG, P
b) Identify and select buyers to be approached X X TBG, P
c) Confidentiality agreements TBG, P, COUNSEL
d) Begin solicitation
i) Distribute and negotiate CAs and DMs TBG
ii) Receive indications of interest TBG
3. BUYER DUE DILIGENCE
a) Define process and develop management presentation TBG, P
b) Prepare data room TBG, P, COUNSEL
c) Management presentations/buyer due diligence TBG, P
4. DOCUMENTATION
a) Draft purchase contract and schedules TBG, P, COUNSEL
b) Distribute purchase contract TBG, COUNSEL
c) Receive second round bids and major comments TBG, P, COUNSEL
on contract
</TABLE>
<TABLE>
<CAPTION>
WEEK OF: 5-Oct. 12-Oct. 19-Oct. 26-Oct. 2-Nov. 9-Nov.
7 8 9 10 11 12 RESPONSIBILITY
<S> <C> <C> <C> <C> <C> <C> <C>
1. TBG DUE DILIGENCE
a) Create working group list TBG
b) Review required information TBG,P
c) Identify due diligence issues and questions TBG
2. MARKETING
a) Descriptive Memorandum (DM)
i) Outline/initial drafting TBG
ii) Draft to Company TBG
iii) Comments from Company TBG, P
iv) Revisions TBG, P
v) Final draft X TBG, P
b) Identify and select buyers to be approached X TBG, P
c) Confidentiality agreements X TBG, P, COUNSEL
d) Begin solicitation X
i) Distribute and negotiate CAs and DMs X X X X X TBG
ii) Receive indications of interest TBG
3. BUYER DUE DILIGENCE
a) Define process and develop management presentation TBG, P
b) Prepare data room TBG, P, COUNSEL
c) Management presentations/buyer due diligence TBG, P
4. DOCUMENTATION
a) Draft purchase contract and schedules TBG, P, COUNSEL
b) Distribute purchase contract TBG, COUNSEL
c) Receive second round bids and major comments TBG, P, COUNSEL
on contract
</TABLE>
<TABLE>
<CAPTION>
WEEK OF: 16-Nov. 23-Nov. 30-Nov. 7-Dec. 14-Dec. 4-Jan.
13 14 15 16 17 20 RESPONSIBILITY
<S> <C> <C> <C> <C> <C> <C> <C>
1. TBG DUE DILIGENCE
a) Create working group list TBG
b) Review required information TBG,P
c) Identify due diligence issues and questions TBG
2. MARKETING
a) Descriptive Memorandum (DM)
i) Outline/initial drafting TBG
ii) Draft to Company TBG
iii) Comments from Company TBG, P
iv) Revisions TBG, P
v) Final draft TBG, P
b) Identify and select buyers to be approached TBG, P
c) Confidentiality agreements TBG, P, COUNSEL
d) Begin solicitation
i) Distribute and negotiate CAs and DMs X X X X TBG
ii) Receive indications of interest X X TBG
3. BUYER DUE DILIGENCE
a) Define process and develop management presentation X X X X X TBG, P
b) Prepare data room X X X X X TBG, P, COUNSEL
c) Management presentations/buyer due diligence TBG, P
4. DOCUMENTATION
a) Draft purchase contract and schedules TBG, P, COUNSEL
b) Distribute purchase contract TBG, COUNSEL
c) Receive second round bids and major comments TBG, P, COUNSEL
on contract
</TABLE>
<TABLE>
<CAPTION>
WEEK OF: 11-Jan. 18-Jan. 25-Jan. 1-Feb.
21 22 23 24 RESPONSIBILITY
<S> <C> <C> <C> <C> <C>
1. TBG DUE DILIGENCE
a) Create working group list TBG
b) Review required information TBG,P
c) Identify due diligence issues and questions TBG
2. MARKETING
a) Descriptive Memorandum (DM)
i) Outline/initial drafting TBG
ii) Draft to Company TBG
iii) Comments from Company TBG, P
iv) Revisions TBG, P
v) Final draft TBG, P
b) Identify and select buyers to be approached TBG, P
c) Confidentiality agreements TBG, P, COUNSEL
d) Begin solicitation
i) Distribute and negotiate CAs and DMs TBG
ii) Receive indications of interest TBG
3. BUYER DUE DILIGENCE
a) Define process and develop management presentation X TBG, P
b) Prepare data room X TBG, P, COUNSEL
c) Management presentations/buyer due diligence X X X TBG, P
4. DOCUMENTATION
a) Draft purchase contract and schedules X X TBG, P, COUNSEL
b) Distribute purchase contract X TBG, COUNSEL
c) Receive second round bids and major comments TBG, P, COUNSEL
on contract
</TABLE>
<TABLE>
<CAPTION>
WEEK OF: 8-Feb. 15-Feb. 22-Feb.
25 26 27 RESPONSIBILITY
<S> <C> <C> <C> <C>
1. TBG DUE DILIGENCE
a) Create working group list TBG
b) Review required information TBG,P
c) Identify due diligence issues and questions TBG
2. MARKETING
a) Descriptive Memorandum (DM)
i) Outline/initial drafting TBG
ii) Draft to Company TBG
iii) Comments from Company TBG, P
iv) Revisions TBG, P
v) Final draft TBG, P
b) Identify and select buyers to be approached TBG, P
c) Confidentiality agreements TBG, P, COUNSEL
d) Begin solicitation
i) Distribute and negotiate CAs and DMs TBG
ii) Receive indications of interest TBG
3. BUYER DUE DILIGENCE
a) Define process and develop management presentation TBG, P
b) Prepare data room TBG, P, COUNSEL
c) Management presentations/buyer due diligence X X X TBG, P
4. DOCUMENTATION
a) Draft purchase contract and schedules X X X TBG, P, COUNSEL
b) Distribute purchase contract TBG, COUNSEL
c) Receive second round bids and major comments X TBG, P, COUNSEL
on contract
</TABLE>
X indicates completed or in process activities
MARCH 10, 1999 2 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 5
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SUMMARY OF CONTACT ACTIVITY - 49 PARTIES CONTACTED
[GRAPHIC OMITTED]
<TABLE>
<S> <C>
Original Contacts Made 49
Confidentiality Agreements Signed/
Descriptive Memorandums Sent 23
Expressed Preliminary Interest 11
Attended Management Presentation 4
</TABLE>
MARCH 10, 1999 3 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 6
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SUMMARY OF CONTACT ACTIVITY - PARTIES WHO DECLINED INTEREST OR WITHDREW FROM
PROCESS
26 PARTIES
CONTACTED AND DECLINED INTEREST INITIALLY
<TABLE>
<CAPTION>
STRATEGIC FINANCIAL
--------- ---------
<S> <C>
Altana AG AEA Investors
ASEA Brown Boveri, Ltd. Brentwood Associates
Beckman Coulter, Inc. Citicorp Venture Capital
Bodycote International plc Frontenac Company
Bowthorpe plc Thoma Cressey Equity Partners
Carl Zeiss Inc. Thomas H. Lee Company
Danaher Corp. Valuefinder (Carlyle Enterprises)
EG&G
Esterline Technologies Corp.
Fairey Group plc
Fisher Scientific International, Inc.
Hewlett-Packard Co.
Oxford Instruments plc
Parker Hannifin Corp.
Rockwell International Corp.
Siebe plc
SPX Corp.
Staveley Industries plc
Varian Associates
</TABLE>
MARCH 10, 1999 4 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 7
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SUMMARY OF CONTACT ACTIVITY - PARTIES WHO ENTERED THE PROCESS
12 PARTIES
RECEIVED MEMORANDUM
AND DECLINED INTEREST
<TABLE>
<CAPTION>
STRATEGIC FINANCIAL
--------- ---------
<S> <C>
AEA Technology plc American Industrial Partners
AMETEK Bessemer Partners
Emerson Electric Co. Hicks, Muse, Tate & Furst
Mettler-Toledo International, Inc. J.W. Childs Associates
Shimadzu Corp. Madison Dearborn Partners
Waters Corp. Summit Partners
</TABLE>
11 PARTIES
EXPRESSED PRELIMINARY INTEREST
IN PURCHASING THE COMPANY
<TABLE>
<CAPTION>
STRATEGIC FINANCIAL
--------- ---------
<S> <C>
AGIV Bain Capital
Analogic Corporation Berkshire Partners
MTS Systems Corp. Fidelity Ventures (*)
Thermo Instrument Systems Inc. GTCR Golder, Rauner
Kirtland Capital Partners
Trivest, Inc.
Vestar Capital Partners
</TABLE>
(*) Recently received and still reviewing Memorandum
MARCH 10, 1999 5 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 8
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SUMMARY OF PRELIMINARY INDICATIONS RECEIVED (WEEK OF JANUARY 4, 1999)
<TABLE>
<CAPTION>
VALUE FINANCING
BUYER PER SHARE CONTINGENCY COMMENTS
- ----- --------- ----------- --------
<S> <C> <C> <C>
AGIV (Carl Schenck) "Low to Mid $20s" NA Verbal Indication
Analogic Corporation "Premium to Market" NA Verbal Indication
Bain Capital $15.00 - $16.50 Yes Written Indication; Subject to Due Diligence
Berkshire Partners $17.00 Yes Verbal Indication; Would Want Exclusivity
GTCR Golder, Rauner $18.00 - $20.00 Yes Written Indication; Require Recap Accounting,
Management Participation, and Due Diligence
Kirtland Capital Partners $22.00 - $24.00 Yes Written Indication; Subject to Due
Diligence and Management Arrangements
MTS Systems Corp. "Premium to Market" NA Verbal Indication
Thermo Instrument Systems Inc. "Premium to Market" NA Verbal Indication
Trivest, Inc. $15.50 - $16.50 Yes Verbal Indication
Vestar Capital Partners $17.00 - $20.00 Yes Written Indication; Require Recap Accounting,
Management Participation, and Due Diligence
</TABLE>
MARCH 10, 1999 6 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 9
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
DESPITE EXPRESSING SIGNIFICANT INITIAL INTEREST, A NUMBER OF STRATEGIC
BUYERS DECLINED TO MOVE FORWARD
<TABLE>
<CAPTION>
BUYER STATED REASON FOR WITHDRAWING
- ----- -----------------------------
<S> <C>
AGIV (Carl Schenck) Poor timing - restructuring as major shareholder may sell
EG&G Inc. Poor timing - senior management turnover and pursuing large
acquisition (Perkin-Elmer)
MTS Systems Corp. New CEO does not have full Board backing to undertake merger
which would increase MTS's presence in "low-growth" market
and require significant cost cutting. Can only get to $15.50 -
$16.00 per share
Thermo Instrument Systems Inc. Lack time and management resources to pursue because
just announced large acquisition in Europe (Spectra-Physics)
</TABLE>
MARCH 10, 1999 7 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 10
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
PARTIES ATTENDING MANAGEMENT PRESENTATION
4 PARTIES
ATTENDED MANAGEMENT
PRESENTATIONS (PRESENTATION DATE)
GTCR Golder, Rauner (January 20th)
Kirtland Capital Partners (January 22nd)
Analogic Corporation (January 28th)
Vestar Capital Partners (January 29th)
/ / A dinner meeting between MTS's CEO, Parachute's CEO, and Beacon was
held on 1/29, but MTS's final valuation indication was not deemed
attractive enough to warrant a full management presentation
MARCH 10, 1999 8 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 11
PROJECT PARACHUTE
HIGHLY CONFIDENTIAL
MANAGEMENT PRESENTATION CONSIDERATIONS - GTCR GOLDER, RAUNER
ATTENDEES AT 1/20/99 MANAGEMENT PRESENTATION
GTCR GOLDER, RAUNER
/ / Bruce Rauner, Managing Principal
/ / Timothy P. McAdam, Vice President
MAJOR DISCUSSION TOPICS AT MANAGEMENT PRESENTATION
/ / Potential impact of a recession on cash flow
/ / Acquisition opportunities and consolidation drivers - controller and
infrastructure
/ / Required levels of capital expenditures - maintenance vs. growth
CONSIDERATIONS DISCUSSED IN SUBSEQUENT CONVERSATIONS
/ / Specific acquisition candidates
/ / Management's interest in rolling over equity (management deferred)
/ / Potential for cost savings and margin improvements
MARCH 10, 1999 9 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 12
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
MANAGEMENT PRESENTATION CONSIDERATIONS - KIRTLAND CAPITAL PARTNERS
ATTENDEES AT 1/22/99 MANAGEMENT PRESENTATION
KIRTLAND CAPITAL PARTNERS BT ALEX. BROWN
/ / Ray Lancaster, Managing Partner / / Tom Cole, Managing Director
/ / Tom Littman, Partner / / John Moses, Managing Director
/ / Tom Macejko, Analyst
MAJOR DISCUSSION TOPICS AT MANAGEMENT PRESENTATION
/ / Acquisition opportunities
/ / Competitive position
/ / Distribution network and infrastructure
CONSIDERATIONS DISCUSSED IN SUBSEQUENT CONVERSATIONS
/ / Historical and projected revenue growth by business and region
/ / Potential for margin improvement/cost reduction
/ / Specific acquisition opportunities/strategy
/ / Potential impact of a recession on cash flows
/ / Management's interest in rolling over equity (management deferred)
MARCH 10, 1999 10 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 13
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
MANAGEMENT PRESENTATION CONSIDERATIONS - ANALOGIC CORPORATION
ATTENDEES AT 1/28/99 MANAGEMENT PRESENTATION
ANALOGIC CORPORATION
/ / Bernie Gordon, Chairman and CEO
/ / Bruce Rusch, President and COO
MAJOR DISCUSSION TOPICS AT MANAGEMENT PRESENTATION
/ / Strategic Fit
/ / Culture
/ / Technology
CONSIDERATIONS DISCUSSED IN SUBSEQUENT CONVERSATIONS
/ / Passed - not strong enough strategic fit
MARCH 10, 1999 11 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 14
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
MANAGEMENT PRESENTATION CONSIDERATIONS - VESTAR CAPITAL PARTNERS
ATTENDEES AT 1/29/99 MANAGEMENT PRESENTATION
VESTAR CAPITAL PARTNERS
/ / Jim Elrod, Partner
/ / Brian Ratzan, Associate
MAJOR DISCUSSION TOPICS AT MANAGEMENT PRESENTATION
/ / Growth prospects
/ / Acquisition opportunities
/ / Margin improvement potential
CONSIDERATIONS DISCUSSED IN SUBSEQUENT CONVERSATIONS
/ / Passed - value would not be competitive due to growth and margin
concerns
MARCH 10, 1999 12 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 15
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
OVERVIEW OF FORMAL PROPOSALS RECEIVED (WEEK OF FEBRUARY 15)
<TABLE>
<CAPTION>
VALUE FINANCING OTHER
BUYER PER SHARE CONTINGENCY CONDITIONS COMMENTS
- ----- --------- ----------- ---------- --------
<S> <C> <C> <C> <C>
GTCR Golder, Rauner Letter: $22.50 Yes; "Financing Due Diligence, Willing to commit to fully-
(Subsequent Discussions: Readily Available" Recap Structure, financed offer by 3/31. Want
[$23.50]) Management exclusivity in return. Asked for
Equity Rollover break-up fees and lock-up from
major shareholders. Equity
from $870 million fund. Have
"aggressive" financing
proposals from two money
center banks
Kirtland Capital Letter: $22.00 Yes; "Highly Due Diligence, Willing to commit to fully-
Partners (Subsequent Discussions: Confident" Recap Structure, financed offer by 3/31. Equity
[$ . ]) Management from $208 million fund and side
Arrangements, by-side investors. Debt
Advisory Board financing through BT Alex.
Approval, Brown
Regulatory
Approval
</TABLE>
MARCH 10, 1999 13 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 16
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
PARACHUTE'S VALUATION HAS BEEN REDUCED BY THREE SIGNIFICANT DEVELOPMENTS SINCE
THE AUGUST 1998 BOARD MEETING
/ / Key strategic buyers determined not to participate aggressively in the
process which eliminated the potential for a "strategic premium"
/ / A challenging Asian market drove Parachute's 1998 pro forma EBITDA
lower than originally forecast in August
/ / MTS's significant decline in value caused by broader market turmoil
and mediocre quarterly results (and projections) impacts Parachute's
value as its most relevant publicly-traded comparable and valuation
benchmark
MARCH 10, 1999 14 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 17
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
PARACHUTE'S LOWER THAN EXPECTED 1998 EBITDA AND MTS'S LOWER EBITDA MULTIPLE
HAVE IMPACTED VALUE SINCE THE AUGUST 1998 BOARD MEETING
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
MTS's Aggregate
Value As A Implied Range of
Parachute's X Multiple of LTM = Parachute Price Current
1998E EBITDA EBITDA Per Share(a) Proposals
------------ --------------- --------------- ---------
<S> <C> <C> <C> <C>
As of 8/11/98 $25.0 8.4x $26.21 --
As of Now $22.2 6.8x $18.95 $22.00 to $24.00
</TABLE>
NOTE:
(a) Equals implied aggregate values of $210 million and $151 million,
respectively, less net debt of $23.9 million and $16.4 million,
respectively, divided by 7.1 million shares
MARCH 10, 1999 15 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 18
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
THE DECLINE IN MTS'S EBITDA MULTIPLE ACCOUNTS FOR THE MAJORITY OF
THE IMPLIED VALUATION DIFFERENTIAL
<TABLE>
<CAPTION>
MTS's Aggregate Value
Parachute's As A Multiple Of Implied Parachute
1998E EBITDA LTM EBITDA Aggregate Value
As of 8/11/98 As of now As of 8/11/98 As of now As of 8/11/98 As of now
<S> <C> <C> <C> <C> <C> <C>
$25.0 $22.2 8.4x 6.8x $210.0 $151.0
% Inc/(Dec) NA (11.2%) NA (19.0%) NA (28.1%)
</TABLE>
Percentage Of Implied
Valuation Differential
Attributable To:
Parachute MTS's EBITDA
EBITDA Multiple
36% 64%
MARCH 10, 1999 16 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 19
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
IN ADDITION, THE RECENTLY ANNOUNCED PERKIN-ELMER TRANSACTION IMPLIES LOWER PER
SHARE VALUES FOR PARACHUTE THAN THE CURRENT PROPOSALS
<TABLE>
<CAPTION>
PERKIN-ELMER TRANSACTION - IMPLIED PARACHUTE
AGGREGATE VALUE AS A AGGREGATE VALUE IMPLIED PARACHUTE PER
MULTIPLE OF: BASED ON: SHARE PRICE BASED ON:
LTM LTM LTM LTM LTM LTM LTM LTM LTM
SALES EBITDA EBIT SALES EBITDA EBIT SALES EBITDA EBIT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0.7x 6.4x 8.3x $135.0 $141.5 $128.0 $16.71 $17.61 $15.72
</TABLE>
MARCH 10, 1999 17 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 20
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
PARACHUTE'S FIVE YEAR TRADING VOLUME ANALYSIS SHOWS THAT FEW SHAREHOLDERS
PURCHASED STOCK ABOVE THE CURRENT MARKET PRICE AND NONE ABOVE THE RANGE OF
CURRENT PROPOSALS
[GRAPHIC OMITTED]
Shares Traded (% of Total Volume) Share Price Intervals
6.0% .................................... $ 9.00 -- $10.50
26% .................................... $10.50 -- $12.00
58% .................................... $12.00 -- $13.50
75% .................................... $13.50 -- $15.00
81% .................................... $15.00 -- $16.50
93% .................................... $16.50 -- $18.00
99% .................................... $18.00 -- $19.50
100% .................................... $19.50 -- $21.00
<TABLE>
<CAPTION>
<S> <C>
Total Shares Traded During Period 8.0 MM
Weighted Average Stock Price $ 13.67
</TABLE>
MARCH 10, 1999 18 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 21
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
DETAILED PROPOSED TIMETABLE TO EXECUTE A DEFINITIVE AGREEMENT
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Week of: Responsibility
--------------- --------------
<S> <C> <C>
1. BUYER DUE DILIGENCE
a) Site visits and financing due diligence ................ Mar 1 to Mar 28 TBG, P
2. DOCUMENTATION AND SIGNING
a) Distribute recapitalization agreement with schedules ... Mar 1 to Mar 7 Counsel
b) Discuss contract issues with final bidders ............. Mar 8 to Mar 28 Counsel
c) Receive final bids and marked contracts ................ Mar 29 to Apr 4 TBG, P, Counsel
d) Negotiate final documentation .......................... Apr 5 to Apr 18 TBG, P, Counsel
</TABLE>
/ / After completion of final negotiations/documentation and signing of a
definitive agreement a closing could be achieved in a three to five
month time frame due to preparation of a proxy statement and SEC review
[ ] Activities to be completed
[ ] Activities completed or in process
p = Parachute Management
MARCH 10, 1999 19 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 22
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
NEXT STEPS
/ / Continue to respond to potential buyer questions and work with their
financing sources
/ / Schedule U.S. and European plant tours for potential buyers
/ / Solicit final bids and contract comments
/ / Clarify, test, and confirm bids, financing, and contract comments
/ / Select single buyer(s) for period of final negotiations
/ / Negotiate definitive agreement
/ / Target signing of definitive agreement in April
/ / After a signing, a closing could take 3 - 5 months
MARCH 10, 1999 20 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 23
APPENDIX A
<PAGE> 24
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SUMMARY DESCRIPTION OF A TYPICAL RECAPITALIZATION TRANSACTION
/ / In a recapitalization transaction, a new investor group buys newly
issued shares from Parachute for cash
/ / Coincidentally, Parachute borrows new debt financing and uses the
combined equity and debt proceeds to repurchase enough shares from the
public (all) and the insiders such that the new investor group is now
the majority owner, but the existing shareholders still retain at
least a 10% interest in the post-recapitalization Company (which
translates into less than 5% of the current Company)
/ / Since the existing shareholders still hold a significant minority
interest in Parachute, the SEC does not view the company as being
"substantially wholly owned" by the new investor group and, therefore,
does not require "push down" accounting (where, because the acquirer's
purchase price of Parachute is substantially above the net asset value,
goodwill is created)
/ / Thus, purchase accounting at the Parachute level is avoided and no
goodwill is created on Parachute's financial statements
/ / While goodwill is recognized at the financial investor level and
Parachute will likely have negative book value due to the significant
share repurchase at that level, there are no additional goodwill
amortization charges at the Parachute level, which can be a
significant advantage in reporting earnings if the exit strategy is an
IPO
MARCH 10, 1999 22 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 25
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
INVESTMENT BY FINANCIAL GROUP WILL INVOLVE:
/ / Maximizing cash flow and the right combination of debt and equity in
the financing of the transaction to maximize the value of the equity
/ / Significant Company ownership by senior management (and sometimes a
broader group of employees) to align the incentives of the new owners
and management
/ / The investor group having voting control of the Company and being
active at the board level in setting strategy and monitoring operations
/ / An exit strategy in approximately three to five years
- Subsequent recapitalization
- Sale of the Company
- Initial public offering
MARCH 10, 1999 23 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 26
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SIMPLIFIED RECAPITALIZATION OF PARACHUTE - FOR ILLUSTRATIVE PURPOSES ONLY
($ millions)
PRINCIPAL ASSUMPTIONS - FOR ILLUSTRATIVE PURPOSES ONLY@ $23/SHARE
<TABLE>
<CAPTION>
<S> <C> <C>
Fair Market Value of Parachute's Equity: $170
New Capital Structure: 36% Equity
64% Debt
% of Total
New Investors' Equity Investment: $61 90%
Dollar Value of Retained Shares: 7 10%
--- ---
$68 100%
</TABLE>
<TABLE>
<CAPTION>
PARACHUTE
At 12/31/98E
Actual Adj. Recap
------ ---- -----
<S> <C> <C> <C>
Assets (Excl. Cash) $ 152 $ 0 $ 152
Intangibles (Fees) -- 4 4
New Goodwill -- -- --
----- ----- -----
Total Assets $ 152 $ 4 $ 156
===== ===== =====
Existing Net Debt $ 16 ($ 16) --
Liabilities 58 58
New Debt -- 122 122
Equity
Existing 78 ($163) (85)
New -- 61 61
----- ----- -----
Total 78 (102) (24)
----- ----- -----
Total Liab. & SE $ 152 $ 4 $ 156
===== ===== =====
</TABLE>
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
USES
----
<S> <C>
Payment of
Fees/Expenses $4
Repayment of
Net Debt $16
Existing $163
Shareholders
Shares
Total $183
</TABLE>
<TABLE>
<CAPTION>
SOURCES
-------
<S> <C>
New Debt Financing $122
New Equity from Investor Group $61
Shares
Total $183
</TABLE>
MARCH 10, 1999 24 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 27
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
POTENTIAL RECAPITALIZATION RETURNS ANALYSIS
/ / Financial buyers will base their final purchase prices primarily on
what they can prudently finance and still generate target equity
returns of 25-30%
/ / Belief in management's cash flow projections, potential for cash flow
growth, acquisitions, and exit multiple assumptions are critical to
analyzing required returns
/ / The prudent use of leverage can increase returns at higher purchase
prices
/ / In today's financing markets, a Parachute recapitalization would likely
be financed with total senior and subordinated debt of up to 5.5x
EBITDA (pro forma for any "proven" cost savings or unusual items)
/ / Returns are shown at a $22.00 - $24.00 per share price (multiples of
8.2x-8.9x 1998E EBITDA and 6.5x-7.0x 1999E EBITDA) and exit multiples
of 7.0x - 8.5x 2003 EBITDA
NEW INVESTOR FIVE YEAR IRR
(DEBT OF 5.5X EBITDA)
EBITDA EXIT MULTIPLE IN 2003
<TABLE>
<CAPTION>
7.0x 7.5x 8.0x 8.5x
<S> <C> <C> <C> <C>
$22.00 25.4% 27.9% 30.1% 32.2%
$22.50 23.8% 26.2% 28.5% 30.5%
$23.00 22.3% 24.7% 26.9% 29.0%
$23.50 20.9% 23.3% 25.5% 27.5%
$24.00 19.6% 22.0% 24.1% 26.1%
</TABLE>
MARCH 10, 1999 25 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 28
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
SUMMARY LEVERAGED RECAPITALIZATION ANALYSIS
/ / At a price of $23.00 per share an equity investor could achieve a
five-year IRR of 24.7% in a leveraged recapitalization of Parachute.
Total debt is limited to 5.5x 1998 EBITDA
/ / The analysis assumes that current shareholders retain 10% of the fully
diluted ownership of the Company post-transaction, subject to dilution
from management options
<TABLE>
<CAPTION>
PURCHASE PRICE PER SHARE $23.00
% of
SOURCES OF FUNDS Rate Amount Total
- ---------------- ---- ------ -----
<S> <C> <C> <C>
New Equity -- $ 61.3 32.6%
Debt
Revolver -- 0.0 0.0%
Term Loan 8.5% 100.1 53.3%
Sub. Debt 18.0% 22.2 11.8%
Cash on Hand -- 4.2 2.2%
-------- ------
Total Sources $ 187.8 100.0%
-------- ------
</TABLE>
<TABLE>
<CAPTION>
% of
USES OF FUNDS Amount Total
- ------------- ------ -----
<S> <C> <C>
Purchase of Equity $163.4 87.0%
Repayment of Debt 20.6 11.0%
Fees and Expenses 3.8 2.0%
------ ------
Total Uses $187.8 100.0%
------ ------
</TABLE>
<TABLE>
<CAPTION>
NEW INVESTOR
<S> <C>
Five Year IRR 24.7%
EBITDA Multiple at Sale 7.5x
COVERAGE RATIOS
Total Debt/EBITDA 1998P 5.5x
EBITDA/Cash Interest 1998P 1.8x
Total Debt Repaid at Year 5 33.6%
</TABLE>
MARCH 10, 1999 26 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 29
APPENDIX B
<PAGE> 30
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
ANALYSIS AT VARIOUS PRICES (a)
($ millions)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRICE PER SHARE $16.13 $22.00 $23.00 $24.00 $25.00 $26.00
Premium to Market -- 36.4% 42.6% 48.8% 55.0% 61.2%
Shares Outstanding (b) 7.2 7.4 7.4 7.4 7.4 7.5
Equity Value $116.1 $162.4 $170.2 $178.1 $186.0 $193.8
Net Debt (c) 16.4 16.4 16.4 16.4 16.4 16.4
Aggregate Value $132.5 $178.8 $186.6 $194.5 $202.4 $210.2
</TABLE>
<TABLE>
<CAPTION>
Operating
Statistic (c) Multiples of Aggregate Value
------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998E Revenue $218.1 0.61 x 0.82 x 0.86 x 0.89 x 0.93 x 0.96 x
1998E EBITDA 22.2 6.0 8.0 8.4 8.7 9.1 9.5
1999E EBITDA 27.2 4.9 6.6 6.9 7.1 7.4 7.7
1999E EBIT 18.7 7.1 9.6 10.0 10.4 10.8 11.2
</TABLE>
<TABLE>
<CAPTION>
Multiples of Equity Value
-------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998E Net Income $7.1 16.4 x 22.9 x 24.0 x 25.1 x 26.2 x 27.3 x
1999E Net Income 10.8 10.7 15.0 15.7 16.4 17.1 17.9
Book Value (c) 78.4 1.48 2.07 2.17 2.27 2.37 2.47
</TABLE>
NOTES:
(a) For comparison purposes, all figures correspond to financial information
provided to buyers before receipt of formal proposals
(b) Calculated using the treasury method
(c) Source: Company estimates dated January 29, 1999. Figures are pro forma
MARCH 10, 1999 28 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 31
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
Share Price
LTM as of Equity Aggregate LTM
Company Ticker Ended 3/9/99 Value (a) Value (b) EPS
------- ------ ----- ------ --------- --------- ---
<S> <C> <C> <C> <C> <C> <C>
Beckman Coulter (f) BEC 12/31/98 $48.25 $1,472.1 $2,564.7 31.7(*)
Bio-Rad Laboratories (g) BIO.A 12/31/98 20.75 256.2 288.7 10.5
Brown & Sharpe (h) BNS 12/31/98 6.88 93.2 150.0 7.8
Mettler Toledo (i) MTD 12/31/98 25.38 1,101.2 1,464.0 21.4
Modern Controls, Inc. (j) MOCO 12/31/98 4.94 31.6 17.1 13.6
MTS Systems Corporation (k) MTSC 12/31/98 11.50 214.2 270.3 10.7
Thermoquest Corp. (l) TMQ 1/2/99 12.31 690.0 644.0 17.2
Varian Associates (m) VAR 12/31/98 36.50 1,110.8 1,131.7 20.7
Waters Corp. (n) WAT 12/31/98 101.88 3,760.5 3,986.6 36.6(*)
</TABLE>
<TABLE>
<CAPTION>
Price Equity Value Aggregate Value
As a Multiple of: As a Multiple of: As a Multiple of:
1999E CY 2000E CY Tangible LTM LTM LTM
Company EPS (c) EPS (c) Book Value (d) Sales EBITDA EBIT
------- ------- ------- -------------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Beckman Coulter (f) 13.7 x 11.9 x NM 1.5 x 8.9 x 19.1 x
Bio-Rad Laboratories (g) 9.9 9.7 1.2 0.7 5.6 9.3
Brown & Sharpe (h) 7.3 6.3 0.8 0.4 6.7 13.1
Mettler Toledo (i) 19.4 NA NM 1.6 11.6 15.7
Modern Controls, Inc. (j) 7.6 x NA 2.1 1.1 5.1 5.6
MTS Systems Corporation (k) 9.9 8.0 1.5 0.8 6.4 8.2
Thermoquest Corp. (l) 14.8 NA 4.6 1.5 7.6 9.3
Varian Associates (m) 18.4 12.2 2.0 0.8 8.8 13.2
Waters Corp. (n) 30.7 25.8(*) 75.4(*) 6.4(*) 24.4(*) 29.2(*)
</TABLE>
<TABLE>
<CAPTION>
Tangible Net
Company Cap. Emp. (e)
------- -------------
<S> <C>
Beckman Coulter (f) 5.8 x
Bio-Rad Laboratories (g) 1.2
Brown & Sharpe (h) 0.8
Mettler Toledo (i) 6.8
Modern Controls, Inc. (j) 26.7
MTS Systems Corporation (k) 1.3
Thermoquest Corp. (l) 6.1
Varian Associates (m) 2.0
Waters Corp. (n) 19.8(*)
</TABLE>
<TABLE>
<CAPTION>
Statistics
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mean: 14.5x 12.6x 9.6x 2.0x 1.0x 7.6x 11.7x 6.3x
Median: 17.2 14.3 9.7 1.7 1.1 7.2 13.1 5.8
High: 36.6 30.7 25.8 4.6 6.4 24.4 29.2 26.7
Low: 10.5 7.3 6.3 0.8 0.4 5.1 5.6 0.8
</TABLE>
<TABLE>
<CAPTION>
MEMO:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Parachute(o) 12/31/98 $16.13 $116.1 $136.6 12.9x 10.5x 9.5x 1.5x 0.7x 6.1x 8.9x 1.4x
Current
Parachute
Proposal 12/31/98 $23.00 $170.2 $190.7 18.4x 14.9x 13.6x 2.1x 1.0x 8.6x 12.4x 2.0x
</TABLE>
NOTES:
All figures exclude extraordinary gains/charges
(*) Excluded from calculation of mean
(a) Equity Value = Number of Shares Outstanding (calculated using the treasury
method and including assumed conversion of convertible preferred stock) x
Price per Share
(b) Aggregate Value = Equity Value plus Debt, Preferred Stock, and Minority
Interest, less Cash
(c) Source: IBES estimates - calendarized to reflect a December year end
(d) Tangible Book Value = Book Value minus Intangibles
(e) Tangible Net Capital Employed = Tangible Book Value plus Net Debt
(f) Figures taken from Piper Jaffray research report dated March 1999 and press
release dated January 25, 1999
(g) All figures (except balance sheet items) taken from press release dated
February 4, 1999.
(h) All figures except for revenue and net income are for the LTM period ended
9/30/98. Revenue and net income taken from press release dated February 8,
1999
(i) All figures (except balance sheet items) taken from Goldman Sachs research
report dated February 5, 1999 and a press release dated February 4, 1999
(j) All figures taken from press release dated February 18, 1999
(k) Figures do not include $2.1 million restructuring charge
(l) All figures (except balance sheet items) taken from press release dated
February 22, 1999
(m) Company is planning to reorganize into three separate publicly traded
companies and this plan will be implemented in early April 1999
(n) All figures taken from press release dated January 25, 1999
(o) All figures (except balance sheet items) taken from press release dated
February 18, 1999. Excludes special items charge of $5.0 million and gain
on sale of land of $11.1 million. Assumes 8% interest rate on debt and 5%
interest rate for cash.
MARCH 10, 1999 29 THE BEACON GROUP CAPITAL SERVICES, LLC
<PAGE> 32
APPENDIX C
<PAGE> 33
GTCR
PARTNERS WITH MANAGEMENT IN PRIVATE EQUITY
February 22, 1999
R.A. McDonough
The Beacon Group Capital Services, LLC
390 Park Avenue
New York, NY 10022
Dear R.A.:
GTCR Golder Rauner, LLC ("GTCR") is pleased and excited to submit a proposal
regarding our strong interest in partnering with management to facilitate a
leveraged recapitalization of Instron Corporation ("Instron") in a "going
private" transaction. After our extensive discussions with Jim McConnell and his
team and a few weeks of intensive due diligence, we believe that GTCR would
make an excellent partner to help Instron build its core business through
internal growth and acquisition. Given the management team's proven track record
in closing and assimilating acquisitions and our history of growing leading
companies through this process, we are particularly excited about the prospects
of working with its seasoned management team.
In assessing a valuation for Instron, we are relying primarily on the
information provided to us in the offering memorandum and data room, as well as
other publicly available data. Based on the information provided, we are
prepared to structure a transaction which places an enterprise value of the
Company at approximately $183 million. Assuming approximately $21 million of
long-term debt (which would be retired at close), $11 million of option proceeds
and a minimum cash balance for working capital, the per share value placed on
the equity is $22.50. We are using 7.868 million fully-diluted shares
outstanding to arrive at this calculation.
In addition to the time we have already spent, we are willing to spend
significant additional time with the company to understand its 1999 operating
budget including maintenance and growth capital expenditure items, cost savings
and acquisition strategy. If after this additional due diligence we believe that
the EBITDA projection is achievable with no more than usual business risk, then
we may have flexibility to be slightly more aggressive on our per share offer.
In addition, we are in the process of comparing and contrasting four bank
proposals and are working towards closure on what we believe to be an aggressive
but flexible capital structure.
As we have discussed with the management team from the outset, the above
recapitalization assumes a continuing minority ownership interest for Instron's
management team. We are assuming in our offer above that between 5-10% of value
is "rolled over" into the new entity by the management team and insiders, and
additionally a portion of equity ownership would be granted to the ongoing team
on a nominal basis as a carried interest in the new entity. We are in
discussions with our attorneys at Kirkland & Ellis to determine the optimal
"safe harbor" for
6100 Sears Tower - Chicago, Illinois 60606-6402 - Phone 312.382.2200
Fax 312.382.2201 - www.gtcr.com
<PAGE> 34
equity rollover in a leveraged recapitalization as contemplated above. Our
belief thus far is that a 5-10% ongoing ownership based on "rollover" equity
value would allow for favorable tax and accounting treatment.
GTCR would structure a transaction by investing between $60-70 million in equity
from our committed funds. The equity capital would come from GTCR Fund VI L.P.,
a $870 million fund capitalized in May, 1998. Debt financing would be arranged
for the remainder of the purchase price in the form of senior subordinated notes
and a senior secured revolving credit facility. The financing proposals we are
reviewing contemplate a good deal of flexibility in the revolver to continue an
aggressive acquisition program. The premiere lending and securities institutions
from whom we have received proposals believe that such debt financing is readily
available in today's capital markets.
This proposal is preliminary and subject to completion of due diligence and
secured financing before we can make it definitive. We would expect to conduct
additional on-site reviews including senior management discussions and detailed
information reviews related to the Company's historical financial and
operating results, competitors, market dynamics, customers and backlog,
organizational structure, technology infrastructure, as well as a detailed
review of legal, environmental and tax issues. We covered a good deal after one
day in the data room but have additional in-depth diligence we would need to
complete. GTCR would be assisted in this analysis by Ernst & Young, LLC,
Kirkland & Ellis and the lending institution we select to assist in the
financing. We would expect to work with the company exclusively for 45 days to
complete our due diligence and agree on definitive terms, and would expect to
close 30 to 45 days after such agreement. With respect to legal due diligence,
our counsel would expect to review any leveraged recapitalization documentation
that the Company's counsel prepares. We are currently reviewing the tender offer
documentation and will have comments from Kirkland & Ellis by the end of the
week.
If you have any questions on our proposal, please do not hesitate to call.
Otherwise, we look forward to hearing from you, the Instron team and board in
the next week or so. We are eager to elevate our level of discussion and work
towards an expeditious close.
I can be reached at (312) 382-2218.
Sincerely,
/s/ Timothy P. McAdam
- ---------------------
Timothy P. McAdam
cc: Bruce V. Rauner, GTCR Golder Rauner, LLC
David A. Donnini, GTCR Golder Rauner, LLC
Mario A. Abularach, GTCR Golder Rauner, LLC
Stephen Ritchie, Kirkland & Ellis
GTCR GOLDER RAUNER, LLC - 6100 Sears Tower - Chicago, Illinois 60606-6402
Phone 312.382.2200 - Fax 312.382.2201 - www.gtcr.com
<PAGE> 35
KCP
Kirtland Capital Partners
February 19, 1999
VIA FACSIMILE (212) 339-0190
Mr. John A. Herrmann, Jr.
Managing Director
The Beacon Group
399 Park Avenue
New York, NY 10022
Dear John:
This letter is in response to your request for an acquisition proposal
for Instron Corporation ("Instron"). Kirtland Capital Partners ("KCP") continues
to have a strong interest in pursuing an acquisition of Instron.
Based on a review of the information that we have received, our current
estimated cash purchase price per share (including shares issued through the
exercise of options) is $22.00. Since we have not completed our review, the
final price may be adjusted to reflect the results of these activities. It is
our current intention to structure the transaction as a recapitalization of
Instron, whereby substantially all of the outstanding shares would receive cash
at closing and certain existing stockholders of Instron would retain an
ownership in the ongoing company.
The continued participation and involvement of the existing senior
managers of Instron is critical to our interest in Instron. KCP's investment
philosophy is based on investing with and supporting the senior management of a
company. We do not possess the operating expertise or have the desire to make
day-to-day operating decisions on behalf of the companies in which we invest.
Therefore, it is important that the senior management team remain after the
completion of a transaction.
KCP, together with PricewaterhouseCoopers, BT Alex Brown and Jones, Day,
have devoted an extensive amount of time understanding Instron's business and
its prospects for the future. We would need to complete our due diligence
evaluation of Instron, which would include visits to the company's significant
manufacturing operations, developing additional support for certain historical
and projected financial data and most importantly, spending time with the senior
management of Instron.
Together with BT Alex Brown, we have reviewed a number of funding
alternatives, including the use of senior debt in combination with subordinated
debt or high yield debt. Based on our discussions with BT Alex Brown, we believe
the acquisition can be financed and are highly confident in our ability to
complete the required financing in connection with the acquisition.
2550 SOM Center Road - Suite 105 - Willoughby Hills, Ohio 44094 - Phone
440-585-9010 - Fax 440-585-9699
<PAGE> 36
Mr. John A. Herrmann, Jr.
February 19, 1999
Page 2
KCP would provide the equity for the transaction from its $208,000,000
fund and from side-by-side investments by certain of our institutional
investors. It would be our intent to capitalize the company with sufficient
equity to enable it to grow through acquisitions and internal expansion.
Our legal counsel, Jones, Day, Reavis & Pogue, has reviewed the proposed
form of Merger Agreement and has provided their comments as outlined in
Attachment A to this letter. We are confident that we can expeditiously arrive
at a mutually acceptable definitive agreement.
Any transaction would be conditioned upon the execution of a mutually
acceptable definitive agreement, the completion of our due diligence review of
Instron with results satisfactory to KCP, the approval of KCP's Advisory Board,
the receipt of required regulatory consents, the receipt of debt financing to
complete the transaction on terms acceptable to KCP, and satisfactory
arrangements with the existing management of Instron.
We are very interested in having the senior management of Instron
participate as equity owners in Instron through the rollover of all or a portion
of their existing shares or options, the purchases of additional equity, and
incentive equity based on the performance of Instron. Kirtland has a very
successful history of investing side-by-side with management. At your request,
we will provide you with a list of the presidents of our current and former
portfolio companies. We encourage the management of Instron to contact these
individuals.
This letter is not nor should it be construed as a binding legal offer.
Notwithstanding, it represents our strong interest in gathering additional
information to reach an agreement to purchase Instron.
We are prepared to move forward in a timely fashion once the terms of
the transaction have been agreed upon. It would be our intent to undertake the
transaction in a manner that is conducive to the ongoing profitable operation of
Instron with minimal disruption to its employees and business relationships.
Please feel free to contact me or Tom Littman at (440) 585-9010 with any
questions you may have.
Sincerely,
/s/ Raymond A. Lancaster
------------------------
Raymond A. Lancaster
Managing Partner
RAL/kk
Attachment
<PAGE> 37
[Jones, Day, Reavis & Pogue Letterhead]
February 18, 1999
VIA FACSIMILE
Raymond A. Lancaster
Thomas N. Littman
Kirtland Capital Partners
2550 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094
Re: Instron Corporation
Gentlemen:
I have reviewed the form of merger agreement (the "Agreement")
relating to Instron Corporation (the "Company"). As an initial matter, I would
like to mention that the draft Agreement provided to us is a market-oriented,
mainstream agreement that is certainly workable from the standpoint of
initiating discussions with the Company. In addition, I have prepared this
letter on the assumption that the transaction proceeds utilizing a straight "any
and all" tender offer structure. If any existing stockholder wishes to
"rollover" some equity, proper provision must be made in the Agreement to
reflect the terms of the "rollover." Based on my review of the Agreement, I have
the following general comments:
1. Offer Conditions.
- - The MAE qualifiers in paragraphs (a), (b) and (c) should be eliminated.
Paragraph (a) is already subject to a materiality limitation; the MAE is
therefore redundant. The MAE in paragraph (b) is unnecessary in that all
or most of the representations and warranties are already subject to a MAE
threshold. The MAE in paragraph (c) is unusual.
- - Paragraph (a) should be expanded to cover the absence of statutes,
regulations or rules that cause the effects identified in clauses (i), (ii)
or (iii).
- - A new clause (iv) should be added to paragraph (a) to cover the absence of
any orders, etc. imposing limitations on the ability of Acquisition Sub, or
rendering Acquisition Sub unable to accept for payment, the Shares or
imposing any material limitations on the ability of Parent or any Parent
Subsidiaries effectively to control the business and operations of the
Company and the Company Subsidiaries.
<PAGE> 38
Raymond A. Lancaster
Thomas N. Littman
February 18, 1999
Page 2
- - Qualifiers (i), (ii) and (iii) in paragraph (d) should be deleted.
- - The following conditions should be added:
- The absence of any orders, statutes, regulations or rules of any
governmental entity restraining or prohibiting the consummation of the
merger.
- The absence of any action or proceeding commenced or threatened by a
governmental entity seeking any order, etc, having any of the effects
listed in (i), (ii), (iii) or (iv) of paragraph (a).
- The absence off any general suspension of, or limitation on prices
for, trading in securities on any national securities exchange or
over-the-counter market; a declaration of a banking moratorium; a
commencement of a war; any limitation by the U.S. government on the
extension of credit generally by financial institutions; a change in
general financial, bank or capital market conditions which materially
affects the ability of financial institutions to extend
credit; or a substantial decline in either the Dow Jones Industrial
Average or the Standard & Poor's 500 Index.
- The absence of any person or "group," other than Parent or Parent
Subsidiaries, having acquired beneficial ownership of more than 15% of
the Shares of the Company.
- - We should discuss with the Company how your financing situation will impact
the Agreement generally.
2. The Offer.
- Acquisition Sub should be permitted to extend the initial Expiration
Date of the Offer (i) as required by law and (ii) for up to 20
business days after such initial Expiration Date in its sole
discretion.
3. Cash-out of Options.
- Section 1.4 is unusual in that it provides for the cash-out of options
on the Acceptance Date. In my experience, the cash-out of options
normally occurs at the effective time of the merger.
<PAGE> 39
Raymond A. Lancaster
Thomas N. Littman
February 18, 1999
Page 3
4. Representations and Warranties.
- In general, the representations and warranties will require some
amount of "fine-tuning" although I do not see this as an obstacle to
reaching an agreement. In particular, we have not, as yet, endeavored
to "expertize" the tax, environmental or employee benefit sections.
- The knowledge qualifiers in the following representations should be
eliminated: environmental, properties, intellectual property and Year
2000.
- Certain additional representations and warranties should be added to
the merger agreement, including:
- a representation as to the absence of a "rights agreement," poison
pill or similar obligation;
- a representation as to the absence of any applicable anti-takeover
provision in the Company's Articles of Incorporation or By-Laws;
- a representation containing a list of material contracts and stating
that there are no defaults under any material contract; and
- a representation as to the voting requirements for the approval of
the merger agreement.
- - The knowledge definition should be expanded to require some form of
reasonable inquiry by the knowledge persons.
- - The MAE definition should be expanded to cover assets, properties,
condition (other than financial), liabilities and prospects.
5. Conduct of Business.
- - Section 6. l(b) should be tightened by specifically prohibiting the
issuance of any further options.
- - The materiality qualifier in Section 6.1(c) should be eliminated and the
obligations identified therein should be scheduled.
- - With respect to Section 6. l(d), you should consider a cap on the amount of
indebtedness that the Company can incur during the executory period.
- - The transaction payments identified on Section 6.l(e) should be scheduled.
<PAGE> 40
Raymond A. Lancaster
Thomas N. Littman
February 18, 1999
Page 4
- The lead-in exception to Section 6.1(g)(iii) should be eliminated.
- The $250,000 threshold identified in Section 6.l(j) seems high.
6. No Shop Provision.
- Section 7.4 should be revised in the following respects:
- All existing discussions or negotiations with other bidders should
cease immediately.
- The Company should not be permitted to talk to, share information
with or enter into an acquisition agreement with any other person
unless such person (i) enters into a customary confidentiality
agreement with the Company and (ii) makes a "superior proposal." For
this purpose, a "superior proposal" would be defined generally as a
written proposal from a financially responsible person which (i) is
fully financed and (ii) the Board determines (after consultation with
its financial adviser) to be economically superior to your proposal.
- The "reasonably likely" standard should be changed to a "would
likely" standard.
- This section should include various procedural protections
whereby (i) you would receive notice of any other inquiries or bids
and (ii) you would be afforded the opportunity to increase your offer
in the event that another bid is received.
7. D&O Indemnity.
- The indemnification provisions contained in Section 7.5(a) should be
tightened in certain technical respects.
- The "maximum amount" in Section 7.5(b) should be 150% of the current
cost of the Company's D&O insurance.
- I would eliminate the provision allowing Indemnified Parties to retain
their own counsel.
8. Employee Benefit Arrangements.
- The employment and severance agreements identified in Section 7.9(a)
should be scheduled.
- This Section should not survive the closing contrary to Section 10.3
and should not create third party beneficiary rights contrary to
Section 10.4.
<PAGE> 41
Raymond A. Lancaster
Thomas N. Littman
February l8, 1999
Page 5
9. Termination.
- The proviso contained in Section 9.l(b)(iii) should be eliminated.
- Section 9.1 (c)(ii) should be revised to reference a superior
proposal rather than an acquisition proposal.
- Section 9.1 (d) should be expanded to allow Parent to terminate if the
Company enters into a competing transaction or the Company Board
recommends such competing proposal or withdraws its recommendation of
your proposal.
10. Break-up Fee.
- The Agreement contemplates a break-up fee of 2%. The market norm seems
to be 3% plus an expense reimbursement provision.
- The break-up fee should be payable in the following circumstances: (i)
the Offer is withdrawn or terminated or has expired without
Acquisition Sub having purchased any Shares because of a material
breach by the Company, (ii) the Company's Board shall have withdrawn,
modified or amended in a manner materially adverse to Parent or
Acquisition Sub, its approval or recommendation of the Offer, the
Merger or the Agreement or shall have caused or authorized the Company
to enter into a competing transaction or (iii) an Acquisition Proposal
in respect of the Company shall have been made and the Agreement is
thereafter terminated due to a failure of the minimum condition and,
within 12 months thereafter, the Company enters into or consummates a
competing transaction.
I trust the foregoing is useful to you. Please call me if you
have any questions regarding the content of this letter.
Very truly yours,
/s/ Charles W. Hardin, Jr.
--------------------------
Charles W. Hardin, Jr.
<PAGE> 1
Exhibit (B)(5)
HIGHLY CONFIDENTIAL
THE BEACON GROUP CAPITAL SERVICES, LLC
- --------------------------------------------------------------------------------
PROJECT PARACHUTE -
PRESENTATION TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
April 7, 1999
<PAGE> 2
PROJECT PARACHUTE HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
A. Review Of Current Proposals 1
B. Review Of Proposed Financing 7
C. Appendices
I. Analysis At Various Prices 16
II. Timetable - Overview Of Process To Date 17
III. Summary Of Contact Activity 18
IV. Summary Of Original Indications Of Interest Received 21
V. Summary Of Formal Proposals 24
VI. Comparable M&A Transaction Analysis 26
VII.Comparable Public Company Analysis 27
VIII.Background On Leveraged Recapitalizations 28
</TABLE>
APRIL 7, 1999 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 3
REVIEW OF CURRENT PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
REVIEW OF PRINCIPAL TERMS OF CURRENT PROPOSALS
($ in Millions, except per share data)
<TABLE>
<CAPTION>
POTENTIAL INVESTOR: KIRTLAND CAPITAL PARTNERS GTCR, GOLDER RAUNER
- ------------------- ------------------------- -------------------
<S> <C> <C>
Offer Price Per Share: $ 20.50 $ 20.00
SUMMARY OFFER TERMS:
- --------------------
Form Of Transaction: Leveraged Recapitalization Leveraged Recapitalization
Rollover Equity: $4 million (0.195 million shares or 2.8% $5 million (0.250 million shares or 3.6%
of current shares outstanding) (a) of current shares outstanding)
New Equity Investment: $54 million (a) by Kirtland and side-by- $37.4 million by GTCR
side institutional investors; $4 million
incremental management investment
Financing Arrangements: - National City, Bankers Trust or - First Union to provide $50 million
BancAmerica to provide $30 million revolver ($13 million at closing)
revolver ($5 million at closing) - First Union to sell $100 million of
- CSFB or DLJ to sell $100 million of senior subordinated notes
senior notes - First Union to provide $15 million of
senior preferred (PIK) equity
Significant Conditions: - Subject to completion of financing - Subject to completion of financing
arrangements arrangements
- CSFB/DLJ to complete due diligence - First Union to complete due diligence
in 1-2 weeks by April 9 (?)
- Satisfactory arrangements with - Satisfactory arrangements with
management (2-3 days) management (5-7 business days)
- Review of first quarter results (due - Review of first quarter results (due
April 19?) April 19?)
- No 280G tax obligations (would reduce - Completion of due diligence
price) (environmental by April 9 and
- Net debt less than $11.5 million legal/accounting by April 14)
- Adjusted pro forma LTM EBITDA not
less than $24.4 million
</TABLE>
Note:
(a) Based on discussion with Kirtland. Assumes incremental management
investment of $4 million in excess of management's portion of rollover (if
any). Range of incremental investment could be $2 to $6 million
APRIL 7, 1999 1 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 4
REVIEW OF CURRENT PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
REVIEW OF CERTAIN KEY FINANCIAL TERMS OF CURRENT PROPOSALS (a)
($ in Millions, except per share data)
<TABLE>
<CAPTION>
POTENTIAL INVESTOR: KIRTLAND CAPITAL PARTNERS GTCR, GOLDER RAUNER
- ------------------- ------------------------- -------------------
<S> <C> <C>
Offer Price Per Share: $ 20.50 $ 20.00
Total Equity Value: $ 149 $ 145
Enterprise Value: $ 161 $ 158
ENTERPRISE VALUE AS A MULTIPLE OF:
- ----------------------------------
Latest Twelve Months ("LTM") EBITDA: (b) 7.5x 7.3x
LTM EBIT: (b) 12.4x 12.1x
EQUITY VALUE AS A MULTIPLE OF:
- ------------------------------
LTM Net Income: (b) 20.5x 20.0x
OFFER PREMIUM (DISCOUNT) TO SHARE
CLOSING PRICES AT VARIOUS DATES:
--------------------------------
04/5/99 - Offer Date ($16.00): 28.1% 25.0%
03/29/99 - One Week Prior To Offer ($16.38): 25.2% 22.1%
03/5/99 - One Month Prior ($16.75): 22.4% 19.4%
01/5/99 - Three Months Prior ($17.00): 20.6% 17.6%
04/5/99 - Three Months Average ($16.94): 21.0% 18.1%
04/5/98 - One Year Prior ($19.19): 6.8% 4.2%
05/5/98 - 52 Week High ($20.63): (0.6%) (3.0%)
09/9/98 - 52 Week Low ($11.50): 78.3% 73.9%
</TABLE>
NOTE:
(a) Figures are based on $12.4 million of net debt at year end 1998 and the
treasury method adjustment to shares outstanding
(b) LTM ending 12/98 pro forma to include the effects of Satec and IST for the
full year
APRIL 7, 1999 2 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 5
REVIEW OF CURRENT PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
WHILE FINAL PHASE DUE DILIGENCE GENERALLY PROCEEDED WELL, SOME ISSUES SURFACED
[ ] The European site visits were very positive in establishing the
Company's global stature
[ ] Management was successful in delineating a number of realized and ongoing
cost savings
---------------------------------
POTENTIAL BUYERS' STATED CONCERNS
---------------------------------
[ ] Financing sources not giving "full credit" for cost savings in calculating
pro forma EBITDA
[ ] Amount of financing available not at levels previously estimated
[ ] Severance and other transaction expenses higher than originally estimated
[ ] Underestimated capital spending and working capital needs, including $10 -
$12 million of outstanding letters of credit
[ ] Actual first quarter results versus estimates
APRIL 7, 1999 3 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 6
REVIEW OF CURRENT PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
AT THIS STAGE OF THE PROCESS, THERE APPEAR TO BE FIVE ALTERNATIVES
1. Reject both proposals and discontinue the process
2. Accept one of the proposals as is
3. Negotiate with one party to improve its proposal
4. Negotiate with both parties to finalize their proposals and satisfy
outstanding conditions
5. Negotiate with both parties and, at the same time, reopen discussions with
certain strategic buyers who withdrew earlier primarily because of timing
issues
APRIL 7, 1999 4 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 7
REVIEW OF CURRENT PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
SELECTED STRATEGIC BUYERS TO BE CONTACTED AS PART OF ALTERNATIVE FIVE
[ ] AGIV (Carl Schenck)
[ ] EG&G Inc.
[ ] MTS Systems Corp.
[ ] Thermo Instrument Systems Inc.
[ ] Siebe plc
APRIL 7, 1999 5 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 8
REVIEW OF CURRENT PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PROPOSED TIMETABLE FOR CONTINUING THE PROCESS
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Week of: Responsibility
-------- --------------
1. BUYER DUE DILIGENCE
<S> <C> <C>
a) Completion of buyer and financing due diligence ... Apr 5 to Apr 18 TBG, P
b) Review of first quarter results ................... Apr 19 to Apr 25 P
2. DOCUMENTATION AND SIGNING
a) Negotiate management arrangements ................. Apr 12 to Apr 18 P
b) Finalize contract issues/commitment letters ....... Apr 5 to May 2 Counsel, TBG
c) Receive final offers/Board review ................. Apr 26 to May 9 TBG, P, Counsel
d) Sign final documentation .......................... May 3 to May 9 TBG, P, Counsel
</TABLE>
[CHART]
[ ] After completion of final negotiations/documentation and signing of a
definitive agreement a closing could be achieved in a three to five month
time frame due to preparation of a proxy statement and SEC review
- --------------------------------------------------------------------------------
[ ] Activities to be completed [ ]Activities completed or in process
[ ] P = Parachute Management
- --------------------------------------------------------------------------------
APRIL 7, 1999 6 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 9
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
GTCR: SOURCES AND USES OF FUNDS
($ in Millions)
TRANSACTION SOURCES AND USES
<TABLE>
<S> <C>
- ----------------------------------------------------------------
SOURCES OF FUNDS
- ----------------------------------------------------------------
Revolving Credit Facility 13.0
Senior Subordinated Notes 100.0
Senior Preferred Equity 15.0
Equity 37.4
- ----------------------------------------------------------------
TOTAL SOURCES $165.4
- ----------------------------------------------------------------
USES OF FUNDS
- ----------------------------------------------------------------
Repurchase Of Equity $139.4
Repayment Of Net Debt (a) 12.4
Transaction Fees (a) 13.6
- ----------------------------------------------------------------
TOTAL USES $165.4
- ----------------------------------------------------------------
</TABLE>
NOTE:
(a) Adjusted to reflect actual 12/31/98 net debt
APRIL 7, 1999 7 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 10
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
GTCR: PRO FORMA CAPITALIZATION ($ IN MILLIONS)
PRO FORMA CAPITALIZATION
<TABLE>
<S> <C>
Revolving Credit Facility $ 13.0
Senior Subordinated Notes 100.0
------
TOTAL DEBT 113.0
Senior Preferred Equity 15.0
Equity 37.4
Rollover Equity 5.0
------
TOTAL EQUITY 57.4
------
TOTAL CAPITALIZATION $170.4
======
TOTAL DEBT/CAPITAL 66.3%
</TABLE>
<TABLE>
<CAPTION>
% SHARES OUTSTANDING TO CONTINUITY(a)
- -----------------------------------------------------------------------------------------------------------------
PRE TRANSACTION POST TRANSACTION
-------------------------------- ---------------------------------
SHARE OWNER PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased Equity 96.41% 87.51% 0.00% 0.00%
New Equity Investors 0.00% 0.00% 88.20% 83.79%
Management Investment 0.00% 0.00% 0.00% 0.00%
Management Options 0.00% 9.24% 0.00% 0.00%
New Option Plan 0.00% 0.00% 0.00% 5.00%(b)
Continuity Interest 3.59% 3.26% 11.80% 11.21%
- -----------------------------------------------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00%
</TABLE>
NOTE:
(a) Does not reflect senior preferred equity
(b) Beacon estimate
APRIL 7, 1999 8 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 11
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
GTCR: OVERVIEW OF PROPOSED FINANCING AND CREDIT STATISTICS
($ in Millions)
<TABLE>
<CAPTION>
PROPOSED FINANCING TERMS
- --------------------------------------------------------------------------------
REVOLVING CREDIT SENIOR SUB.
FACILITY NOTES
---------------- ------------
<S> <C> <C>
COMMITTED AMOUNT: $ 50.0 $ 100.0
DRAWN AMOUNT: $ 13.0 $ 100.0
TERM (YRS.): 5 10
INTEREST CONVENTION: Floating Fixed
BASE RATE:
3 MO. LIBOR: (a) 5.00% N/A
10 YR. UST: (b) N/A 5.20%
ASSUMED SPREAD: 2.50% 6.80%
---------------- --------------
INTEREST RATE: 7.50% 12.00%
AMORTIZATION: Excess Cash Flow None
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CREDIT STATISTICS
- --------------------------------------------------------------------------------------------------------------
MANAGEMENT PROJECTIONS 1999E 2000E 2001E 2002E 2003E
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA $ 27.7 $ 30.7 $ 33.4 $ 36.8 $ 38.0
Year-End Total Net Debt (c) 112.0 101.8 95.0 84.0 74.4
TOTAL NET DEBT / EBITDA 4.0 x 3.3 x 2.8 x 2.3 x 2.0 x
Net Interest Expense (c) $ 12.9 $ 12.2 $ 11.2 $ 10.2 $ 8.9
EBITDA / TOTAL NET INTEREST 2.1 x 2.5 x 3.0 x 3.6 x 4.3 x
</TABLE>
NOTE:
(a) Assumed yield of 3 month U.S. denominated London Interbank Offered Rate
(b) Assumed yield of U.S. 10-year Treasury Notes
(c) Excludes senior preferred equity which is payable in kind
APRIL 7, 1999 9 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 12
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
GTCR: RETURN SENSITIVITIES BASED ON PROPOSED CAPITAL STRUCTURE - FOR
ILLUSTRATIVE PURPOSES ONLY
($ in Millions)
MANAGEMENT PROJECTIONS
<TABLE>
<CAPTION>
---------------------------------------------------------------------
NEW INVESTOR FIVE YEAR IRR (a)
---------------------------------------------------------------------
PURCHASE PRICE
---------------------------------------------------------------------
$ 20.00 $ 20.50 $ 21.00 $ 21.50 $ 22.00
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2003 6.5x 23.3% 21.2% 19.2% 17.5% 15.9%
EBITDA 7.0x 26.8% 24.6% 22.6% 20.8% 19.2%
EXIT 7.5x 29.9% 27.7% 25.7% 23.8% 22.1%
MULTIPLE 8.0x 32.8% 30.5% 28.4% 26.5% 24.8%
</TABLE>
Note:
(a) Assumes senior preferred equity achieves a blended 25% return
APRIL 7, 1999 10 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 13
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
KIRTLAND: SOURCES AND USES OF FUNDS
($ in Millions)
TRANSACTION SOURCES AND USES
<TABLE>
<CAPTION>
- ------------------------------------------------
<S> <C>
SOURCES OF FUNDS
Revolving Credit Facility $ 5.0
Senior Notes 100.0
Equity 54.0
- ------------------------------------------------
TOTAL SOURCES $159.0
- ------------------------------------------------
USES OF FUNDS
- ------------------------------------------------
Repurchase Of Equity $140.2
Repayment Of Net Debt 12.4
Transaction Fees 6.4
- ------------------------------------------------
TOTAL USES $159.0
- ------------------------------------------------
</TABLE>
APRIL 7, 1999 11 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 14
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
KIRTLAND: PRO-FORMA CAPITALIZATION
($ in Millions)
<TABLE>
<CAPTION>
PRO FORMA CAPITALIZATION
-----------------------------------------------
<S> <C>
Revolving Credit Facility $ 5.0
Senior Notes 100.0
------
TOTAL DEBT 105.0
Equity (a) 54.0
Management Investment (a) 4.0
Rollover Equity (a) 4.0
------
TOTAL EQUITY 62.0
------
TOTAL CAPITALIZATION $167.0
======
TOTAL DEBT/CAPITAL 62.9%
</TABLE>
<TABLE>
<CAPTION>
% SHARES OUTSTANDING TO CONTINUITY
- ------------------------------------------------------------------------------------------------------
PRE TRANSACTION POST TRANSACTION
---------------------------- -------------------------------
SHARE OWNER PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased Equity 97.20% 88.22% 0.00% 0.00%
New Equity Investors 0.00% 0.00% 87.10% 82.75%
Management Investment 0.00% 0.00% 6.45% 6.13%
Management Options 0.00% 9.24% 0.00% 0.00%
New Option Plan 0.00% 0.00% 0.00% 5.00%(b)
Continuity Interest 2.80% 2.55% 6.45% 6.13%
- ------------------------------------------------------------------------------------------------------
TOTAL 100.00% 100.00% 100.00% 100.00%
</TABLE>
NOTE:
(a) Based on discussion with Kirtland. Assumes incremental management
investment of $4 million in excess of management's portion of rollover (if
any). Range of incremental investment could be $2 to $6 million
(b) Beacon estimate
APRIL 7, 1999 12 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 15
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
KIRTLAND: OVERVIEW OF PROPOSED FINANCING AND CREDIT STATISTICS
($ in Millions)
<TABLE>
<CAPTION>
PROPOSED FINANCING TERMS
- ----------------------------------------------------------------------
REVOLVING CREDIT SENIOR
FACILITY NOTES
-------- -----
<S> <C> <C>
COMMITTED AMOUNT: $ 30.0 $ 100.0
DRAWN AMOUNT: $ 5.0 $ 100.0
TERM (YRS.): 5 10
INTEREST CONVENTION: Floating Fixed
BASE RATE:
3 MO. LIBOR: (a) 5.00% N/A
10 YR. UST: (b) N/A 5.20%
ASSUMED SPREAD: 2.5% - 2.75% 6.80%
---------------- ----
INTEREST RATE: 7.50% - 7.75% 12.00%
AMORTIZATION: Excess Cash Flow None
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CREDIT STATISTICS
- ------------------------------------------------------------------------------------------------------------------
MANAGEMENT PROJECTIONS 1999E 2000E 2001E 2002E 2003E
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EBITDA $ 27.7 $ 30.7 $ 33.4 $ 36.8 $ 38.2
Year-End Total Net Debt 103.6 92.9 85.6 74.1 64.6
TOTAL NET DEBT / EBITDA 3.7 x 3.0 x 2.6 x 2.0 x 1.7 x
Net Interest Expense $ 12.3 $ 11.6 $ 10.5 $ 9.4 $ 8.1
EBITDA / TOTAL NET INTEREST 2.3 x 2.7 x 3.2 x 3.9 x 4.7 x
</TABLE>
NOTE:
(a) Assumed yield of 3 month U.S. denominated London Interbank Offered Rate
(b) Assumed yield of U.S. 10-year Treasury Notes
APRIL 7, 1999 13 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 16
REVIEW OF PROPOSED FINANCING HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
KIRTLAND: RETURN SENSITIVITIES BASED ON PROPOSED CAPITAL STRUCTURE -
FOR ILLUSTRATIVE PURPOSES ONLY
($ in Millions)
MANAGEMENT PROJECTIONS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
NEW INVESTOR FIVE YEAR IRR
--------------------------------------------------------------------------
PURCHASE PRICE
--------------------------------------------------------------------------
$ 20.50 $ 21.00 $ 21.50 $ 22.00 $ 22.50
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2003 6.5x 23.0% 21.6% 20.2% 18.9% 17.7%
EBITDA 7.0x 25.5% 24.0% 22.6% 21.3% 20.1%
Exit 7.5x 27.8% 26.2% 24.8% 23.5% 22.2%
Multiple 8.0x 29.9% 28.3% 26.9% 25.5% 24.3%
</TABLE>
APRIL 7, 1999 14 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 17
APPENDICES
- --------------------------------------------------------------------------------
<PAGE> 18
ANALYSIS AT VARIOUS PRICES HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
ANALYSIS AT VARIOUS PRICES (a)
($ in Millions)
<TABLE>
<CAPTION>
GTCR,
GOLDER
RAUNER KIRTLAND
PROPOSAL PROPOSAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRICE PER SHARE $ 16.00 $ 20.00 $ 20.50 $ 21.00 $ 21.50 $ 22.00 $ 22.50 $ 23.00 $ 23.50
- ---------------------------------------------------------------------------------------------------------------------------------
Premium to Market as of 4/5/99 0.0% 25.0% 28.1% 31.3% 34.4% 37.5% 40.6% 43.8% 46.9%
Shares Outstanding (b) 7.2 7.3 7.3 7.3 7.3 7.3 7.3 7.3 7.3
Equity Value $ 114.5 $ 145.2 $ 149.0 $ 152.8 $ 156.6 $ 160.5 $ 164.3 $ 168.1 $ 172.0
Net Debt (c) 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4
Aggregate Value $ 126.9 $ 157.6 $ 161.4 $ 165.2 $ 169.0 $ 172.9 $ 176.7 $ 180.5 $ 184.4
</TABLE>
<TABLE>
<CAPTION>
OPERATING
STATISTIC(C) MULTIPLES OF AGGREGATE VALUE
------------ --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 Revenue $219.5 0.58x 0.72x 0.74x 0.75x 0.77x 0.79x 0.81x 0.82x 0.84x
1998 EBITDA 21.6 5.9 7.3 7.5 7.6 7.8 8.0 8.2 8.4 8.5
1999E EBITDA 27.0 4.7 5.8 6.0 6.1 6.3 6.4 6.5 6.7 6.8
1999E EBIT 18.8 6.7 8.4 8.6 8.8 9.0 9.2 9.4 9.6 9.8
</TABLE>
<TABLE>
<CAPTION>
MULTIPLES OF EQUITY VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 Net Income $ 7.1 16.1x 20.4x 21.0x 21.5x 22.1 x 22.6 x 23.1 x 23.7 x 24.2 x
1999E Net Income 11.3 10.1 12.8 13.2 13.5 13.9 14.2 14.5 14.9 15.2
BOOK VALUE 79.6 1.44 1.82 1.87 1.92 1.97 2.02 2.06 2.11 2.16
</TABLE>
NOTES:
(a) For comparison purposes, all figures correspond to financial information
provided to buyers before receipt of formal proposals
(b) Calculated using the treasury method
(c) Source: Company estimates dated March 1999. 1998 figures are pro forma for
the acquisitions of Satec and IST
APRIL 7, 1999 16 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 19
TIMETABLE - OVERVIEW OF PROCESS TO DATE HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PROJECT PARACHUTE TIMETABLE - STEPS FOLLOWED TO DATE
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Week of:
<S> <C>
1. TBG DUE DILIGENCE
a) Create working group list .................................... Aug 24 to Aug 30
b) Review required information .................................. Aug 24 to Aug 30
c) Identify due diligence issues and questions .................. Aug 24 to Sept 6
2. MARKETING
a) Descriptive Memorandum (DM)
i) Outline/initial drafting ............................... Aug 24 to Sept 13
ii) Draft to Company ...................................... Sept 14 to Sept 20
iii) Comments from Company ................................ Sept 14 to Oct 4
iv) Revisions ............................................. Sept 14 to Oct 4
v) Final draft ............................................ Oct 5 to Oct 11
b) Identify and select buyers to be approached ................. Sept 21 to Oct 11
c) Confidentiality agreements .................................. Oct 5 to Oct 11
d) Begin solicitation .......................................... Oct 12 to Oct 18
i) Distribute and negotiate CAs and DMs ................... Oct 12 to Dec 13
ii) Receive indications of interest ....................... Dec 14 to Jan 10
3. BUYER DUE DILIGENCE
a) Define process and develop management presentation .......... Nov 23 to Jan 17
b) Prepare data room ........................................... Nov 23 to Jan 17
c) Management presentations/buyer due diligence ................ Jan 18 to Apr 11
4. DOCUMENTATION
a) Draft purchase contract and schedules ....................... Jan 25 to Mar 14
b) Distribute purchase contract ................................ Feb 1 to Feb 7
c) Receive second round bids and major comments on contract .... Feb 15 to Feb 21
c) Receive final bids and select buyer ......................... Apr 5 to Apr 11
</TABLE>
[ ] indicates completed or in process activities
April 7, 1999 17 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 20
SUMMARY OF CONTACT ACTIVITY HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF CONTACT ACTIVITY - 49 PARTIES CONTACTED
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
<S> <C>
Original Contacts Made................ 49
Confidentiality Agreements Signed/
Descriptive Memorandums Sent ......... 23
Expressed Preliminary Interest ....... 11
Attended Management Presentation ..... 4
</TABLE>
APRIL 7, 1999 18 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 21
SUMMARY OF CONTACT ACTIVITY HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF CONTACT ACTIVITY - PARTIES WHO DECLINED INTEREST OR WITHDREW FROM
PROCESS
26 PARTIES
CONTACTED AND DECLINED INTEREST INITIALLY
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
STRATEGIC FINANCIAL
- --------- ---------
<S> <C>
Altana AG AEA Investors
ASEA Brown Boveri, Ltd. Brentwood Associates
Beckman Coulter, Inc. Citicorp Venture Capital
Bodycote International plc Frontenac Company
Bowthorpe plc Thoma Cressey Equity Partners
Carl Zeiss Inc. Thomas H. Lee Company
Danaher Corp. Valuefinder (Carlyle Enterprises)
EG&G
Esterline Technologies Corp.
Fairey Group plc
Fisher Scientific International, Inc.
Hewlett-Packard Co.
Oxford Instruments plc
Parker Hannifin Corp.
Rockwell International Corp.
Siebe plc
SPX Corp.
Staveley Industries plc
Varian Associates
</TABLE>
April 7, 1999 19 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 22
SUMMARY OF CONTACT ACTIVITY HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF CONTACT ACTIVITY - PARTIES WHO ENTERED THE PROCESS
12 PARTIES
RECEIVED MEMORANDUM
AND DECLINED INTEREST
<TABLE>
<CAPTION>
STRATEGIC FINANCIAL
--------- ---------
<S> <C>
AEA Technology plc American Industrial Partners
AMETEK Bessemer Partners
Emerson Electric Co. Hicks, Muse, Tate & Furst
Mettler-Toledo International, Inc. J.W. Childs Associates
Shimadzu Corp. Madison Dearborn Partners
Waters Corp. Summit Partners
</TABLE>
11 PARTIES
EXPRESSED PRELIMINARY INTEREST
IN PURCHASING THE COMPANY
<TABLE>
<CAPTION>
STRATEGIC FINANCIAL
--------- ---------
<S> <C>
AGIV Bain Capital
Analogic Corporation Berkshire Partners
MTS Systems Corp. Fidelity Ventures
Thermo Instrument Systems Inc. GTCR Golder, Rauner
Kirtland Capital Partners
Trivest, Inc.
Vestar Capital Partners
</TABLE>
April 7, 1999 20 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 23
SUMMARY OF ORIGINAL INDICATIONS OF INTEREST RECEIVED HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY OF PRELIMINARY INDICATIONS RECEIVED (WEEK OF JANUARY 4, 1999)
<TABLE>
<CAPTION>
Value Financing
Buyer Per Share Contingency Comments
- ------------------- ----------------- ----------- -----------------
<S> <C> <C> <C>
AGIV (Carl Schenck) "Low to Mid $20s" NA Verbal Indication
Analogic Corporation "Premium to Market" NA Verbal Indication
Bain Capital $15.00 - $16.50 Yes Written Indication; Subject to Due Diligence
Berkshire Partners $17.00 Yes Verbal Indication; Would Want Exclusivity
GTCR Golder, Rauner $18.00 - $20.00 Yes Written Indication; Require Recap Accounting,
Management Participation, and Due Diligence
Kirtland Capital Partners $22.00 - $24.00 Yes Written Indication; Subject to Due
Diligence and Management Arrangements
MTS Systems Corp. "Premium to Market" NA Verbal Indication
Thermo Instrument Systems Inc. "Premium to Market" NA Verbal Indication
Trivest, Inc. $15.50 - $16.50 Yes Verbal Indication
Vestar Capital Partners $17.00 - $20.00 Yes Written Indication; Require Recap Accounting,
Management Participation, and Due Diligence
</TABLE>
APRIL 7, 1999 21 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 24
SUMMARY OF ORIGINAL INDICATIONS OF INTEREST RECEIVED HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
DESPITE EXPRESSING SIGNIFICANT INITIAL INTEREST, A NUMBER OF STRATEGIC BUYERS
DECLINED TO MOVE FORWARD
<TABLE>
<CAPTION>
BUYER STATED REASON FOR WITHDRAWING
- ----- -----------------------------
<S> <C>
AGIV (Carl Schenck) Poor timing - restructuring as major shareholder may sell
EG&G Inc. Poor timing - senior management turnover and pursuing large
acquisition (Perkin-Elmer)
MTS Systems Corp. New CEO does not have full Board backing to undertake merger
which would increase MTS's presence in "low-growth" market
and require significant cost cutting. Can only get to $15.50 -
$16.00 per share
Thermo Instrument Systems Inc. Lack time and management resources to pursue because
just announced large acquisition in Europe (Spectra-Physics)
</TABLE>
APRIL 7, 1999 22 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 25
SUMMARY OF ORIGINAL INDICATIONS OF INTEREST RECEIVED HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PARTIES ATTENDING MANAGEMENT PRESENTATION
4 PARTIES
ATTENDED MANAGEMENT
PRESENTATIONS (PRESENTATION DATE)
---------------------------------
GTCR GOLDER, RAUNER (JANUARY 20TH)
Kirtland Capital Partners (January 22nd)
Analogic Corporation (January 28th)
Vestar Capital Partners (January 29th)
[ ] A dinner meeting between MTS's CEO, Parachute's CEO, and Beacon was held
on 1/29, but MTS's final valuation indication was not deemed attractive
enough to warrant a full management presentation
APRIL 7, 1999 23 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 26
SUMMARY OF FORMAL PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
OVERVIEW OF FORMAL PROPOSALS RECEIVED (WEEK OF FEBRUARY 15)
<TABLE>
<CAPTION>
VALUE FINANCING OTHER
BUYER PER SHARE CONTINGENCY CONDITIONS COMMENTS
- ----- --------- ----------- ---------- --------
<S> <C> <C> <C> <C>
GTCR Golder, Rauner Letter: $22.50 Yes; "Financing Due Diligence, Willing to commit to fully-
(Subsequent Discussions: Readily Available" Recap Structure, financed offer by 3/31. Want
$23.00) Management exclusivity in return. Asked for
Equity Rollover break-up fees and lock-up from
major shareholders. Equity
from $870 million fund. Have
"aggressive" financing
proposals from two money
center banks
Kirtland Capital Partners Letter: $22.00 Yes; "Highly Due Diligence, Willing to commit to fully-
(Subsequent Discussions: Confident" Recap Structure, financed offer by 3/31. Equity
$22.00 "plus") Management from $208 million fund and side
Arrangements, by-side investors. Debt
Advisory Board financing through BT Alex.
Approval, Brown
Regulatory
Approval
</TABLE>
April 7, 1999 24 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 27
SUMMARY OF FORMAL PROPOSALS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
PARTIES INVITED TO FINAL ROUND
2 PARTIES
INVITED TO UNDERTAKE FINAL DUE DILIGENCE
----------------------------------------
GTCR Golder, Rauner
Kirtland Capital Partners
APRIL 7, 1999 25 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 28
COMPARABLE M&A TRANSACTION ANALYSIS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPARABLE M&A TRANSACTION ANALYSIS
<TABLE>
<CAPTION>
Equity Consideration
As a Multiple of:
Consideration ---------------------
Announcement Target/Aquirer ----------------- LTM
Date (Target Business Description) Equity Aggregate Net Income Book Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8/9/88 Buehler International Inc./Investor Group $ 63.4 $ 56.5 16.3x 1.22x
(Manufacturer of equipment for material analysis and
material testing) (a)
5/1/89 Laboratory Data Control (Milton Roy)/Thermo Instrument Systems, Inc. $ 22.0 $ 22.0 30.3(*) 1.68
(Liquid chromotography instruments) (b)
12/1/91 Hamilton Division (Hamilton Industries)/Fischer Scientific $ 90.0 $ 85.0 10.0 2.97
(Laboratory systems for scientific research centers)
1/15/93 Spectra-Physics Analytical, Inc./Thermo Instrument Systems, Inc. $ 69.0 $ 68.0 13.5 4.55
(Liquid chromotography and capillary electrophoresis
equipment) (c)
3/16/94 EnviroTech Measurements & Controls Companies/Thermo Instrument $ 87.3 $ 86.9 NM 0.99
(Process control, process measurement, and laboratory
analytical products)
2/7/95 EPRO/Credence Systems Corporation $ 32.6 $ 30.6 13.0 8.43(*)
(Automatic test equipment used in memory integrated
circuit industry)
3/2/95 Scientific Instruments Division of Fisons plc/Thermo Instrument Systems L122.6 L145.6 NM 1.65
(Analytical instruments for industrial and research applications)
4/10/95 Explorations Products Group of Western Geophysical (Litton)/Input/Output $121.3 $121.0 NM 2.03
(Seismic land and marine exploration products)
9/6/95 Megatest Corporation/Teradyne, Inc. $215.4 $216.4 NM 3.22
(Automatic test equipment used in integrated circuit industry)
9/15/95 Data Measurement Corp./Measurex Corp. $ 29.8 $ 32.9 21.0 2.52
(Thickness measuring and detecting electronic instruments
and control systems)
3/28/96 TA Instruments, Inc./Waters Corporation $ 84.0 $117.5 30.0 (*) NM
(Analytical instruments which measure response of materials
to thermal and stress changes)
5/16/96 Gatan International, Inc./Roper Industries Inc. $ 33.7 $ 49.4 NM NM
(Instruments and software used to extend performance of
electron microscopes)
8/29/97 Gems Sensors (IMO Industries)/Danaher Corp. $ 85.0 $ 88.3 16.9 NM
(Level, flow, and pressure measuring and controlling devices)
12/29/97 Computational Systems Inc./Emerson Electric Inc. $150.3 $151.3 36.6(*) 4.33
(Measuring devices and advanced predictive maintenance products)
5/29/98 Digital Instruments/Veeco Instruments Inc. $162.3 $175.1 11.8 13.5(*)
(High resolution instruments that image and measure surface
topography)
3/8/99 Perkin-Elmer Instruments Division/EG&G $275.0 $425.0 9.0 23.0 (*)
(Manufacture analytical instruments) (d)
Statistics
Mean: 14.6x 2.52x
Median: 13.5 2.27
High: 21.0 4.55
Low: 10.0 0.99
</TABLE>
<TABLE>
<CAPTION>
Aggregate Consideration
As a Multiple of:
--------------------------------------
Announcement Target/Aquirer LTM LTM LTM Net Book
Date (Target Business Description) Sales EBITDA EBIT Capital
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8/9/88 Buehler International Inc./Investor Group 0.75x 7.2x 9.8 x 1.46x
(Manufacturer of equipment for material analysis and
material testing) (a)
5/1/89 Laboratory Data Control (Milton Roy)/Thermo Instrument Systems, Inc. 0.92 11.7 18.2(*) 1.68
(Liquid chromotography instruments) (b)
12/1/91 Hamilton Division (Hamilton Industries)/Fischer Scientific 0.83 7.7 9.8 3.36
(Laboratory systems for scientific research centers)
1/15/93 Spectra-Physics Analytical, Inc./Thermo Instrument Systems, Inc. 1.00 7.7 9.5 4.79
(Liquid chromotography and capillary electrophoresis
equipment) (c)
3/16/94 EnviroTech Measurements & Controls Companies/Thermo Instrument 0.68 NM NM 1.43
(Process control, process measurement, and laboratory
analytical products)
2/7/95 EPRO/Credence Systems Corporation 2.17 7.5 7.6 16.05(*)
(Automatic test equipment used in memory integrated
circuit industry)
3/2/95 Scientific Instruments Division of Fisons plc/Thermo Instrument Systems 0.64 42.8(*) NM 1.50
(Analytical instruments for industrial and research applications)
4/10/95 Explorations Products Group of Western Geophysical (Litton)/Input/Output 1.07 NM NM 2.12
(Seismic land and marine exploration products)
9/6/95 Megatest Corporation/Teradyne, Inc. 2.39 NM NM 3.19
(Automatic test equipment used in integrated circuit industry)
9/15/95 Data Measurement Corp./Measurex Corp. 1.18 12.3 14.5 2.28
(Thickness measuring and detecting electronic instruments
and control systems)
3/28/96 TA Instruments, Inc./Waters Corporation 2.48 10.1 14.4 7.03(*)
(Analytical instruments which measure response of materials
to thermal and stress changes)
5/16/96 Gatan International, Inc./Roper Industries Inc. 1.94 9.0 39.3(*) 3.35
(Instruments and software used to extend performance of
electron microscopes)
8/29/97 Gems Sensors (IMO Industries)/Danaher Corp. 1.12 NA 14.3 NM
(Level, flow, and pressure measuring and controlling devices)
12/29/97 Computational Systems Inc./Emerson Electric Inc. 2.43 16.6(*) 24.3(*) 4.24
(Measuring devices and advanced predictive maintenance products)
5/29/98 Digital Instruments/Veeco Instruments Inc. 3.41 11.7 12.1 7.05(*)
(High resolution instruments that image and measure surface
topography)
3/8/99 Perkin-Elmer Instruments Division/EG&G 0.74 6.4 8.3 2.62
(Manufacture analytical instruments) (d)
------------------------------------
Statistics
Mean: 1.48x 9.1 x 11.2x 2.67x
Median: 1.09 8.3 9.8 2.45
High: 3.41 12.3 14.5 4.79
Low: 0.64 6.4 7.6 1.43
------------------------------------
</TABLE>
NOTES:
(*) Multiples excluded from calculation of the mean, median, high, and low.
(a) Buehler was 76% acquired by an investor group. Transaction analyzed as if
entire Company had been acquired for $12.50 per share
(b) Net income estimated by taxing operating income at 40%
(c) Does not include royalty income as operating income or operating revenues
(d) Source: Confidential Information Memorandum dated September 1998. LTM
results estimated based on half of FY 1998 and half of FY 1999P results
(FY ending June 30). Net Income assumes tax on EBIT of 40%
APRIL 7, 1999 26 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 29
COMPARABLE PUBLIC COMPANY ANALYSIS HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
COMPARABLE PUBLIC COMPANY ANALYSIS
<TABLE>
<CAPTION>
Price
As a Multiple of:
Share Price ----------------------------------
LTM as of Equity Aggregate LTM 1999E CY 2000E CY
Company Ticker Ended 4/6/99 Value (a) Value (b) EPS EPS (c) EPS (c)
- ------- ------ ----- ------ --------- --------- --- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beckman Coulter BEC 12/31/98 $ 43.88 $1,293.6 $2,386.2 28.4x(*) 12.5x 10.9x
Bio-Rad Laboratories BIO.A 12/31/98 21.63 $ 270.6 306.1 11.0 10.3 10.1
Brown & Sharpe (f) BNS 12/31/98 4.88 $ 65.7 122.5 5.5(*) 5.5 4.4
Mettler Toledo (g) MTD 12/31/98 23.63 $ 967.3 1,336.9 21.9 18.0 15.0
Modern Controls, Inc. (h) MOCO 12/31/98 4.50 $ 28.0 21.7 12.4 6.9 NA
Thermoquest Corp. TMQ 1/2/99 11.25 $ 574.8 528.6 15.7 13.6 NA
Varian Associates (i) VAR 1/1/99 38.75 $1,181.9 1,202.8 22.0 20.6 14.7
Waters Corp. WAT 12/31/98 108.50 $3,768.5 3,994.6 39.0(*) 32.7(*) 27.5(*)
---------------------------------------------------
Statistics
Mean: 15.7x 12.2x 10.6x
Median: 14.0 11.6 10.5
High: 39.0 32.7 27.5
Low: 5.5 5.5 4.4
---------------------------------------------------
MTS Systems Corporation (j) MTSC 12/31/98 $ 12.38 $ 230.7 $ 286.8 11.5x 10.6x 8.7x
Memo:
- ---------
Parachute (k) 12/31/98 $ 15.88 $ 113.5 $ 134.0 12.7x 10.3x 9.4x
- -----------------------------------------------------------------------------------------------------------------------------------
Current Parachute Proposal 12/31/98 $ 20.50 $ 150.6 $ 171.1 16.4x 13.3x 12.1x
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Equity Value
As a Multiple of:
----------------- 3 Year
Tangible LTM LTM LTM Sales Tangible Net
Company Book Value (d) Sales EBITDA EBIT CAGR Cap. Emp. (e)
- ------- -------------- ----- ------ ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Beckman Coulter NM 1.4x 8.3x 17.8x(*) 22.7%(*) 5.4x
Bio-Rad Laboratories 1.4 0.7 5.9 9.8 3.7% 1.3
Brown & Sharpe (f) 0.5 0.4 5.5 10.7 1.1% 0.7
Mettler Toledo (g) NM 1.4 10.7 14.5 2.1% 6.4
Modern Controls, Inc. (h) 2.1 1.4 6.3 7.1 5.6% 3.0
Thermoquest Corp. 3.4 1.2 6.3 7.6 21.5% (*) 4.4
Varian Associates (i) 2.1 0.9 9.4 14.0 (3.4%) 2.1
Waters Corp. 54.1(*) 6.5(*) 24.4(*) 29.3(*) 22.9%(*) 20.1
-------------- ----------------------------------------------------------------------------------------------------
Statistics
Mean: 1.8x 1.0x 7.4 x 10.3x 3.7% 3.1x
Median: 1.8 1.1 6.5 9.8 2.9% 2.6
High: 54.1 6.5 24.4 29.3 22.9% 20.1
Low: 0.5 0.4 5.5 7.1 (3.4%) 0.7
-------------- ----------------------------------------------------------------------------------------------------
MTS Systems Corporation (j) 1.58x 0.8x 6.8 x 8.6x 13.2% 1.4x
Memo:
- ---------
Parachute (k) 1.45x 0.7x 6.2 x 9.3x 6.7% 1.4x
- ---------------------------------------------------------------------------------------------------------------------------------
Current Parachute Proposal 1.87x 0.9x 7.9 x 11.8x 6.7% 1.8x
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
All figures exclude extraordinary gains/charges
(*) Excluded from calculation of mean and median
(a) Equity Value = Number of Shares Outstanding (calculated using the treasury
method and including assumed conversion of convertible preferred stock) x
Price per Share
(b) Aggregate Value = Equity Value plus Debt, Preferred Stock, and Minority
Interest, less Cash
(c) Source: IBES estimates - calendarized to reflect a December year end
(d) Tangible Book Value = Book Value minus Intangibles
(e) Tangible Net Capital Employed = Tangible Book Value plus Net Debt
(f) All figures except for revenue and net income are for the LTM period ended
9/30/98. Revenue and net income taken from press release dated February 8,
1999
(g) Figures are not pro forma for recent acquisitions because of minimal
effect
(h) Figures are not pro forma for recent acquisitions because of minimal
effect
(i) Company reorganized into three separate publicly traded companies
effective April 2, 1999. Share price is as of April 1, 1999
(j) Figures do not include $2.1 million restructuring charge
(k) All figures (except balance sheet items) taken from press release dated
February 18, 1999. Excludes special items charge of $5.0 million and gain
on sale of land of $11.1 million. Assumes 8% interest rate on debt and 5%
interest rate for cash.
APRIL 7, 1999 27 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 30
BACKGROUND ON LEVERAGED RECAPITALIZATION HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
SUMMARY DESCRIPTION OF A RECAPITALIZATION TRANSACTION
[ ] In a recapitalization transaction, a new investor group buys newly issued
shares from Parachute for cash
[ ] Simultaneously, Parachute borrows new debt financing and uses the combined
equity and debt proceeds to repurchase enough shares from the public (all)
and the insiders such that the new investor group is now the majority
owner, but the existing shareholders still retain at least a 10% interest
in the post-recapitalization Company (which translates into less than 5%
of the current Company)
[ ] Since the existing shareholders still hold a significant minority interest
in Parachute, the SEC does not view the company as being "substantially
wholly owned" by the new investor group and, therefore, does not require
"push down" accounting (where, because the acquirer's purchase price of
Parachute is substantially above the net asset value, goodwill is created)
[ ] Thus, purchase accounting at the Parachute level is avoided and no
goodwill is created on Parachute's financial statements
[ ] While goodwill is recognized at the financial investor level and Parachute
will likely have negative book value due to the significant share
repurchase at that level, there are no additional goodwill amortization
charges at the Parachute level, which can be a significant advantage in
reporting earnings if the exit strategy is an IPO
APRIL 7, 1999 28 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 31
BACKGROUND ON LEVERAGED RECAPITALIZATION HIGHLY CONFIDENTIAL
- --------------------------------------------------------------------------------
INVESTMENT BY FINANCIAL GROUP WILL INVOLVE:
[ ] Maximizing cash flow and the right combination of debt and equity in the
financing of the transaction to maximize the value of the equity
[ ] Significant Company ownership by senior management (and sometimes a
broader group of employees) to align the incentives of the new owners and
management
[ ] The investor group having voting control of the Company and being active
at the board level in setting strategy and monitoring operations
[ ] An exit strategy in approximately three to five years
- Subsequent recapitalization
- Sale of the Company
- Initial public offering
APRIL 7, 1999 29 THE BEACON GROUP
CAPITAL SERVICES, LLC
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
INSTRON CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $1.00 per share (the "Common Stock"), of Instron
Corporation.
(2) Aggregate number of securities to which transaction applies: 7,219,425
shares of Common Stock (includes 566,187 shares underlying options to
purchase shares of Common Stock).
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $22.00 per
share in cash-out merger plus the difference between $22.00 and the
exercise price of each share underlying an option to purchase shares of
Common Stock.
(4) Proposed maximum aggregate value of transaction: $151,662,752.
(5) Total fee paid: $30,333
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INSTRON CORPORATION
100 Royall Street
Canton, Massachusetts 02021
July 23, 1999
Dear Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Instron Corporation, a Massachusetts corporation
("Instron"), to be held on August 20, 1999, at 10:00 a.m., local time, at the
Hilton Dedham Place, 25 Allied Drive, Dedham, Massachusetts 02026. At the
Special Meeting, you will be asked to consider and vote upon an Agreement and
Plan of Merger dated as of May 6, 1999 (the "Merger Agreement"), pursuant to
which ISN Acquisition Corporation, a newly formed Massachusetts corporation,
will be merged with and into Instron (the "Merger"). If the Merger Agreement is
approved and the Merger is subsequently consummated, each outstanding share of
Instron common stock held by the public stockholders of Instron will be canceled
and converted automatically into the right to receive $22.00 in cash, without
interest.
ISN Acquisition Corporation was organized by Kirtland Capital Partners III
L.P., a private investment partnership, for the purpose of acquiring all of the
shares of Instron common stock held by the public stockholders of Instron. As a
result of the Merger, Instron will become a privately held company owned by
Kirtland Capital Partners III L.P., certain members of Instron's management and
certain other stockholders of Instron.
A Special Committee of the Board of Directors of Instron, consisting of
three independent directors, was formed to consider and evaluate the Merger. The
Special Committee has unanimously recommended to Instron's Board of Directors
that the Merger Agreement be approved. In connection with its evaluation of the
Merger, Instron's Board of Directors engaged The Beacon Group Capital Services,
LLC ("The Beacon Group") to act as its financial advisor and to advise the
Special Committee and the Board of Directors. The Beacon Group has rendered its
opinion dated as of May 6, 1999 to the effect that, as of the date thereof and
based upon and subject to the assumptions, limitations and qualifications set
forth in such opinion, the cash merger consideration of $22.00 per share was
fair from a financial point of view to the public stockholders of Instron. The
written opinion of The Beacon Group is attached as Appendix B to the enclosed
Proxy Statement and should be read carefully and in its entirety by
stockholders.
INSTRON'S BOARD OF DIRECTORS, BASED ON THE RECOMMENDATION OF THE SPECIAL
COMMITTEE, HAS APPROVED THE MERGER AGREEMENT, AND DETERMINED THAT THE TERMS OF
THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF INSTRON.
INSTRON'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT.
Approval of the Merger Agreement at the Special Meeting requires the
affirmative vote of holders of two-thirds of the outstanding shares of Instron
common stock entitled to vote at the Special Meeting. Certain current
stockholders of Instron, members of Instron's management and certain of their
respective affiliates have agreed, among other things, to vote their shares of
Instron common stock entitled to vote at the Special Meeting (approximately
22.4% of the outstanding shares of Instron common stock) in favor of the
proposal to approve the Merger Agreement.
The accompanying Proxy Statement provides you with a summary of the Merger
and additional information about the parties involved and their interests. If
the Merger Agreement is approved by the requisite holders of Instron common
stock, the closing of the Merger will occur as soon after the Special Meeting as
all of the other conditions to closing the Merger are satisfied.
PLEASE GIVE ALL THIS INFORMATION YOUR CAREFUL ATTENTION. WHETHER OR NOT YOU
PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL
MEETING. A FAILURE TO VOTE WILL COUNT AS A VOTE AGAINST THE MERGER AGREEMENT.
ACCORDINGLY, YOU ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO
ATTEND. THIS WILL NOT PREVENT YOU FROM VOTING YOUR SHARES IN PERSON IF YOU
SUBSEQUENTLY CHOOSE TO ATTEND.
Sincerely,
JAMES M. MCCONNELL
President and Chief Executive Officer
<PAGE> 3
INSTRON CORPORATION
100 Royall Street
Canton, Massachusetts 02021
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 20, 1999
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Instron Corporation, a Massachusetts corporation ("Instron"), will
be held on August 20, 1999 at 10:00 a.m., local time, at the Hilton Dedham
Place, 25 Allied Drive, Dedham, Massachusetts 02026, for the following purposes:
(1) To consider and vote upon a proposal to approve an Agreement and
Plan of Merger dated as of May 6, 1999 (the "Merger Agreement") pursuant to
which ISN Acquisition Corporation ("MergerCo"), a corporation newly formed
by Kirtland Capital Partners III L.P., will be merged (the "Merger") with
and into Instron with Instron being the surviving corporation (the
"Surviving Corporation"). In the Merger, each outstanding share of common
stock, par value $1.00 per share, of Instron (the "Instron Common Stock")
issued and outstanding at the effective time of the Merger, other than
shares held by Instron, its subsidiaries, MergerCo, or dissenting
stockholders, will be canceled and converted automatically into the right
to receive $22.00 in cash, without interest. A copy of the Merger Agreement
is attached as Appendix A to the accompanying Proxy Statement and is
described therein.
(2) If a motion to adjourn the Special Meeting is properly brought, to
vote upon the adjournment of the Special Meeting.
(3) To consider and act upon such other matters as may properly come
before the Special Meeting or any adjournment or postponement thereof.
Instron's Board of Directors (the "Instron Board") has fixed the close of
business on July 12, 1999, as the record date for determining the stockholders
having the right to receive notice of, and to vote at, the Special Meeting or
any adjournment or postponement thereof. A form of proxy and a Proxy Statement
containing more detailed information with respect to the matters to be
considered at the Special Meeting accompany and form a part of this notice.
Approval of the Merger Agreement requires the affirmative vote of the
holders of two-thirds of the outstanding shares of Instron Common Stock entitled
to vote at the Special Meeting.
THE INSTRON BOARD HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
In accordance with Section 87, Chapter 156B of the Massachusetts General
Laws, you are advised as follows with respect to the proposal to approve the
Merger Agreement: if the Merger Agreement is approved by the Instron
stockholders at the Special Meeting and effected by Instron, then any Instron
stockholder (i) who files with Instron, before the taking of the vote on the
approval of the Merger Agreement, written objection to the Merger Agreement
stating that he or she intends to demand payment for his or her shares if the
Merger Agreement is approved by the Instron stockholders at the Special Meeting
and (ii) whose shares are not voted in favor of the Merger Agreement has or may
have the right to demand in writing from Instron as the Surviving Corporation of
the Merger, within 20 days after the date of mailing to him or her of notice in
writing that such approval has become effective, payment for his or her shares
and an appraisal of the value thereof. Instron and any such stockholder shall in
such cases have the rights and duties and shall follow the procedure set forth
in Sections 85 to 98, inclusive, of Chapter 156B of the Massachusetts General
Laws. See "Appraisal Rights" in the Proxy Statement that accompanies this notice
and the full text of Sections 85
<PAGE> 4
to 98 of Chapter 156B of the Massachusetts General Laws, which is attached as
Appendix C to the accompanying Proxy Statement and is described therein.
By order of the Instron Board,
JILL E. PEEBLES, Clerk
Canton, Massachusetts
July 23, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. PLEASE DO NOT
SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THE MERGER NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 5
INSTRON CORPORATION
100 Royall Street
Canton, MA 02021
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of Instron
Corporation, a Massachusetts corporation ("Instron" or the "Company"), in
connection with the solicitation by its Board of Directors (the "Instron Board")
of proxies to be used at a Special Meeting of Stockholders (as it may be
adjourned or postponed from time to time, the "Special Meeting") to be held on
August 20, 1999 at 10:00 a.m., local time, at the Hilton Dedham Place, 25 Allied
Drive, Dedham, Massachusetts 02026. The purpose of the Special Meeting is for
the Instron stockholders to consider and vote upon a proposal to approve an
Agreement and Plan of Merger dated as of May 6, 1999 (the "Merger Agreement")
pursuant to which ISN Acquisition Corporation ("MergerCo"), a corporation newly
formed by Kirtland Capital Partners III L.P. ("Kirtland"), will be merged (the
"Merger") with and into Instron with Instron continuing as the surviving
corporation (the "Surviving Corporation"). This Proxy Statement is first being
mailed to Instron stockholders on or about July 23, 1999.
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL HAPPEN IN THE MERGER?
A: Upon consummation of the Merger, MergerCo will be merged with and into
Instron and the holders (the "Public Stockholders") of common stock, par value
$1.00 per share, of Instron (the "Instron Common Stock"), other than those
stockholders who exercise and perfect their appraisal rights, will receive a
cash payment of $22.00 for each of their outstanding shares of Instron Common
Stock. Immediately prior to consummation of the Merger, certain members of the
Instron Board, certain members of Instron's management and certain of their
respective affiliates will exchange a portion of their shares of Instron Common
Stock for shares of Series B Preferred Stock, par value $1.00 per share, of
Instron (the "Series B Preferred Stock"). Under the Merger Agreement, the Series
B Preferred Stock will be exchanged for a like number of shares of common stock,
par value $1.00 per share, of the Surviving Corporation (the "Surviving
Corporation Common Stock"). Accordingly, as a result of the Merger, the Public
Stockholders will receive cash for their shares of Instron Common Stock while
the members of the Instron Board, Instron's management and certain of their
respective affiliates mentioned above will receive cash for a portion of their
shares and a continuing equity interest in the Surviving Corporation for the
remainder of their shares.
Q: WHO WILL OWN INSTRON AFTER THE MERGER?
A: After the Merger, Instron will be a privately held company owned by the
following individuals and entities (collectively with MergerCo, the "Investor
Group"), each of which will own the approximate percentage of outstanding shares
of the Surviving Corporation Common Stock listed below, subject to certain
assumptions which are described in the Proxy Statement:
The Equity Investor
Kirtland Capital Partners III L.P., an Ohio limited partnership, and
certain of its investors and its affiliates (who will collectively own
approximately 87.4% of Instron)
The Other Investors (who will collectively own approximately 6.2% of
Instron)
George S. Burr (2.3%)
Helen L. Burr (less than 1%)
The Harold Hindman Trust -- 1969 (3.1%)
The Management Investors (who will collectively own approximately 6.4% of
Instron)
James M. McConnell (3.8%)
Joseph E. Amaral (less than 1%)
Kenneth L. Andersen (less than 1%)
(i)
<PAGE> 6
John R. Barrett (less than 1%)
Jonathan L. Burr (less than 1%)
The Jonathan L. Burr Trust -- 1965 (less than 1%)
Yahya Gharagozlou (less than 1%)
Arthur D. Hindman (less than 1%)
William J. Milliken (less than 1%)
Linton A. Moulding and Jane Elizabeth Moulding, as joint tenants (less
than 1%)
Norman L. Smith (less than 1%)
Q: WHY IS INSTRON BEING ACQUIRED?
A: Instron is being acquired by the Investor Group because the Instron
Board and the Special Committee of the Instron Board (the "Special Committee")
believe that the Merger is a more desirable alternative than continuing to
operate Instron as a public company. In particular, the Instron Board and the
Special Committee considered the risks of continuing to operate Instron as a
public company and the opportunity to enable the Public Stockholders to achieve
liquidity with respect to their investment in Instron at a price that exceeds
the all time highest market price of the Instron Common Stock. To review the
background and reasons for the Merger in greater detail, see pages 12 through
23.
Q: WHY WAS THE SPECIAL COMMITTEE FORMED?
A: The Instron Board established the Special Committee consisting of
independent directors to review and evaluate the proposed transaction. The
Instron Board formed the Special Committee primarily because it believed that a
recapitalization transaction such as the Merger might present potential
conflicts of interest for Instron's senior management and certain members of the
Instron Board, who, unlike the Public Stockholders, would have a continuing
interest in Instron following consummation of such a transaction. The Special
Committee has determined that the Merger is fair to and in the best interests of
the Instron stockholders.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: As a Public Stockholder, you will receive $22.00 in cash, without
interest, for each share of Instron Common Stock that you own. This is the "Cash
Merger Consideration." For example: If you own 100 shares of Instron Common
Stock, upon completion of the Merger you will receive $2,200.00 in cash.
Q: IF THE MERGER IS CONSUMMATED, WHEN CAN I EXPECT TO RECEIVE THE CASH
MERGER CONSIDERATION FOR MY SHARES?
A: Promptly after the Merger is consummated, Instron will send you detailed
instructions regarding the surrender of your Instron Common Stock certificates.
You should not send your Instron Common Stock certificates to Instron or anyone
else until you receive these instructions. Instron will send payment of the Cash
Merger Consideration to you as promptly as practicable following its receipt of
your stock certificates and other required documents.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect the Merger to be consummated during the third quarter of 1999.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The receipt of the Cash Merger Consideration by you will be a taxable
transaction for federal income tax purposes. To review the tax consequences to
you in greater detail, see pages 64 through 65. Your tax consequences will
depend on your personal situation. You should consult your tax advisors for a
full understanding of the tax consequences of the Merger to you.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to approve the Merger Agreement, which provides,
among other things, for the acquisition of Instron by the Investor Group. After
the Merger, Instron will be a privately held company and you will no longer own
an equity interest in Instron. The Instron Board has approved the Merger
Agreement and the transactions contemplated thereby (the "Transactions") and
recommends that you vote "For" the approval of the Merger Agreement. We do not
expect to ask you to vote on any other matters at the Special
(ii)
<PAGE> 7
Meeting. However, if a motion is made to adjourn the Special Meeting, you may
also be asked to vote on adjournment of the Special Meeting.
Q: WHAT DO I NEED TO DO NOW?
A: This Proxy Statement contains important information regarding the Merger
as well as information about Instron and the Investor Group. It also contains
important information about what the management of Instron, the Instron Board
and the Special Committee considered in evaluating the Merger. We urge you to
read this Proxy Statement carefully, including its Appendices. You may also want
to review the documents referenced under "Where You Can Find More Information."
Q: HOW DO I VOTE?
A: Just indicate on your proxy card how you want to vote, and sign and mail
it in the enclosed envelope as soon as possible, so that your shares will be
represented at the Special Meeting. Approval of the proposal to approve the
Merger Agreement requires the affirmative vote of holders of two-thirds of the
outstanding shares of Instron Common Stock entitled to vote at the Special
Meeting. Therefore, a failure to vote or a vote to abstain will have the same
effect as a vote against the proposal. The Special Meeting will take place on
August 20, 1999 at 10:00 a.m., local time, at the Hilton Dedham Place, 25 Allied
Drive, Dedham, Massachusetts 02026. You may attend the Special Meeting and vote
your shares in person, rather than voting by proxy. In addition, you may
withdraw your proxy up to and including the day of the Special Meeting and
either change your vote or attend the Special Meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your shares of Instron Common Stock only if you
provide instructions on how to vote. You should instruct your broker how to vote
your shares, following the directions your broker provides. If you do not
provide instructions to your broker, your shares will not be voted and they will
be counted as votes against the proposal to approve the Merger Agreement.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this document, or if you would like
to ask any additional questions about the Merger, you should contact:
Linton A. Moulding
Instron Corporation
100 Royall Street
Canton, Massachusetts 02021
Telephone: (781) 828-2500
You should note that Linton A. Moulding, as well as the other members of
Instron's management, are members of the Investor Group.
(iii)
<PAGE> 8
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
THIS PROXY STATEMENT AND OTHER STATEMENTS MADE FROM TIME TO TIME BY
INSTRON, MERGERCO, OR THEIR AFFILIATES OR REPRESENTATIVES CONTAIN CERTAIN
FORWARD-LOOKING STATEMENTS. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE
INTENT, BELIEF, OR CURRENT EXPECTATIONS OF INSTRON AND MERGERCO AND MEMBERS OF
THEIR RESPECTIVE MANAGEMENT TEAMS, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH
STATEMENTS ARE BASED. SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF
FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT OF INSTRON AND MERGERCO THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS DISCUSSED HEREIN AND: (i)
THE LEVEL OF BOOKINGS WORLDWIDE FOR INSTRON AND ITS SUBSIDIARIES, PARTICULARLY
IN ASIA; (ii) THE SUCCESS OF THE AUTOMOBILE INDUSTRY, WHICH IS THE MAJOR
PURCHASER OF CERTAIN OF INSTRON'S PRODUCTS; (iii) THE OPERATING RESULTS OF
CERTAIN OF INSTRON'S SUBSIDIARIES; (iv) THE IMPACT OF FLUCTUATIONS IN EXCHANGE
RATES AND THE UNCERTAINTIES OF OPERATING IN A GLOBAL ECONOMY INCLUDING
FLUCTUATIONS IN THE ECONOMIC CONDITIONS OF THE FOREIGN AND DOMESTIC MARKETS
SERVED BY INSTRON WHICH CAN AFFECT THE DEMAND FOR ITS PRODUCTS AND SERVICES; (v)
INSTRON'S ABILITY TO SUCCESSFULLY MANAGE AND INTEGRATE THE PRODUCTS AND
OPERATIONS OF RECENTLY ACQUIRED COMPANIES; (vi) THE IMPACT OF YEAR 2000 ISSUES;
(vii) Instron's ability to identify and successfully consummate strategic
acquisitions; and (viii) general economic conditions. Instron and MergerCo
undertake no obligation to update or revise forward-looking statements to
reflect changes in assumptions, the occurrence of unanticipated events, or
changes in future operating results over time.
(iv)
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ (i)
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... (i)
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... (iii)
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... (iv)
SUMMARY..................................................... 1
Effects of the Merger..................................... 1
The Companies............................................. 1
The Special Meeting....................................... 2
Record Date; Voting Power................................. 2
Vote Required............................................. 2
Recommendations........................................... 2
Opinion of Financial Advisor.............................. 3
Terms of the Merger Agreement............................. 3
Share Ownership of Instron Following the Merger........... 5
Accounting Treatment...................................... 6
Financing of the Merger................................... 6
Conflicts of Interest..................................... 7
Regulatory Approvals...................................... 8
Appraisal Rights.......................................... 8
Federal Income Tax Consequences........................... 8
HISTORICAL MARKET INFORMATION............................... 9
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............. 10
SPECIAL FACTORS............................................. 12
Background of the Merger.................................. 12
The Special Committee's and the Instron Board's
Recommendation......................................... 23
Instron Projections....................................... 27
Opinion of Financial Advisor.............................. 28
Comparable Companies...................................... 30
Purpose and Reasons of the Investor Group for the
Merger................................................. 35
Position of the Investor Group as to Fairness of the
Merger................................................. 37
Conflicts of Interest..................................... 38
Certain Effects of the Merger............................. 46
Financing of the Merger................................... 46
Conduct of Instron's Business After the Merger............ 47
THE SPECIAL MEETING......................................... 48
Date, Time, and Place of the Special Meeting.............. 48
Proxy Solicitation........................................ 48
Matters to Be Considered at the Special Meeting........... 48
Record Date and Quorum Requirement........................ 48
Voting Procedures......................................... 48
Voting and Revocation of Proxies.......................... 49
Voting Agreement.......................................... 49
Effective Time of the Merger and Payment for Shares....... 49
Other Matters to Be Considered............................ 49
THE MERGER.................................................. 50
Terms of the Merger Agreement............................. 50
Estimated Fees and Expenses of the Merger................. 56
</TABLE>
(v)
<PAGE> 10
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
APPRAISAL RIGHTS............................................ 57
REGULATORY APPROVALS........................................ 58
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND
OTHERS.................................................... 59
CERTAIN INFORMATION CONCERNING MERGERCO AND THE INVESTOR
GROUP..................................................... 63
The Equity Investor....................................... 63
MergerCo. ................................................ 63
The Other Investors....................................... 63
The Management Investors.................................. 63
FEDERAL INCOME TAX CONSEQUENCES............................. 64
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA... 66
Unaudited Pro Forma Condensed Consolidated Statement of
Income Data............................................ 67
Notes to Unaudited Pro Forma Condensed Consolidated
Statements of Income Data.............................. 69
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Data................................................... 71
Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet Data..................................... 72
Ratio of Earnings to Fixed Charges........................ 74
INDEPENDENT AUDITORS........................................ 75
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 75
STOCKHOLDER PROPOSALS....................................... 75
OTHER MATTERS............................................... 75
WHERE YOU CAN FIND MORE INFORMATION......................... 76
</TABLE>
(vi)
<PAGE> 11
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the Merger, and for a more complete description of the legal
terms of the Merger, you should read this Proxy Statement in its entirety
carefully, as well as the additional documents to which we refer you, including
the Merger Agreement. See "Where You Can Find More Information" (page 76).
EFFECTS OF THE MERGER
Pursuant to the Merger Agreement, MergerCo will be merged with and into
Instron with Instron being the Surviving Corporation. As a result of the Merger,
all of the capital stock of Instron will be owned by the Investor Group, and the
Instron Common Stock will no longer be publicly traded. The Public Stockholders
will no longer be stockholders of Instron and they will not participate in
Instron's future earnings and growth or bear the risk of any decreases in the
value of Instron. Instead, the Public Stockholders will have the right to
receive $22.00 in cash, without interest, for each share of Instron Common Stock
held by such stockholders. The Investor Group will have the opportunity to
benefit from any future earnings and growth of Instron and will bear the risk of
any decreases in the value of Instron. In addition, the Other Investors and the
Management Investors have interests in the Merger as directors and/or employees
of Instron or affiliates of directors and/or employees of Instron which are
different from, or in addition to, yours as an Instron stockholder. To review
these interests, see "-- Conflicts of Interest" and "Special
Factors -- Conflicts of Interest."
THE COMPANIES
Instron Corporation ("Instron")
100 Royall Street
Canton, Massachusetts 02021
(781) 828-2500
Instron designs, develops, manufactures, markets, and services materials
and structural testing systems, software, and accessories. These products are
used principally in research and development and quality control applications to
test the mechanical properties of various materials, components, and structures.
The materials tested include metals, plastics, textiles, composites, ceramics
and rubber. Instron systems test virtually all natural and man-made materials
from fragile fibers to the exotic materials needed for space exploration.
In the worldwide market for these systems, Instron is a leading producer of
static (electromechanical), dynamic (servohydraulic), simulation (structures),
hardness and impact testing systems. Instron offers a comprehensive range of
instruments and computer based systems that provide and enhance control of the
testing process, data collection and analysis.
Instron has sales and service offices in 14 United States cities and 17
foreign countries. Instron's principal manufacturing facilities are located in
the United States, the United Kingdom and Germany.
ISN Acquisition Corporation ("MergerCo")
c/o Kirtland Capital Partners III L.P.
2250 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094
(440) 585-9010
MergerCo was formed by Kirtland for the sole purpose of effecting the
Merger. MergerCo will be merged out of existence at the effective time of the
Merger (the "Effective Time"). MergerCo is not expected to have significant
assets or liabilities (other than those arising in connection with the
Transactions) or to engage in any activities (other than those incident to its
formation and the Transactions).
<PAGE> 12
Kirtland Capital Partners III L.P. ("Kirtland")
2250 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094
(440) 585-9010
Kirtland and its affiliates are a privately funded investment group with
over $300 million in committed equity capital. Kirtland's principal business is
searching for, negotiating, structuring, acquiring, holding, selling and
refinancing equity interests in operating businesses on behalf of itself and its
affiliates and performing all things incidental to or growing out of such
activities. Kirtland and its predecessor companies have been making investments
in operating companies since 1978.
THE SPECIAL MEETING (page 48)
The Special Meeting will be held on August 20, 1999, at 10:00 a.m., local
time, at the Hilton Dedham Place, 25 Allied Drive, Dedham, Massachusetts 02026.
At the Special Meeting, the Instron stockholders will be asked to consider and
vote upon a proposal to approve the Merger Agreement.
RECORD DATE; VOTING POWER (page 48)
Holders of record of Instron Common Stock at the close of business on July
12, 1999 are entitled to notice of and to vote at the Special Meeting. As of
such date, there were 6,978,448 shares of Instron Common Stock issued and
outstanding held by approximately 416 holders of record. Holders of record of
Instron Common Stock on the Record Date are entitled to one vote per share on
any matter that may properly come before the Special Meeting.
VOTE REQUIRED (page 48)
Approval by the Instron stockholders of the proposal to approve the Merger
Agreement will require the affirmative vote of two-thirds of the outstanding
shares of Instron Common Stock entitled to vote at the Special Meeting.
Accordingly, a failure to vote or a vote to abstain will have the same legal
effect as a vote against the Merger Agreement.
An "Against" vote on the enclosed proxy card will be a vote against the
Merger Agreement. If we do not receive "For" votes from two-thirds of the
outstanding shares of Instron Common Stock entitled to vote at the Special
Meeting, the Merger Agreement will not be approved, you will not receive $22.00
in cash for each share of Instron Common Stock you hold and you will continue to
own shares in a publicly traded company.
Subject to the Merger Agreement, which requires that the Special Meeting be
held as soon as practicable, Instron stockholders may also be asked to vote on
adjournment of the Special Meeting for the purpose of soliciting additional
proxies in favor of approval of the Merger Agreement.
A stockholder who gives a proxy with respect to voting on the Merger
Agreement may revoke it at any time before it is voted at the Special Meeting by
either (i) filing with the Clerk of Instron an instrument revoking it, (ii)
submitting a duly executed proxy bearing a later date or (iii) voting in person
at the Special Meeting.
The Other Investors and certain of their affiliates and the Management
Investors and certain of their affiliates have agreed, among other things, to
vote the shares of Instron Common Stock owned by such stockholders
(approximately 22.4% of the outstanding shares of Instron Common Stock) in favor
of the proposal to approve the Merger Agreement.
RECOMMENDATIONS (page 23)
The Instron Board established the Special Committee to review and evaluate
the proposed transaction. The Instron Board formed the Special Committee
primarily because it believed that a recapitalization
2
<PAGE> 13
transaction such as the Merger might present potential conflicts of interest for
Instron's senior management and certain members of the Instron Board, who,
unlike the Public Stockholders, would have a continuing interest in Instron
following consummation of such a transaction. The Special Committee unanimously
recommended that the Instron Board approve the Merger Agreement and the
Transactions and that the Instron Board recommend that the Instron stockholders
approve the Merger Agreement. Following the unanimous recommendation of the
Special Committee, the Instron Board, other than Harold Hindman, George S. Burr
and James M. McConnell, unanimously determined that the Merger Agreement and the
Transactions, including the Merger, were fair to and in the best interests of
the Instron stockholders and recommended that the stockholders approve the
Merger Agreement. Messrs. Hindman, Burr and McConnell abstained from voting on
the Merger Agreement and the Transactions because each of them has an interest
in the Merger as a member of the Investor Group. The Special Committee and the
Instron Board recommend that the Instron stockholders vote "For" the approval of
the Merger Agreement. You also should refer to the factors that the Special
Committee and the Instron Board considered in determining whether to approve the
Merger Agreement on pages 23-27.
OPINION OF FINANCIAL ADVISOR (page 28)
The Beacon Group Capital Services, LLC ("The Beacon Group"), a nationally
recognized investment banking firm that served as financial advisor to the
Instron Board and the Special Committee, has rendered an opinion dated as of May
6, 1999 to the Instron Board that, as of the date of the opinion, and based on
the assumptions and subject to the limitations and qualifications set forth
therein, the Cash Merger Consideration was fair from a financial point of view
to the Public Stockholders. A copy of The Beacon Group's opinion, setting forth
the information reviewed, assumptions made and matters considered by The Beacon
Group, is attached to this Proxy Statement as Appendix B. You should read The
Beacon Group's opinion in its entirety.
TERMS OF THE MERGER AGREEMENT (page 50)
The Merger Agreement is attached to this Proxy Statement as Appendix A. You
are encouraged to read the Merger Agreement in its entirety. It is the legal
document that governs the Merger.
General. Upon consummation of the Merger, MergerCo will be merged with and
into Instron and the Public Stockholders will receive a cash payment of $22.00
for each of their outstanding shares of Instron Common Stock. Immediately prior
to the consummation of the Merger, the Other Investors and the Management
Investors will exchange a portion of their shares of Instron Common Stock for
shares of Series B Preferred Stock of Instron. The Merger Agreement provides
that the shares of Series B Preferred Stock will be exchanged for a like number
of shares of Surviving Corporation Common Stock. Accordingly, as a result of the
Merger, the Public Stockholders will receive cash for their shares of Instron
Common Stock while the Other Investors and the Management Investors will receive
cash for a portion of their shares and a continuing equity interest in the
Surviving Corporation for the remainder of their shares.
Conditions to the Merger. The completion of the Merger depends upon the
satisfaction of certain conditions, including:
- approval of the Merger Agreement by holders of two-thirds of the
outstanding shares of Instron Common Stock entitled to vote at the
Special Meeting;
- absence of a material adverse change in the business, assets, condition
(financial or otherwise) or results of operations of Instron and its
subsidiaries taken as a whole or any event or other circumstance which
would, individually or in the aggregate, reasonably be expected to result
in any such material adverse change;
- absence of a material disruption or material adverse change in the
banking, financial or capital markets generally or in the market for
senior credit facilities or for new issuances of high yield securities
which has caused either of the lenders to Kirtland to withdraw its
commitment to provide financing as contemplated by such lender's
financing commitment letter to Kirtland;
3
<PAGE> 14
- Instron having no more than $13.0 million of Net Indebtedness as of the
closing date of the Merger. "Net Indebtedness" is defined under the
Merger Agreement generally as all obligations of Instron and its
subsidiaries for borrowed money or evidenced by a bond, note, debenture
or similar instrument, minus all cash and cash equivalents of Instron and
its subsidiaries;
- no more than 5% of the outstanding shares of Instron Common Stock having
taken actions to assert dissenters' rights under Sections 85 to 98,
inclusive, of the Massachusetts Business Corporation Law (Chapter 156B of
the General Laws of Massachusetts ) (the "MBCL"); and
- antitrust regulatory approval and the expiration of applicable waiting
periods relating thereto.
Each party may, at its option, waive the satisfaction of any condition to
such party's obligations under the Merger Agreement. EVEN IF THE INSTRON
STOCKHOLDERS APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT THE MERGER WILL
BE CONSUMMATED.
Solicitation. Generally, Instron and its affiliates are prohibited from
initiating or soliciting, and are prohibited from participating in discussions
regarding, any proposal from a third party with respect to a merger,
consolidation, sale, or similar transaction involving Instron. Instron may,
under certain specified circumstances, take certain actions in connection with
unsolicited acquisition proposals.
Termination. Either Instron or MergerCo may terminate the Merger Agreement
under certain circumstances, including if:
- both parties consent in writing;
- the Instron stockholders do not approve the Merger Agreement;
- legal restraints or prohibitions prevent the consummation of the Merger;
or
- the other party breaches any of its representations, warranties or
covenants under the Merger Agreement and fails to timely cure any such
breach.
In addition, Instron generally may terminate the Merger Agreement if it
enters into a definitive agreement to effect another acquisition transaction
that is more favorable to the Instron stockholders from a financial point of
view than the Transactions (a "Superior Proposal"). Instron may also terminate
the Merger Agreement after 60 days following its receipt of a notice from
Kirtland that a lender to Kirtland has indicated to either Kirtland or MergerCo
that such lender will be unable to provide the financing contemplated by its
financing commitment letter to Kirtland (a "Kirtland Financing Notice").
MergerCo may terminate the Merger Agreement if the Instron Board withdraws,
modifies, or changes its approval or recommendation of the Transactions in a
manner material and adverse to MergerCo, or proposes or announces any intention
to enter into any agreement with respect to another acquisition transaction.
MergerCo also may terminate the Merger Agreement after 60 days following
delivery by Kirtland or MergerCo of a Kirtland Financing Notice.
Fees and Expenses. Generally, Instron, on the one hand, and Kirtland and
MergerCo, on the other hand, will pay their own fees, costs, and expenses
incurred in connection with the Merger Agreement and the Transactions. However,
Instron will pay MergerCo "liquidated damages" in an amount equal to $5.0
million plus an amount equal to the reasonable out-of-pocket costs and expenses
incurred by Kirtland and MergerCo in connection with the Merger Agreement and
the Transactions (not to exceed $1.0 million) under certain circumstances,
including if:
- MergerCo terminates the Merger Agreement as a result of Instron having
wilfully breached its obligation to call a special meeting of
stockholders or to take certain actions with respect to the preparation
of this Proxy Statement;
- Instron terminates the Merger Agreement in connection with entering into
a definitive agreement to effect a Superior Proposal;
4
<PAGE> 15
- MergerCo terminates the Merger Agreement because of a material and
adverse withdrawal, modification or change in the approval or
recommendation of the Instron Board of the Merger Agreement or the
Transactions; or
- Either Instron or MergerCo terminates the Merger Agreement because the
Instron stockholders shall have failed to approve the Merger Agreement
and, within nine months of such termination, Instron enters into a
definitive agreement with respect to another acquisition transaction with
a person or an affiliate thereof who had made a proposal for an
acquisition transaction directly to the Instron stockholders or publicly
announced such a transaction or solicited proxies or consents in
opposition to the Merger prior to the Special Meeting.
Stock Options. Generally, each option to purchase shares of Instron Common
Stock will become fully vested and exercisable immediately prior to the Merger.
Holders of options outstanding immediately prior to the Effective Time, except
for certain options which will be assumed by the Surviving Corporation in the
Merger, will receive cash for such options based on the number of shares of
Instron Common Stock underlying the options to be cashed out and the difference
between the applicable per share exercise price of such options and the Cash
Merger Consideration.
SHARE OWNERSHIP OF INSTRON FOLLOWING THE MERGER (page 39)
The Equity Investor. The exact amount of the Equity Investor's investment
in MergerCo is dependent upon the level of Net Indebtedness of Instron as of the
Effective Time of the Merger. At April 3, 1999, Instron's Net Indebtedness was
approximately $3.9 million. The reason for this possible fluctuation is that the
Equity Investor's investment represents the amount of funds necessary to
consummate the Merger less borrowings by the Surviving Corporation in the amount
of $114.0 million. Therefore, any fluctuation in Net Indebtedness will directly
affect the amount of funds necessary to consummate the Merger and thus the
amount of the Equity Investor's investment. If Instron's Net Indebtedness at the
Effective Time is greater or less than $3.9 million, then the Equity Investor
will be required to increase or decrease, respectively, its investment in
MergerCo and therefore the Surviving Corporation. Accordingly, all of the
references to the Equity Investor's investment, number of shares of Surviving
Corporation Common Stock and ownership percentage, as well as the ownership
percentages of all other stockholders in the Surviving Corporation, are
dependent upon the level of Instron's Net Indebtedness as of the closing
Effective Time. For purposes of this Proxy Statement the level of Instron's Net
Indebtedness as of the Effective Time is assumed to be $3.9 million.
Accordingly, prior to the Merger the Equity Investor will contribute
approximately $49.8 million in cash to MergerCo in exchange for approximately
452,618 shares of common stock of MergerCo, which shares will be converted into
a like number of shares of Surviving Corporation Common Stock in the Merger.
Upon consummation of the Transactions, the Equity Investor will own
approximately 87.4% of the outstanding shares of Surviving Corporation Common
Stock. If Net Indebtedness as of the Effective Time were zero, the Equity
Investor, the Other Investors and the Management Investors would own
approximately 86.5%, 6.6% and 6.9%, respectively, of the outstanding shares of
Surviving Corporation Common Stock. If Net Indebtedness as of the Effective Time
were $13.0 million, which is the maximum amount permitted under the Merger
Agreement, the Equity Investor, the Other Investors and the Management Investors
would own approximately 89.2%, 5.3% and 5.5%, respectively, of the outstanding
shares of Surviving Corporation Common Stock. See "Unaudited Pro Forma Condensed
Consolidated Financial Data."
The Other Investors. To permit the Other Investors to receive shares of
Surviving Corporation Common Stock rather than the Cash Merger Consideration in
the Merger, the Other Investors will exchange immediately prior to the Merger an
aggregate of 160,000 shares of Instron Common Stock for an aggregate of 32,000
shares of Series B Preferred Stock of Instron. These shares of Series B
Preferred Stock will be converted into a like number of shares of Surviving
Corporation Common Stock in the Merger. The 1-for-5 exchange ratio for the
exchange of Instron Common Stock for Series B Preferred Stock was agreed to by
the Other Investors, the Management Investors and Kirtland so that the
percentage ownership of each of the members of the Investor Group in the
Surviving Corporation will reflect their relative contributions of equity to the
Surviving Corporation and to reduce the total number of outstanding shares in
the Surviving
5
<PAGE> 16
Corporation. The fair value of the shares of Instron Common Stock to be
exchanged for shares of Series B Preferred Stock is equal to the fair value of
the shares of Series B Preferred Stock. Upon consummation of the Transactions,
the Other Investors will own approximately 6.2% of the outstanding shares of
Surviving Corporation Common Stock.
The Management Investors. To permit the Management Investors to receive
shares of Surviving Corporation Common Stock rather than the Cash Merger
Consideration in the Merger, the Management Investors will exchange immediately
prior to the Merger an aggregate of 165,210 shares of Instron Common Stock
(including an aggregate of 25,340 shares of restricted Instron Common Stock
previously issued under the Instron Corporation 1992 Stock Incentive Plan, as
amended) for an aggregate of 33,042 shares of Series B Preferred Stock. These
shares of Series B Preferred Stock will be converted into a like number of
shares of Surviving Corporation Common Stock in the Merger. The 1-for-5 exchange
ratio for the exchange of Instron Common Stock for Series B Preferred Stock was
agreed to by the Other Investors, the Management Investors and Kirtland so that
the percentage ownership of each of the members of the Investor Group in the
Surviving Corporation will reflect their relative contributions of equity to the
Surviving Corporation and to reduce the total number of outstanding shares in
the Surviving Corporation. The fair value of the shares of Instron Common Stock
to be exchanged for shares of Series B Preferred Stock is equal to the fair
value of the shares of Series B Preferred Stock. Upon consummation of the
Transactions, the Management Investors will own approximately 6.4% of the
outstanding shares of Surviving Corporation Common Stock. In addition, options
to purchase up to an aggregate of 125,000 shares of Instron Common Stock held by
certain Management Investors will be assumed by the Surviving Corporation and
converted into options (the "Rollover Options") to purchase up to an aggregate
of 25,000 shares of Surviving Corporation Common Stock representing in the
aggregate approximately 4.6% of the Surviving Corporation Common Stock on a
fully diluted basis (assuming the exercise of all such options). These options
will be fully vested and immediately exercisable upon consummation of the
Merger. In addition, it is anticipated that the Surviving Corporation, upon
consummation of the Merger and pursuant to a stock option plan to be adopted by
the Surviving Corporation at that time, will grant options to purchase up to an
aggregate of approximately 24,000 shares of Surviving Corporation Common Stock
to the Management Investors, representing in the aggregate approximately 4.3% of
the Surviving Corporation Common Stock on a fully diluted basis (assuming the
exercise of all options, including the Rollover Options).
ACCOUNTING TREATMENT
Instron believes that the Merger and the other Transactions will be
accounted for as a recapitalization for accounting purposes. Under the
recapitalization method of accounting, the historical cost basis of Instron's
assets and liabilities will be carried forward to the Surviving Corporation with
the aggregate cost of repurchasing the Instron Common Stock accounted for as a
reduction to stockholders' equity. Accordingly, the historical basis of
Instron's assets and liabilities will not be affected by the Merger and the
other Transactions.
FINANCING OF THE MERGER (page 46)
The total amount of funds necessary to consummate the Transactions is
expected to be approximately $174.3 million. These funds are expected to come
from the following sources:
- an equity investment made by the Equity Investor of approximately $49.8
million, assuming a Net Indebtedness of $3.9 million;
- borrowings by the Surviving Corporation of approximately $14.0 million
under a new credit facility;
- borrowings by the Surviving Corporation of approximately $100.0 million
from the issuance of debt instruments; and
- Instron's available cash reserves which, as of April 3, 1999, was
approximately $10.5 million.
6
<PAGE> 17
Kirtland has received from National City Bank a letter dated May 3, 1999
(the "National City Letter") pursuant to which National City Bank has committed
to provide debt financing to Instron under the terms of a $50.0 million
revolving credit facility (the "Credit Facility"), of which approximately $14.0
million will be used to finance the consummation of the Transactions. In
addition, Kirtland currently anticipates that it will raise $100.0 million of
the funds necessary to consummate the Transactions through the issuance of debt
instruments in the private or public capital markets. However, in the event that
Kirtland is unable to obtain such debt financing, Kirtland has entered into a
letter agreement (the "DLJ Bridge Letter" and, together with the National City
Letter, the "Financing Letters") dated May 4, 1999, with DLJ Bridge Finance,
Inc. ("DLJ Bridge"), pursuant to which DLJ Bridge has committed to purchase from
Instron $100.0 million in principal amount of unsecured senior subordinated
increasing rate notes (the "Bridge Notes"). The Financing Letters are subject to
the satisfaction of various conditions, including the condition that no material
adverse change in the business, assets, condition (financial or otherwise) or
results of operations of Instron and its subsidiaries taken as a whole shall
have occurred and that there shall not have occurred any event or other
circumstance which would, individually or in the aggregate, reasonably be
expected to result in any such material adverse change prior to the Effective
Time.
CONFLICTS OF INTEREST (page 38)
The Other Investors. The Other Investors have interests in the Merger as
directors of Instron or affiliates of directors of Instron that are different
from, or in addition to, yours as a stockholder of Instron. In the Merger, a
portion of the shares of Instron Common Stock held by the Other Investors will
ultimately be converted into shares of Surviving Corporation Common Stock.
Accordingly, the Other Investors will continue to have an equity interest in
Instron after the Merger and the ultimate value of this interest could be more
or less than the $22.00 per share to be received by the Public Stockholders in
the Merger. In addition, a majority of the shares of Instron Common Stock held
by the Other Investors and certain of their affiliates will not be converted
into shares of Surviving Corporation Common Stock but will be converted in the
Merger into the right to receive the Cash Merger Consideration in the aggregate
amount of approximately $15.9 million.
The Management Investors. The Management Investors have interests in the
Merger as employees and/or directors of Instron or affiliates of such employees
and/or directors that are different from, or in addition to, yours as a
stockholder of Instron. In the Merger, a portion of the shares of Instron Common
Stock held by the Management Investors will ultimately be converted into shares
of Surviving Corporation Common Stock and certain options to purchase Instron
Common Stock held by the Management Investors will be assumed by the Surviving
Corporation and converted into the Rollover Options. Furthermore, the Surviving
Corporation will grant additional options to certain Management Investors.
Accordingly, the Management Investors will continue to have an equity interest
in Instron after the Merger and the ultimate value of this interest could be
more or less than the $22.00 per share to be received by the Public Stockholders
in the Merger. In addition, a majority of the shares of Instron Common Stock and
options held by the Management Investors will not be converted into shares of
Surviving Corporation Common Stock or assumed by the Surviving Corporation, as
the case may be, but will be converted in the Merger into the right to receive
the Cash Merger Consideration and the right to receive cash for such options,
respectively, in the aggregate amount of approximately $14.9 million.
If the Merger is consummated, it is expected that those Management
Investors who were members of Instron's management prior to the Merger will
continue as members of management of the Surviving Corporation.
Other Agreements. Upon consummation of the Merger, the Surviving
Corporation and all of the stockholders of the Surviving Corporation, including
the Other Investors and the Management Investors, will enter into a stockholders
agreement (the "Stockholders Agreement") that will, among other things, restrict
their transfer of shares of Surviving Corporation Common Stock. The Other
Investors, the Management Investors and the Surviving Corporation also will
enter into a registration rights agreement (the "Registration Rights Agreement")
pursuant to which the Other Investors and the Management Investors will have
certain
7
<PAGE> 18
registration rights with respect to their shares of Surviving Corporation Common
Stock. Also, certain indemnification arrangements and directors' and officers'
liability insurance for existing directors and officers of Instron will be
continued by the Surviving Corporation after the Merger.
The Beacon Group. The Beacon Group served as financial advisor to the
Instron Board and the Special Committee. Two managing directors of The Beacon
Group are limited partner investors in Kirtland. The Instron Board, the Special
Committee and The Beacon Group believe that the foregoing relationships do not
affect The Beacon Group's ability to act independently and impartially as
financial advisor to the Instron Board and the Special Committee.
The Special Committee. The members of the Special Committee will be treated
in the Merger as Public Stockholders with respect to their shares of Instron
Common Stock. Members of the Special Committee will have the right to receive
Cash Merger Consideration in the aggregate amount of $605,000 for their shares
of Instron Common Stock. The three members of the Special Committee also
received an aggregate of $30,500 from Instron as compensation for serving on the
Special Committee. The Instron Board and the Special Committee believe that the
foregoing arrangements do not affect the Special Committee's independence or
impartiality.
REGULATORY APPROVALS (page 58)
Instron is required to make filings with or obtain approvals from certain
United States antitrust regulatory authorities in connection with the Merger.
These consents and approvals include the approval of the United States Federal
Trade Commission and the Department of Justice. An application and notice was
filed with the Federal Trade Commission and the Department of Justice and the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, expired on June 21, 1999.
APPRAISAL RIGHTS (page 57)
Any Instron stockholder has the right to dissent from approval of the
Merger Agreement and, subject to strict compliance with certain requirements and
procedures set forth in Sections 85 to 98, inclusive, of the MBCL, to receive
payment of the "fair value," as defined in the MBCL, of his or her shares of
Instron Common Stock. To perfect these appraisal rights with respect to the
Merger, you must follow the required procedures precisely. The full text of
Sections 85 to 98, inclusive, of the MBCL is attached to this Proxy Statement as
Appendix C.
FEDERAL INCOME TAX CONSEQUENCES (page 64)
Generally, the receipt of the Cash Merger Consideration in the Merger by
Public Stockholders will be a taxable transaction for federal income tax
purposes. Each holder's gain or loss per share of Instron Common Stock will be
equal to the difference between $22.00 and the holder's adjusted basis in that
particular share of the Instron Common Stock. Such gain or loss generally will
be a capital gain or loss. The federal income tax rule applicable to any gain
will generally depend on the length of time that such shares of Instron Common
Stock were held by the holder. Because the tax consequences to each holder of
Instron Common Stock will depend on each holder's particular circumstances and
tax position, you should consult your tax advisors as to the specific tax
consequences of the Merger to you.
8
<PAGE> 19
HISTORICAL MARKET INFORMATION
Instron Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "ISN". The following table sets forth the high and low sales
prices for each quarterly period for the two most recent fiscal years and for
the current fiscal year to date as reported by AMEX.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997:
First quarter............................................... $13.500 $12.000
Second quarter.............................................. 14.250 10.750
Third quarter............................................... 18.857 14.000
Fourth quarter.............................................. 19.188 15.125
1998:
First quarter............................................... 19.188 15.500
Second quarter.............................................. 20.625 18.375
Third quarter............................................... 19.125 11.500
Fourth quarter.............................................. 17.250 11.875
1999:
First quarter............................................... 18.375 15.188
Second quarter (through July 21, 1999)...................... 21.375 15.500
</TABLE>
Instron has declared a dividend of $.04 per share of Instron Common Stock
for each quarterly period for the two most recent fiscal years and for the first
quarter of the current fiscal year. Under the Merger Agreement, Instron has
agreed not to pay any dividends on Instron Common Stock prior to the closing of
the Merger.
As of July 12, 1999, Instron had approximately 416 holders of record of
Instron Common Stock.
The reported high and low sales prices per share of Instron Common Stock on
May 6, 1999, the last trading day preceding public announcement of the execution
of the Merger Agreement, was $16.375 and $16.125, respectively.
9
<PAGE> 20
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated historical, financial
and other data of Instron for the five years ended December 31, 1998, which have
been derived from, and should be read in conjunction with, the consolidated
financial statements of Instron included in Instron's Annual Report on Form
10-K, which is incorporated by reference in this Proxy Statement, including the
Notes to Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations.
The selected consolidated data for the three months ended April 3, 1999 has
been derived from, and should be read in conjunction with, Instron's unaudited
condensed consolidated financial statements included in Instron's Quarterly
Report on Form 10-Q, incorporated by reference in this Proxy Statement. The
selected consolidated data for the three months ended March 28, 1998 has been
derived from Instron's unaudited condensed consolidated financial statements
included in Instron's Quarterly Report on Form 10-Q, which has not been included
or incorporated by reference in this Proxy Statement. Data for the three months
ended April 3, 1999 is not necessarily indicative of the results to be expected
for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, ----------------------
---------------------------------------------------------- MARCH 28, APRIL 3,
1994 1995 1996(1) 1997 1998(2)(3) 1998(2)(3) 1999
-------- -------- -------- -------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Bookings of new orders............ $138,947 $155,092 $161,692 $150,020 $166,515 $ 33,983 $ 42,076
Total revenue..................... 136,192 150,571 153,113 155,660 183,029 33,869 48,745
Income from operations............ 8,082 8,921 9,145 12,571 9,646 (2,743) 2,694
Income before taxes............... 6,979 7,684 7,385 11,555 20,333 8,159 2,569
Net Income........................ 4,537 4,995 4,582 7,164 11,459 3,911 1,593
Backlog........................... 32,687 36,136 34,361 28,748 74,477 31,961 65,433
Research & development............ 8,062 8,782 8,616 6,959 8,485 1,449 2,708
FINANCIAL POSITION:
Working capital................... $ 33,849 $ 38,259 $ 44,094 $ 41,942 $ 55,241 $ 40,583 $ 50,070
Total assets...................... 102,294 113,334 121,833 118,985 158,254 123,019 152,868
Total long-term debt.............. 11,018 11,225 17,409 7,600 13,216 600 6,878
Stockholders' equity.............. 51,926 56,102 62,401 66,254 79,584 71,049 79,359
Capital expenditures.............. 4,286 4,510 4,473 4,176 5,841 2,039 1,475
OTHER DATA:
Cash flow from operating
activities...................... $ 9,143 $ 6,361 $ 9,824 $ 16,989 $ 5,276 (2,948) $ 10,479
Cash flow from investing
activities...................... (5,029) (8,325) (12,163) (6,227) (6,764) 11,330 (1,943)
Cash flow from financing
activities...................... (5,278) 1,790 3,120 (10,819) 6,115 (8,483) (4,928)
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)(4)..................... 13,855 15,891 15,329 18,880 27,671 9,882 4,865
PER SHARE OF COMMON STOCK:
Net income per basic share........ $ .72 $ .79 $ .72 $ 1.11 $ 1.72 $ .60 $ .24
Net income per diluted share...... .72 .78 .70 1.05 1.62 .55 .22
Dividends declared................ .12 .15 .16 .16 .16 .04 .04
Book value........................ 8.26 8.85 9.68 9.82 11.46 10.49 11.41
PERFORMANCE MEASUREMENT:
Revenue growth.................... 10.9% 10.6% 1.7% 1.7% 17.6% (6.0)% 43.9%
Pre-tax income as of % of total
revenue......................... 5.1 5.1 4.8 7.4 11.1 24.1 5.3
Effective income tax rate......... 35.0 35.0 38.0 38.0 43.6 52.1 38.0
Net income as a % of total
revenue......................... 3.3 3.3 3.0 4.6 6.3 11.5 3.3
Return on average stockholders'
equity.......................... 9.2 9.2 7.7 11.1 15.7 15.3 12.2
Total debt as a % of debt, plus
equity.......................... 25.5 26.2 27.7 17.1 19.8 6.8 15.4
Working capital ratio............. 1.9:1 1.9:1 2.2:1 2.0:1 1.9:1 1.9:1 1.8:1
-------- -------- -------- -------- -------- -------- --------
</TABLE>
- -------------------------
(1) In March 1996, Instron recorded a special items charge to operations to
implement a workforce reduction and consolidate certain manufacturing
operations. A pre-tax charge of $1.8 million ($1.1 million net of
taxes) was taken to cover these actions.
(2) A non-operating pre-tax gain of $11.1 million ($6.9 million net of
taxes) was recorded in connection with Instron's sale of 42 acres of
excess land in Canton, Massachusetts.
10
<PAGE> 21
(3) Instron recorded a special items charge to operations to consolidate
its European operations and write-down the value of certain
non-performing assets. A pre-tax charge of $5.0 million ($4.2 million
net of taxes) was taken to cover these actions.
(4) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is presented because we believe it is frequently
used by securities analysts, investors and other interested parties in
the evaluation of companies. However, other companies may calculate
EBITDA differently than Instron. EBITDA is not a measurement of
financial performance under generally accepted accounting principles
and should not be considered as an alternative to cash flow from
operating activities or as a measure of liquidity or as an alternative
to net income as indicators of Instron's operating performance or any
other measure of performance derived in accordance with generally
accepted accounting principles. See the Statement of Cash Flow included
in the financial statements on Form 10-K.
11
<PAGE> 22
SPECIAL FACTORS
BACKGROUND OF THE MERGER
During the first quarter of calendar 1998, management and the Instron Board
began to actively consider the various alternatives by which Instron might
enhance long-term shareholder value. In connection with its review, management
and the Instron Board noted the limited public trading volume of the Instron
Common Stock on AMEX, as evidenced by the fact that the average monthly trading
volume on AMEX between July 1, 1997 and March 31, 1998 was approximately 138,500
shares. Moreover, they noted that the public float of the Instron Common Stock
had never exceeded $100 million due in part to the significant ownership of
shares held by the executive officers and directors of Instron (approximately
20%). Based on the foregoing, the Instron Board and management believed that the
Instron Common Stock was an illiquid security and that this illiquidity had an
adverse effect on the trading price of the Instron Common Stock. Accordingly, in
the second calendar quarter of 1998, the Instron Board sought to engage a
financial advisor to render advice to the Instron Board concerning options for
all Instron stockholders to achieve greater liquidity and other alternatives
which might enhance shareholder value. The Instron Board did not base any part
of this decision on the liquidity concerns of any particular Instron
stockholders, including without limitation, George S. Burr and Harold Hindman or
any of the other executive officers or directors of Instron.
On June 8, 1998, representatives of The Beacon Group met with James M.
McConnell, the Chief Executive Officer and President of Instron, and Linton A.
Moulding, the Chief Financial Officer of Instron, and discussed in general terms
various alternatives pursuant to which Instron might enhance shareholder value
and create options for increasing stockholder liquidity. The alternatives
outlined by The Beacon Group included (i) acquiring strategic businesses or
assets that would add to or strengthen Instron's core businesses, (ii) divesting
or spinning off certain of Instron's non-core businesses, (iii) entering into
joint ventures and strategic alliances and (iv) a potential sale of Instron. The
Beacon Group also reviewed with Messrs. McConnell and Moulding the processes
involved if the company were to pursue the various alternatives and the
advisability and feasibility of pursuing a particular alternative. In addition
to meeting with The Beacon Group, Messrs. McConnell and Moulding met with other
investment banking firms in June 1998 to assess the desirability of engaging a
particular firm to assist the Instron Board in evaluating strategic
alternatives.
On June 30, 1998, the Executive Committee of the Instron Board (the
"Executive Committee"), which consisted of Mr. McConnell, Harold Hindman, the
Chairman of the Instron Board, and Richard W. Young, met to review and discuss
proposals from the three investment banking firms with whom Messrs. McConnell
and Moulding had met. At this meeting, the Executive Committee recommended that
the Instron Board retain The Beacon Group to assist the Instron Board in
exploring and considering strategic alternatives. Thereafter, on July 10, 1998,
the Instron Board retained The Beacon Group to act as its financial and
strategic advisor.
On July 13, 1998, representatives of The Beacon Group met with senior
management of Instron, including Messrs. McConnell and Moulding, to discuss the
process by which The Beacon Group would assist the Instron Board in evaluating
strategic alternatives. At this meeting, The Beacon Group indicated that it
would first need to conduct financial and other due diligence concerning Instron
and its business and operations. The representatives of The Beacon Group advised
Instron's management that, following completion of such due diligence, The
Beacon Group would present to the Instron Board an analysis of the strategic
alternatives available to Instron and The Beacon Group's assessment of the
alternative or alternatives that were most likely to enhance shareholder value
and provide stockholders with increased liquidity.
On August 11, 1998, the Instron Board held a meeting at which
representatives of The Beacon Group advised the Instron Board with respect to a
range of strategic alternatives that might be available to Instron to enhance
shareholder value and provide stockholders with greater liquidity. These
alternatives included, among other things, (i) remaining an independent company
and continuing to pursue Instron's operating and business strategy, which
included the acquisition of strategic businesses or assets that would add to or
strengthen Instron's core businesses, (ii) divesting Instron's non-core
businesses through asset sales or spin-off transactions, (iii) undertaking a
share repurchase program, (iv) entering into joint ventures and other strategic
alliances and (v) selling the Company. The Beacon Group described certain
criteria used by it to evaluate
12
<PAGE> 23
these strategic alternatives, which included, among others: preliminary
indications of the value that might be received by Instron stockholders based on
various analyses (including an analysis of comparable companies, an analysis of
comparable mergers and acquisitions transactions, various discounted cash flow
analyses and a leveraged recapitalization analysis); the ability of Instron to
sustain growth given its current assets, size and market capitalization; the
stability of Instron's income stream; the liquidity available to Instron
stockholders from various strategic alternatives; and the certainty of and risks
involved in consummating various potential transactions.
The Beacon Group then noted that a number of the alternatives discussed
were not likely to be effective in enhancing shareholder value or providing
liquidity to the Instron stockholders. In particular, The Beacon Group noted
that because Instron's non-core businesses were small and their divestiture
would be unlikely to have a material effect on Instron's market value,
divestitures of non-core businesses was not an alternative likely to enhance
shareholder value or provide liquidity to the Instron stockholders. The Beacon
Group likewise noted that spin-offs of non-core businesses would not likely be a
viable alternative because none of Instron's non-core businesses were large
enough to be stand-alone public companies. With respect to joint ventures, The
Beacon Group noted that within the materials and structural testing systems
industry the opportunities for joint ventures and other strategic alliances were
limited. The Beacon Group also noted that a share repurchase program was not an
attractive alternative because it would only exacerbate the illiquidity of the
Instron Common Stock.
In reviewing potential alternatives at the August 11, 1998 Instron Board
meeting, The Beacon Group noted that while acquiring strategic businesses or
assets that could add to or strengthen Instron's core businesses would not
address stockholder liquidity concerns, Instron had been successful to date in
executing that operating and business strategy. The Beacon Group also noted that
Instron could continue to focus on add-on acquisitions where it could leverage
its market position to reduce costs and increase efficiency. However, The Beacon
Group explained that, based on its discussions with Instron's management, it
believed that in view of the markets in which the company operated, in the
future there would likely be fewer attractive acquisition candidates and that
enhancing shareholder value by maintaining the status quo and pursuing add-on
acquisitions was inherently risky. The Beacon Group also discussed the strategy
of engaging in a sizable acquisition, which it believed had the potential, among
other things, to diversify Instron's revenue mix, leverage and strengthen
Instron's distribution network with broader product offerings and increase
revenue and cash flow. However, The Beacon Group noted that undertaking such a
significant acquisition would expose Instron to excessive financial and
operating risks associated with the execution of such a transaction,
particularly in view of the substantial management resources that would be
required to be devoted to such an acquisition.
At the August 11, 1998 Instron Board meeting, The Beacon Group explained to
the Instron Board that The Beacon Group had conducted a number of very
preliminary analyses to attempt to quantify the potential relative values to
Instron's stockholders of the following alternatives: (i) remaining an
independent company and continuing to pursue Instron's current strategies (the
"status quo" alternative), (ii) undertaking a significant acquisition, and (iii)
undertaking various other transactions that would result in the sale of Instron,
including a merger pursuant to which the Instron stockholders would receive
cash, a stock-for-stock merger with a publicly traded company engaged in a
business related to one or more of Instron's businesses (a "strategic buyer") or
a leveraged recapitalization merger with a financial buyer engaged in the
business of pursuing investment opportunities (a "financial buyer"). To
undertake these very preliminary relative value analyses, The Beacon Group
relied, without independent verification, on management's then current forecasts
for the period 1998 to 2002, which projected net sales and EBITDA of $222.2
million and $25.0 million, respectively, for 1998 (pro forma for Instron's
acquisitions of Satec Systems, Inc. and the remaining interest in Instron
Schenck Testing Systems) and $266.1 million and $35.5 million for 2002,
respectively. The Beacon Group also relied, without independent verification, on
research analysts' projections for both a selected representative significant
acquisition candidate and a selected representative merger partner in analyzing
these alternatives. Based on a number of assumptions, the merger and financing
market conditions prevailing at the time, and the then current trading multiples
of selected comparable companies, particularly MTS Systems Corporation,
Instron's principal competitor, The Beacon Group's preliminary analyses derived
theoretical per
13
<PAGE> 24
share value ranges of the Instron Common Stock for each of the alternatives
listed above for the purpose of providing the Instron Board with some basis to
compare them relative to one another.
The Beacon Group calculated the theoretical implied per share value of the
Instron Common Stock to range from $21.46 to $24.55 and $20.61 to $27.43 for the
status quo and significant acquisition alternatives, respectively. The Beacon
Group calculated the potential per share values of the Instron Common Stock in a
transaction involving the sale of Instron to range from $26.00, based primarily
on a leveraged recapitalization analysis and the favorable financing markets
prevailing for such transactions at the time, to $32.00 in a sale to a strategic
buyer, based primarily on an analysis of reasonably comparable mergers and
acquisitions transactions and a discounted cash flow analysis. The Beacon Group
noted that this range of potential per share values relied heavily on the
assumption that a number of strategic buyers would be interested in acquiring
Instron at a valuation in line with, or at a premium to, values implied by MTS
Systems Corporation's Aggregate Value to LTM EBITDA multiple of 8.4x, given MTS
Systems Corporation's position as Instron's closest publicly traded comparable
company in terms of markets served. In addition, The Beacon Group noted that the
theoretical per share value of the Instron Common Stock could be substantially
higher than this range if a merger with a competitor were effected for stock and
if the combined company were able to achieve very significant cost savings.
However, The Beacon Group also noted that such cost savings are often very
difficult to realize in practice and that Instron's stockholders would have to
bear the risk that they are not achieved for some time and ultimately reflected
in the price of the merged entity's stock. Further, The Beacon Group noted that
a merger with such significant cost savings would likely be available with only
the very limited number of companies within Instron's industry. Based on the
foregoing analyses, The Beacon Group recommended that, in order to enhance
shareholder value and provide liquidity to stockholders, the Instron Board
should consider exploring a potential sale of the company pursuant to a cash
merger, a stock-for-stock merger or a leveraged recapitalization transaction,
which, The Beacon Group noted, could all be pursued in the context of the same
process.
Following the presentation by The Beacon Group, the Instron Board engaged
in a discussion concerning the various alternatives outlined by The Beacon Group
that concluded with the Instron Board adopting The Beacon Group's findings and
recommendations. Accordingly, the Instron Board determined that a potential sale
of Instron was the alternative that would most likely allow Instron to satisfy
the objectives of increasing shareholder value and providing liquidity to all of
the Instron stockholders.
Following the Instron Board's decision to explore a potential sale of the
Company, The Beacon Group recommended at the August 11, 1998 Instron Board
meeting that Instron implement a multi-step process in order to solicit
potential bids. The first step would be a broad marketing effort designed to
attract as wide and competitive a field of interested parties as possible. The
second step would be to seek more specific proposals from a smaller group of
interested parties, whose offers would be evaluated based upon such criteria as
price, form of consideration and certainty of consummation of a transaction.
Pursuant to this bidding process, the smaller group of interested parties would
submit competing proposals to acquire Instron or its assets. As the third step,
Instron would enter into exclusive negotiations concerning a definitive
agreement with the party whose bid would be most likely to provide the best
value for the Instron stockholders. According to The Beacon Group, this process
was preferable to other alternatives, such as negotiating only with one party
throughout the process, because in a competitive bidding process parties were
more likely to submit their highest bid to avoid being outbid by a competing
party. Thus, in the opinion of The Beacon Group, this multi-step process was
most likely to increase the amount of consideration to be received by the
Instron stockholders.
Following this discussion, the Instron Board decided to adopt The Beacon
Group's recommendation to solicit interest from potential acquirors using a
multi-step process designed to result in competitive bidding for the Company.
The Instron Board also authorized management, with the assistance of Instron's
financial and legal advisors, to prepare a confidential information package for
distribution to potential buyers and to enter into confidentiality agreements
with potential buyers. In connection with authorizing the solicitation of bids,
the Instron Board did not make it a condition to any potential transaction that
current management maintain an equity interest in Instron following such
transaction.
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Following the August 11, 1998 Instron Board meeting, The Beacon Group began
the process of soliciting the interest of 49 parties in merging with or
acquiring Instron ("Phase I"). These potential buyers were comprised of certain
private companies, strategic buyers and financial buyers. As part of such
solicitation, The Beacon Group contacted senior executives or directors of such
potential buyers to inquire as to their interest in exploring a possible
business combination transaction with Instron. These potential buyers were asked
to execute a confidentiality agreement before The Beacon Group would be
permitted to distribute confidential information packages regarding Instron to
such potential buyers. A total of 23 potential buyers executed confidentiality
agreements and received confidential information packages. In connection with
the distribution of the confidential information packages, these potential
buyers were asked to submit indications of interest concerning a possible
business combination or acquisition transaction with Instron not later than the
end of the first week of January 1999. The other 26 potential buyers who were
contacted indicated to The Beacon Group that they did not have an interest in
exploring a transaction with Instron at that time.
At a meeting of the Instron Board held on November 4, 1998, The Beacon
Group updated the Instron Board on The Beacon Group's progress in soliciting
indications of interest from potential buyers. The Beacon Group informed the
Instron Board that it had received a number of preliminary indications of
interest from certain potential buyers and that it was continuing its efforts to
contact other potential buyers. At the November 4 meeting, The Beacon Group also
advised the Instron Board with respect to recent adverse conditions in the
financing markets and the markets for mergers and acquisitions, recent declines
in MTS Systems Corporation's operating results and Aggregate Value to LTM EBITDA
multiple (from 8.4x on August 7, 1998 to 6.5x on November 2, 1998), and recent
comparable mergers and acquisitions activity in the analytical instrument
industry. However, The Beacon Group also noted that the financing markets and
the mergers and acquisitions markets appeared to be stabilizing. The Instron
Board then authorized The Beacon Group to continue its marketing efforts.
At a meeting of the Instron Board held on December 9, 1998, The Beacon
Group again updated the Instron Board on The Beacon Group's progress in
soliciting indications of interest from potential buyers. The Beacon Group also
noted that the mergers and acquisitions markets had continued to strengthen in
conjunction with the equity markets, but that the markets for acquisition
financing had not improved significantly making such financing more expensive
and difficult to obtain. At this meeting, The Beacon Group informed the Instron
Board that it was nearing the completion of its solicitation of preliminary
indications of interest and that it would at that time begin the second phase of
the process, after which The Beacon Group would make a formal presentation to
the Instron Board before beginning the final phase.
At the end of Phase I, The Beacon Group received ten preliminary
indications of interest from potential buyers who had received confidential
information packages. Of these indications of interest, five involved a merger
with a strategic buyer and five involved a recapitalization merger pursuant to
which a financial buyer would make an investment in Instron that would result in
Instron becoming a private company. These indications of interest either (i)
specified a price or range of prices to be paid to the Instron stockholders from
$15.00 to $24.00 per share or (ii) indicated that the potential buyer would
consider paying a premium to the then current trading price of the Instron
Common Stock. In these latter bids, the amount of the potential premium was not
specified.
After receiving these ten indications of interest, Instron directed The
Beacon Group to invite the five potential buyers which either in their bids or
in conversations with The Beacon Group, had indicated a willingness to pay a
significant premium to the then current trading price of the Instron Common
Stock, to participate in the next phase of the bidding process ("Phase II"). In
connection with Phase II of the bidding process, each of these five potential
buyers (the "Phase II Bidders") were permitted to conduct preliminary due
diligence on Instron and were given access to a data room in which Instron had
assembled various materials and documentation concerning the Company's business
and operations. In addition, in January and February of 1999, four of the Phase
II Bidders (including Kirtland) attended presentations by Instron's management
concerning its business and operations. As part of the Phase II process, The
Beacon Group requested that each of the Phase II Bidders submit, on or about
February 19, 1999, a formal proposal (a "Phase II Proposal") specifying an
estimated price that such bidder might be willing to pay to the Instron
stockholders, an outline of any significant comments or requested changes to a
draft of a merger agreement
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<PAGE> 26
that was provided to such bidders, such bidder's intentions with respect to
Instron's current management, a description of any additional due diligence
items or activities that such bidder would expect to undertake, the status of
any proposed financing for the transaction, and any other significant conditions
relating to the transaction. The Beacon Group informed each of the Phase II
Bidders that following February 19, 1999, Instron would evaluate the Phase II
Proposals and select potential buyers with which to conduct a final phase of
negotiations with a view to receiving a final proposal from the Phase II
Bidders.
At the end of the Phase II process, another party submitted a preliminary
indication of interest which was rejected because it was at a price
significantly below the other indications of interest and contained other terms
and conditions which made the bid unattractive.
In connection with the Phase II process, only two of the five Phase II
Bidders submitted written proposals. Kirtland's Phase II Proposal expressed an
interest in pursuing a leveraged recapitalization merger with Instron pursuant
to which substantially all of the Instron stockholders would receive cash in the
merger at an estimated price per share of $22.00. Kirtland's proposal required
the continued participation and involvement of the existing senior management of
Instron and was conditioned upon, among other things, the execution of mutually
acceptable definitive documentation, the completion by Kirtland of further due
diligence satisfactory to Kirtland, the receipt by Kirtland of debt financing on
terms satisfactory to Kirtland and the negotiation of satisfactory arrangements
with the existing senior management of Instron concerning a continued ownership
interest in Instron following the transaction. Kirtland's proposal also included
initial comments from its legal counsel on the draft of the merger agreement.
The other Phase II Proposal was submitted by a Phase II Bidder that, like
Kirtland, also was a financial buyer ("Bidder A"). Pursuant to its Phase II
Proposal, Bidder A expressed an interest in pursuing a leveraged
recapitalization merger with Instron at an estimated price per share of $22.50.
Bidder A's proposal also provided for the continued participation and
involvement of the existing senior management of Instron and was conditioned
upon, among other things, the completion by Bidder A of further due diligence
satisfactory to Bidder A and the receipt by Bidder A of debt financing on terms
satisfactory to Bidder A. Bidder A's proposal did not include any comments from
its legal counsel on the draft of the merger agreement. Bidder A also expressed
to The Beacon Group its desire to negotiate the terms of any proposed
transaction on an exclusive basis with Instron.
At a meeting of the Instron Board held on March 10, 1999, the Instron Board
formed the Special Committee, consisting of Mr. Young, Dennis J. Moore and John
F. Smith, to consider and evaluate the two Phase II Proposals and any other
proposals that might be received by Instron. The Instron Board selected Messrs.
Young, Moore and Smith to serve as the members of the Special Committee because
they were not employed by Instron and would neither be employed by nor own an
equity interest in Instron following consummation of a transaction. In addition,
unlike the other two non-employee directors who also would not have a continuing
equity investment in Instron following a transaction, Messrs. Young, Moore and
Smith also indicated that their schedules would permit them to attend the
numerous Special Committee meetings which were likely to be held in the next
several months. The Instron Board also authorized the Special Committee to
participate in the negotiations of the material terms and conditions of the
proposed transactions under consideration and to recommend to the Instron Board
the advisability of entering into a definitive agreement with respect to any
such transaction. The Instron Board formed the Special Committee primarily
because it believed that a recapitalization transaction in the form proposed by
each of Kirtland and Bidder A might present potential conflicts of interest for
Instron's senior management and certain members of the Instron Board, who,
unlike the other Instron stockholders, would have a continuing equity interest
in Instron following consummation of such a transaction. The Instron Board also
considered the fact that, in view of the foregoing potential conflicts of
interest of Instron's senior management, it would be advisable for senior
management to retain separate legal counsel to advise it in connection with the
proposed transactions under consideration. For the same reason, the Instron
Board deemed it advisable that the Other Investors retain separate legal counsel
in connection with the proposed transactions under consideration. Subsequent to
the March 10, 1999 Instron Board meeting, the Management Investors and the Other
Investors each retained separate legal counsel. The Instron Board and the
Special Committee also considered the fact that two of the thirteen managing
directors of The Beacon Group were limited partner investors in Kirtland, one of
whom
16
<PAGE> 27
was actively involved in advising the Instron Board and the Special Committee
during the bidding process. However, the Instron Board and the Special Committee
noted that these individuals were passive investors in Kirtland who together
owned an approximately 0.12% limited partner interest in Kirtland and did not
control in any way the actions of Kirtland. Moreover, two other senior
professionals of The Beacon Group with no economic interest in Kirtland were
actively involved in advising the Instron Board and the Special Committee during
the bidding process. In addition, the Instron Board and the Special Committee
noted that under the terms of The Beacon Group's engagement with Instron, The
Beacon Group's fee percentage would increase as the price to be paid to the
Public Stockholders in any transaction increased. Accordingly, the Instron Board
and the Special Committee believed that despite the economic interest in
Kirtland held by the two managing directors of The Beacon Group, the terms of
The Beacon Group's engagement provided a substantially greater economic
incentive to assist Instron in obtaining the highest price for the stockholders
in any transaction. In view of the foregoing, the Instron Board and the Special
Committee concluded that the aforementioned relationship between the two
managing directors of The Beacon Group and Kirtland would not affect The Beacon
Group's ability to act independently and impartially as financial advisor to the
Instron Board and the Special Committee.
At the March 10, 1999 Instron Board meeting, The Beacon Group advised the
Instron Board with respect to the status of the bidding process including its
analysis of the two Phase II Proposals that had been received and the additional
preliminary indication of interest. At this meeting, The Beacon Group provided
the Instron Board with a detailed analysis of the steps that The Beacon Group
had undertaken in the Phase I and Phase II bidding process. This analysis
included a description of the overall timetable for the Phase I and Phase II
bidding process, a summary of the efforts made by The Beacon Group to contact
potential interested parties, a summary of the preliminary indications of
interest received to date in the bidding process, a review of the management
presentations attended by certain Phase II Bidders, an overview of the contacts
made and discussions with Kirtland and Bidder A, a discussion of valuation
considerations that supported the range of the per share prices proposed by
Kirtland and Bidder A, and a detailed timetable for the final phase of the
process. The Beacon Group also reviewed with the Instron Board the additional
preliminary indication of interest that was received in the Phase II process.
At the March 10, 1999 Instron Board meeting, The Beacon Group noted that
three significant developments since the August 11, 1998 Instron Board meeting
had likely negatively impacted the range of per share prices proposed by
Kirtland and Bidder A. These three developments were: (i) potential strategic
buyers did not express an interest in participating in the bidding process, (ii)
the difficulties experienced by the Asian markets, which contributed to lower
1998 pro forma EBITDA for Instron than originally forecast in August of 1998,
and (iii) MTS Systems Corporation's significant decline in value caused by
broader market turmoil and modest quarterly and projected results, which
impacted Instron's value as its most relevant publicly traded comparable
company. The Beacon Group noted that as of August 7, 1998, Instron's forecast
for 1998 pro forma EBITDA was $25.0 million and MTS Systems Corporation's
Aggregate Value to LTM EBITDA multiple was 8.4x, which implied a $26.21 value
per share for the Instron Common Stock. The Beacon Group also noted that as of
March 10, 1999, Instron's estimated 1998 pro forma EBITDA was $22.2 million and
MTS Systems Corporation's Aggregate Value to LTM EBITDA multiple was 6.4x, which
implied a $17.70 per share value for the Instron Common Stock. The Beacon Group
noted that the current proposals of $22.00 and $22.50 per share of Instron
Common Stock were above this level.
To further facilitate the Instron Board's review of the two Phase II
Proposals, The Beacon Group also reviewed certain qualitative aspects of these
proposals, including the sources and availability of the debt financing required
under the proposals, the certainty of consummating a transaction, the approvals
required to consummate a transaction, the expected level of participation and
involvement in the company by senior management following consummation of a
transaction and the likelihood that a transaction would qualify for
recapitalization accounting treatment. The Beacon Group noted in particular that
each of the proposals was conditioned on further due diligence and the securing
of debt financing. Both The Beacon Group and Instron's legal counsel advised the
Instron Board that Instron should not grant exclusivity to either Kirtland or
Bidder A but should continue the bidding process with both of them and attempt
to obtain, among other things, (i) a higher price per share to be paid to the
Instron stockholders in a transaction, (ii) greater certainty
17
<PAGE> 28
with respect to any debt financing required for a transaction and (iii) more
specific terms of management's continued involvement in the company following
consummation of a transaction.
Immediately following the March 10, 1999 Instron Board meeting, the Special
Committee met to discuss the remainder of the bidding process and the timing of
such process. At this meeting, Instron's legal counsel advised the Special
Committee with respect to the Special Committee's legal responsibilities and the
legal principles applicable to, and the legal consequences of, actions taken by
the Special Committee with respect to the Phase II Proposals made by Kirtland
and Bidder A as well as any other proposals that may be made in the future
concerning a potential transaction involving the company. In particular,
Instron's legal counsel advised the Special Committee with respect to the
Special Committee's fiduciary duties generally, the ability of the Special
Committee to withdraw or modify its recommendation of any transaction and the
provisions of the merger agreement relating thereto, and the necessity for
obtaining shareholder approval of any proposed transaction. The Special
Committee then considered the recommendations made by Instron's financial and
legal advisors at the March 10, 1999 Instron Board meeting and concluded that
Instron should adopt such recommendations and proceed to the final phase of the
bidding process.
Promptly following the meetings of the Instron Board and the Special
Committee on March 10, 1999, The Beacon Group contacted Kirtland and Bidder A
(the "Phase III Bidders"), each of whom continued to express an interest in
pursuing a recapitalization transaction with Instron. The Beacon Group informed
the Phase III Bidders that the Instron Board had formed the Special Committee
and had authorized the Special Committee to participate in the negotiations of
the material terms and conditions of any proposed transaction and to recommend
to the Instron Board the advisability of entering into a definitive agreement
with respect thereto. The Beacon Group also advised Kirtland and Bidder A that
Instron was not prepared to negotiate the terms of a proposed transaction
exclusively with either of them. The Beacon Group then invited the Phase III
Bidders to participate in the third and final phase of the bidding process
("Phase III"). In this regard, the Phase III Bidders were given the opportunity
to perform extensive due diligence on Instron, including the examination of
additional documentation requested by them or their financing sources, touring
Instron's United States and European facilities and interviewing Instron's
senior management. The Phase III Bidders were also given the opportunity to
comment further on a form of merger agreement that had been revised to reflect a
recapitalization transaction. As part of the Phase III process, each of the
Phase III Bidders were asked to complete their due diligence and submit a final
proposal to The Beacon Group by April 5, 1999.
During the period of March 21 through March 24, 1999, representatives of
Kirtland met with members of Instron's senior management, including Mr.
McConnell, and representatives of The Beacon Group in Germany and the United
Kingdom to tour Instron's research and development and manufacturing operations
in Darmstadt, Germany and High Wycombe, U.K., to meet members of Instron's
management teams at these facilities and to visit certain of Instron's
customers. During the period of March 24 through March 27, 1999, representatives
of Bidder A participated in a substantially similar tour of Instron's operations
in Darmstadt and High Wycombe. During this period, each of Kirtland's and Bidder
A's legal counsel performed extensive due diligence on Instron, requesting
various documentation from Instron and visiting Instron's Canton, Massachusetts
headquarters. Representatives of Kirtland and Bidder A also visited Instron's
headquarters to perform additional financial due diligence.
During the last two weeks of March 1999, legal counsel for the Phase III
Bidders reviewed the draft of the recapitalization merger agreement that had
been distributed to the Phase III Bidders. On March 18, 1999, Bidder A's legal
counsel provided Instron with a memorandum summarizing Bidder A's preliminary
comments on the draft of the recapitalization merger agreement that had been
distributed to the Phase III Bidders. On March 25, 1999, Kirtland's legal
counsel provided Instron with detailed comments on the draft of the
recapitalization merger agreement that had been distributed to the Phase III
Bidders.
On March 30, 1999, the Special Committee held a meeting to discuss the
status of the Phase III bidding process. Prior to this meeting, the Special
Committee received materials from Instron's legal and financial advisors
summarizing the status of each of the Phase III Bidders' legal and financial due
diligence and the negotiations with their legal counsel concerning the proposed
terms of the recapitalization merger agreement. The Special Committee also
received copies of Kirtland's detailed comments on the draft of the
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<PAGE> 29
recapitalization agreement, a proposed revised draft of the recapitalization
merger agreement responding to Kirtland's comments, the memorandum prepared by
Bidder A's legal counsel concerning its preliminary comments on the draft of the
recapitalization merger agreement, and a proposed revised draft of the
recapitalization agreement responding to such comments. At the March 30, 1999
meeting, the Special Committee discussed the fact that Kirtland had
substantially completed its legal and financial due diligence and had engaged in
extensive negotiations with Instron's legal counsel concerning the terms of the
recapitalization merger agreement. The Special Committee also discussed its
concern that, in contrast to Kirtland's progress, Bidder A was still in the
process of conducting its legal and financial due diligence and had not yet
provided Instron with a detailed markup of the recapitalization merger
agreement.
On April 5, 1999, The Beacon Group received final proposals (the "Phase III
Proposals") from each of the Phase III Bidders, accompanied by drafts of debt
financing commitment letters from such bidders' proposed lenders. Kirtland's
Phase III Proposal contemplated a recapitalization merger pursuant to which the
Instron stockholders (other than certain management and non-management
stockholders of Instron who Kirtland would require to have a continuing equity
interest in the Company following consummation of the transaction) would receive
$20.50 per share in cash. Kirtland's proposal stated that, based upon
conversations between Kirtland and members of Instron's senior management,
Kirtland believed that it would be able to quickly agree on the arrangements for
management's ongoing ownership interest in the company. Kirtland's Phase III
Proposal also provided that the financing required to complete the transaction
would come from equity investments by Kirtland, members of Instron's management
and certain other non-management stockholders of Instron, and a combination of a
revolving credit facility and high yield debt. Kirtland's Phase III Proposal
also provided for a number of conditions to Kirtland's obligation to consummate
a transaction with Instron. These conditions consisted, among other things, of:
(i) the negotiation of arrangements with Instron's management concerning its
continued equity investment in Instron; (ii) revenues and earnings for Instron's
fiscal quarter ended April 3, 1999 being consistent with projections previously
provided to Kirtland in connection with its financial due diligence review of
Instron; (iii) Kirtland's lenders being reasonably satisfied with the results of
their due diligence review of Instron, which was expected to be completed within
two weeks; and (iv) Instron having debt (net of cash) at the closing of the
transaction not in excess of $11.5 million (the "Net Debt Closing Condition").
Bidder A's Phase III Proposal also contemplated a recapitalization merger
pursuant to which the Instron stockholders (other than certain management
stockholders and potentially non-management stockholders of Instron who would
have a continuing equity interest in the Company following consummation of the
transaction) would receive $20.00 per share in cash. Bidder A's proposal stated
that prior to executing a definitive merger agreement, Bidder A anticipated
finalizing arrangements with Instron's management and other non-management
stockholders concerning their ongoing ownership interest in the Company. Bidder
A's Phase III Proposal also provided that the financing required to complete the
transaction would come from equity investments by Bidder A, members of Instron's
management and certain other non-management stockholders of Instron, and a
combination of a revolving credit facility, high yield debt and mezzanine
financing in the form of senior preferred equity. Bidder A's Phase III Proposal
was accompanied by commitment letters from its lender that set forth the terms
of the revolving credit, high yield debt and mezzanine financing to be provided
by such lender. Bidder A indicated in its Phase III Proposal that it had
conducted significant due diligence and to date it had not identified any
material issues. Bidder A stated that it expected to complete its legal and
financial due diligence by April 14, 1999. In addition, Bidder A indicated in
its Phase III Proposal that it had provided summary terms of the arrangements
with Instron's management concerning their ongoing ownership interest in the
company to management and management's legal counsel. Bidder A's Phase III
Proposal also indicated that it would need to review the results of Instron's
fiscal quarter ended April 3, 1999 prior to entering into a definitive agreement
with Instron with respect to a transaction. Finally, Bidder A stated in its
Phase III Proposal that the $20.00 per share price was below the $22.50 per
share price referred to in its Phase II Proposal as a result of several factors,
including, without limitation, the results of obtaining definitive terms of
available bank financing and the amount of expenses to be incurred by Instron in
connection with the transaction.
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<PAGE> 30
On April 7, 1999, the Special Committee met to discuss the Phase III
Proposals submitted by Kirtland and Bidder A. In order to facilitate the Special
Committee's review of the two Phase III Proposals, The Beacon Group reviewed
with the Special Committee certain qualitative aspects of these proposals and,
to a lesser degree, certain quantitative aspects of these proposals. The Beacon
Group reviewed the principal terms of the proposals, including the proposed cash
purchase prices per share, the form of the proposed transactions, Kirtland's and
Bidder A's proposed levels of investment in the Company by management and
certain non-management stockholders following consummation of the proposed
transaction, the proposed level of equity investment by each of Kirtland and
Bidder A, the material financing arrangements related to each proposal, and
other significant conditions to the proposals, including further due diligence
requirements. The Beacon Group also noted that while the final phase of due
diligence had generally proceeded well, Kirtland and Bidder A had communicated
certain concerns to The Beacon Group that they maintained had affected the per
share price in their proposals. These concerns included the fact that financing
sources were unwilling to include all forecast cost savings in their
calculations of pro forma EBITDA used to determine the total amount of debt
available to the Company and also that the ratio of total debt to EBITDA at
which financing sources were willing to lend was lower than either Kirtland or
Bidder A had previously estimated. In addition, Kirtland and Bidder A each noted
that they believed that certain transaction-related expenses were projected to
be higher than their original estimates and that they had underestimated capital
spending and working capital needs. The quantitative aspects of each of
Kirtland's and Bidder A's proposals reviewed by The Beacon Group for the Special
Committee included the proposed transaction sources and use of funds, the
estimated pro forma capitalization, the implied pre-transaction and
post-transaction stock ownership profile, material terms and conditions of the
proposed financing commitments, estimated pro forma credit statistics, and
various sensitivities for potential projected rates of return on the equity to
be invested by Kirtland and Bidder A. In addition, Instron's legal counsel
updated the Special Committee on the status of negotiations of the proposed
merger agreements with each of Kirtland and Bidder A.
Following The Beacon Group's review of the Phase III Proposals at the April
7, 1999 Special Committee meeting, certain members of the Special Committee
expressed some disappointment at the pricing of the two proposals, particularly
in view of the fact that the two Phase III Bidders had reduced their proposed
cash purchase price significantly from their previous proposals. At the meeting,
the Special Committee also discussed, with advice from The Beacon Group and
Instron's legal counsel, the implications of rejecting both Phase III Proposals.
Following a discussion by the Special Committee, the Special Committee concluded
that neither of the Phase III proposals should be accepted at the current time
and that The Beacon Group should extend the bidding process over the next
several weeks. The Special Committee decided that, during this time, the two
Phase III Bidders would be asked to reconsider their proposed pricing and that
The Beacon Group would contact certain potential strategic buyers who had been
contacted earlier in the process, but who had not been interested at that time
in exploring a possible transaction with Instron. The Special Committee
concluded that if either of the two Phase III Bidders indicated a willingness to
increase their proposed cash purchase price or amended its proposal to increase
its proposed cash purchase price to at least the range of the Phase II
Proposals, then at such time the Special Committee would consider whether to
proceed to exclusive negotiations with such bidder.
Following the April 7, 1999 meeting of the Special Committee, The Beacon
Group contacted Kirtland and Bidder A to report the results of the Special
Committee's meeting and, in particular, to express the Special Committee's
disappointment with the reduction of the bidders' proposed cash purchase price
from the pricing set forth in their Phase II Proposals. The Beacon Group also
informed the two bidders that the Special Committee would likely look favorably
on a significant increase in their pricing for a transaction to at least the
range of the Phase II Proposals, but that the Special Committee was not prepared
to continue negotiations at the present pricing. The Beacon Group also informed
the two Phase III Bidders that the Special Committee had authorized The Beacon
Group to contact certain potential strategic buyers who earlier in the process
had not been interested in exploring a possible transaction with Instron.
On April 13, 1999, representatives of Kirtland met with Messrs. McConnell
and Moulding and representatives of The Beacon Group. At this meeting, Kirtland
expressed its continued strong interest in pursuing a transaction with Instron
and indicated a willingness to increase its proposed cash purchase price.
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<PAGE> 31
After significant discussions and negotiation, Kirtland increased its proposed
cash purchase price to $22.00 per share, provided that Instron agree that
following execution of a merger agreement and prior to consummation of a
transaction Instron would not pay any dividends to holders of Instron Common
Stock, including Instron's regular quarterly dividend. Kirtland also conditioned
its revised bid (the "Revised Kirtland Phase III Proposal") on certain
non-management stockholders of Instron (the Other Investors) participating in
the equity ownership of Instron following the transaction through the ownership
of preferred stock. Following this meeting, The Beacon Group informed Bidder A
that its proposed bid of $20.00 was no longer competitive and that to remain
competitive in the bidding process it would have to increase the price of its
bid significantly. On the same date, a representative of Kirtland met with
Messrs. Hindman and Burr to discuss Kirtland's interest in pursuing a
transaction with Instron. Shortly after this meeting, Kirtland sent a brief term
sheet to the Other Investors outlining Kirtland's expectation that the Other
Investors would participate in the equity ownership of Instron following the
transaction by rolling over approximately $3.5 million in value (or 160,000
shares of Instron Common Stock) into equity of the Surviving Corporation.
On April 14, 1999, Bidder A informed The Beacon Group that it continued to
have an interest in pursuing a transaction with Instron, but that it would not
increase its price beyond $20.50 per share. Bidder A also emphasized its
experience in taking public companies private and its belief that its proposal
would provide greater certainty of consummating a transaction.
On April 15, 1999, the Special Committee held a meeting to discuss the
status of the Phase III Proposals, including The Beacon Group's conversations
with Kirtland and Bidder A, the results of The Beacon Group's efforts to contact
other strategic buyers and the status of negotiations of the merger agreements.
The Beacon Group informed the Special Committee that none of the potential
strategic buyers that were contacted expressed an interest in exploring a
possible transaction with Instron. The Beacon Group reported that these
potential buyers either lacked the management resources at that time to explore
a strategic transaction with Instron or were at that time pursuing a strategic
transaction with another party that precluded them from participating in
discussions with Instron. Following The Beacon Group's report to the Special
Committee, Instron's legal counsel updated the Special Committee on the status
of negotiations with Kirtland and Bidder A concerning the terms of the proposed
merger agreements.
Following the updates provided by The Beacon Group and Instron's legal
counsel, the Special Committee discussed at the April 15 meeting the likelihood
that a strategic buyer would express an interest in exploring a potential
transaction with Instron at some later time, concluding that in view of the
length of the process undertaken by Instron to date (eight months) pursuant to
which 49 potential buyers were solicited and The Beacon Group's latest attempts
to resolicit the interest of certain of these potential buyers, it was not
likely that a strategic or other buyer would express an interest in exploring a
transaction with Instron in the foreseeable future. During this discussion, the
Special Committee also considered Instron's then current and projected financial
performance, Instron's business strategy and the uncertainties associated with
the successful implementation of that strategy. In addition, the Special
Committee considered the uncertainties associated with terminating the sale
process at that time and soliciting potential buyers at some time in the future
in view of the fact that Instron had received the bids from Kirtland and Bidder
A. Following this discussion and a review of the terms and conditions of the
Revised Kirtland Phase III Proposal and Bidder A's Phase III Proposal, the
Special Committee concluded that it was desirable to proceed with Kirtland
rather than Bidder A because Bidder A was not willing to increase its price
beyond $20.50 per share while Kirtland was willing to proceed with a transaction
at $22.00 per share. The Special Committee then authorized Mr. Young to
participate in exclusive negotiations with Kirtland concerning a
recapitalization transaction on the terms set forth in the Revised Kirtland
Phase III Proposal upon the satisfaction of the following conditions: (i)
receipt by Kirtland of an executed commitment letter relating to its procurement
of high yield debt financing; (ii) agreement and understanding by management of
Instron concerning the scope of the Net Debt Closing Condition; (iii) the Other
Investors indicating that they were in agreement with the general terms
concerning their equity ownership in Instron following completion of the
transaction; and (iv) Instron's independent public accountants concluding as a
preliminary matter that the transaction as proposed by Kirtland would qualify
for recapitalization accounting treatment.
21
<PAGE> 32
On April 20, 1999, Mr. Young reported to the other members of the Special
Committee that Kirtland had satisfied the four conditions discussed at the April
15, 1999 Special Committee meeting and that Instron should therefore proceed
with exclusive negotiations with Kirtland, which the members of the Special
Committee agreed was appropriate. On April 20, 1999, Instron and Kirtland
entered into an exclusivity agreement (the "Exclusivity Agreement") pursuant to
which the parties agreed to negotiate exclusively with each other until April
30, 1999.
Following the execution of the Exclusivity Agreement, the parties,
primarily through their legal counsel and, in the case of Instron, with the
assistance of The Beacon Group, focused on negotiating the final terms of the
Merger Agreement and the related documentation. In addition, the Other Investors
and the Management Investors, through their respective legal counsel, began
negotiations with Kirtland's legal counsel. These negotiations continued for a
period of approximately three weeks, and centered primarily upon: (i) the amount
of equity participation by the Management Investors and the Other Investors in
Instron following completion of the transaction, and (ii) certain modifications
to the Management Investors' existing employment arrangements that Kirtland was
seeking. In this regard, Kirtland was motivated by a desire to (i) achieve
recapitalization accounting treatment, and (ii) as is its normal practice,
maximize the level of participation by the Management Investors. These
negotiations did not involve valuation issues as Kirtland had agreed that any
investment by the Management Investors and the Other Investors in Instron
following completion of the transaction would be on a basis equivalent to
Kirtland's investment. With respect to the level of equity participation by the
Management Investors and the Other Investors, the Equity Investor expressed a
desire at the outset of negotiations that the Management Investors and the Other
Investors rollover equity with a value of approximately $7.5 million (based on
$22.00 per share) in connection with the transaction of which at least
approximately $3.5 million (or approximately 160,000 shares) would come from the
Other Investors in order to qualify the transaction for recapitalization
accounting treatment. During the negotiations, the Other Investors endeavored to
reduce this amount, but ultimately agreed to this rollover amount in an effort
to assist the Equity Investor in obtaining the desired accounting treatment. The
amount of the Management Investors' rollover amount arose from Kirtland's desire
to maximize the participation of the Management Investors. At the outset of
negotiations, Kirtland asked the Management Investors to develop a meaningful
equity participation proposal. In response, the Management Investors offered to
rollover approximately $5.3 million in value, which exceeded Kirtland's initial
request. Kirtland accepted the Management Investors' proposed rollover amount in
all material respects with some limited negotiations regarding the amount of the
rollover that pertained to options and restricted stock.
On May 4, 1999, the Special Committee and the Instron Board held meetings
to consider the Merger Agreement and the Transactions. At the Special Committee
meeting, The Beacon Group and Instron's legal counsel updated the Special
Committee on the events since the April 15, 1999 meeting, including the
negotiations of the Merger Agreement and the arrangements with the Other
Investors and the Management Investors. The Beacon Group then summarized for the
Special Committee its financial analysis of the Transactions that it had
prepared for the Instron Board meeting that was to follow the Special Committee
meeting. The Beacon Group also informed the Special Committee that it was
prepared to render its oral opinion to the Instron Board to the effect that as
of the date thereof, and based on the assumptions and subject to the limitations
and qualifications set forth therein, the Cash Merger Consideration was fair
from a financial point of view to the Public Stockholders. Following a
discussion by the Special Committee, the Special Committee unanimously
recommended that the Instron Board approve the Merger Agreement and the
Transactions and that the Instron Board recommend that the Instron stockholders
approve the Merger Agreement.
Immediately following the May 4, 1999 meeting of the Special Committee, the
Instron Board met to discuss the approval of the Merger Agreement and the
Transactions. At the Instron Board meeting, the Special Committee, certain
members of senior management of Instron, The Beacon Group and Instron's legal
counsel updated the Instron Board on the events since the March 10, 1999 meeting
of the Instron Board. Instron's legal counsel also gave a presentation to the
Special Committee on the timetable for the execution of definitive documentation
relating to the Transactions and certain disclosure issues relating thereto. The
Beacon Group then provided the Instron Board with a detailed and lengthy
presentation of its financial analysis of the Transactions. Following this
presentation, The Beacon Group rendered its oral opinion to the
22
<PAGE> 33
Instron Board to the effect that as of the date thereof, and based on the
assumptions and subject to the limitations and qualifications set forth therein,
the Cash Merger Consideration was fair from a financial point of view to the
Public Stockholders. Following a discussion by the Instron Board, the Instron
Board approved the Merger Agreement and the Transactions, with Messrs. Hindman,
Burr and McConnell abstaining from the vote in view of their participation in
the Transactions.
The parties finalized negotiations of the terms of the Merger Agreement and
the related agreements during the period of May 4 to May 6, 1999. On the evening
of May 6, 1999, the Merger Agreement and the related agreements were executed.
On May 7, 1999, Instron and Kirtland jointly issued a press release announcing
the proposed transaction.
THE SPECIAL COMMITTEE'S AND THE INSTRON BOARD'S RECOMMENDATION
As discussed above under "-- Background of the Merger," the Special
Committee unanimously recommended that the Instron Board approve the Merger
Agreement and the Transactions and that the Instron Board recommend that the
Instron stockholders approve the Merger Agreement. Following the unanimous
recommendation of the Special Committee, the Instron Board, other than Harold
Hindman, George S. Burr and Mr. McConnell, unanimously determined that the
Merger Agreement and the Transactions, including the Merger, were fair to and in
the best interests of the Instron stockholders and recommended that the
stockholders approve the Merger Agreement. Messrs. Hindman, Burr and McConnell
abstained from voting on the Merger Agreement and the Transactions because each
of them has an interest in the Merger as a member of the Investor Group. The
Special Committee and the Instron Board recommend that the stockholders vote
"For" the approval of the Merger Agreement.
In reaching its determination that the Merger Agreement and the
Transactions, including the Merger, are fair to and in the best interests of the
Instron stockholders, each of the Instron Board and the Special Committee
consulted with Instron's financial and legal advisors, drew on its knowledge of
the business, operations, properties, assets, financial condition, operating
results, historical market prices and prospects of Instron and considered the
following factors, each of which the Instron Board and the Special Committee
deemed favorable:
(1) the belief of the Instron Board and the Special Committee that the
Merger represents a more desirable alternative than continuing to
operate Instron as a public company. In particular, the Instron
Board and the Special Committee believe that the Instron Common
Stock was an illiquid security and this illiquidity had an adverse
effect on the trading price of the Instron Common Stock. In this
regard, the Instron Board and the Special Committee noted the
limited trading volume of the Instron Common Stock on AMEX, as
evidenced by its average monthly trading volume and the limited
public float of such stock resulting in part from the significant
holdings of the executive officers and directors of Instron. In
addition, the Instron Board and the Special Committee believe that
continuing to operate Instron as a public company entails
meaningful risks in the execution of Instron's business strategy.
In particular, the Instron Board and the Special Committee believe
that executing this strategy would include making large
acquisitions that would result in a substantial increase in the
debt to equity ratio of Instron. The Instron Board and the Special
Committee believe that such action involves substantial investment
risks to the stockholders of Instron. After considering the
foregoing, the Instron Board and the Special Committee concluded
that, while Instron's business strategy could ultimately prove
successful, the recapitalization of Instron would provide all
stockholders with liquidity for their investment at a price that
exceeds the all time highest market price of the Instron Common
Stock. In its deliberations concerning the fairness of the Merger
Agreement and the Transactions, the Instron Board and the Special
Committee did not consider the liquidity concerns of any
particular stockholders, including without limitation, George S.
Burr and Harold Hindman or any of the other executive officers or
directors of Instron. See "-- Background of the Merger" and
"-- Instron Projections."
(2) the Instron Board and the Special Committee believed that the
Merger was the best offer reasonably available for the Instron
stockholders. The Instron Board and the Special Committee
23
<PAGE> 34
believed that there were no other prospective buyers that both had
the financial ability to complete a strategic transaction and
would be willing to pay an aggregate consideration greater than
that to be paid by the Investor Group in the Merger. In seeking to
maximize value to the Public Stockholders, Instron and its
financial advisors instituted a multi-step process pursuant to
which they solicited the interest of 49 prospective buyers,
executed 23 confidentiality agreements with prospective buyers and
thereafter received 11 indications of interest at various times
and, after conducting a formal bidding process, received two
definitive proposals offering to acquire Instron. Of the two
definitive proposals, Kirtland's proposal offered the highest
price on a per share basis and contained fewer conditions than the
other proposal. In addition, following receipt of the two
definitive proposals, Instron and its financial advisors
resolicited the interest of certain prospective buyers who earlier
in the process had declined to make a definitive proposal for
reasons unrelated to Instron and those prospective buyers who were
contacted again declined to make a proposal. For these reasons and
the other reasons described herein, the Instron Board and the
Special Committee concluded that the Merger and the Transactions
were fair to and in the best interests of Instron and the Public
Stockholders. See "-- Background of the Merger" and "-- Opinion
of Financial Advisors."
(3) the relationship of the Cash Merger Consideration to the
historical market prices for the Instron Common Stock and the fact
that the Cash Merger Consideration represents a significant
premium to recent historical trading prices of the Instron Common
Stock and exceeds the all time highest market price of the Instron
Common Stock. In addition, the Instron Board and the Special
Committee considered the relationship of the Cash Merger
Consideration to the current trading price of the Instron Common
Stock and the fact that the Cash Merger Consideration represents a
premium of $5.00 or 29.4% to the closing sale price of $17.00 for
a share of Instron Common Stock as reported by AMEX on May 3,
1999, the trading day immediately preceding the date on which the
Special Committee and the Instron Board approved the Merger
Agreement and the Transactions. In considering the amount of the
premium to the current trading price and recent historical trading
prices of the Instron Common Stock represented by the Cash Merger
Consideration, the Instron Board and the Special Committee noted
that the Instron Common Stock was an illiquid security and that
such illiquidity had had an adverse effect on the trading price of
the Instron Common Stock. See "Historical Market Information."
(4) the oral opinion of The Beacon Group delivered to the Instron
Board, which was confirmed by its written opinion to the Instron
Board, dated as of May 6, 1999, to the effect that, based upon and
subject to certain factors and assumptions stated therein, as of
such date, the Cash Merger Consideration to be received in the
Merger by the Public Stockholders was fair from a financial point
of view to the Public Stockholders (a copy of which is attached to
this Proxy Statement as Appendix B). See "-- Opinion of Financial
Advisor."
(5) the analyses performed by The Beacon Group in connection with
rendering its fairness opinion, including The Beacon Group's
comparable public company, comparable merger and acquisition
transaction, discounted cash flow, leveraged recapitalization and
implied premium analyses, as well as the relationship between the
Cash Merger Consideration and Instron's book value, which as of
March 31, 1999 was $11.18 per share, on a fully diluted basis,
substantially below the Cash Merger Consideration. See "--Opinion
of Financial Advisor."
(6) the financial ability and willingness of the Investor Group to
consummate the Merger. The Instron Board and the Special Committee
considered the fact that the Equity Investor had obtained certain
equity and debt commitments sufficient to provide the necessary
financing with which to consummate the Transactions, including the
Merger, and had delivered to the Instron Board and the Special
Committee binding financing commitment letters provided by the
Equity Investor's lenders. In this regard, the Instron Board and
the Special Committee considered the fact that unlike many other
recapitalization transactions similar in structure to the Merger,
the Merger Agreement did not provide for an unlimited right by the
Equity Investor to abandon the Merger and the other Transactions
in the event that any of the conditions to the Equity Investor's
debt financing were unable to be satisfied. Alternatively, the
Merger Agreement
24
<PAGE> 35
provides that the Equity Investor will not be required to
consummate the Transactions, including the Merger, if there shall
have occurred any material disruption or material adverse change
in the banking, financial or capital markets generally or in the
market for senior credit facilities or for new issuances of high
yield securities which has caused either of the Equity Investor's
lenders to withdraw its commitment to provide financing. Based on
the foregoing, the Instron Board viewed as reasonable the risk
that the financing condition contained in the Merger Agreement
would not be satisfied. See "-- Financing of the Merger" and "The
Merger -- Terms of the Merger Agreement."
(7) the terms and conditions of the Merger Agreement. In particular,
the Instron Board and the Special Committee considered the fact
that the Merger Agreement provided that, subject to the
satisfaction of certain conditions, the Instron Board would be
able to withdraw or modify its recommendation to the Instron
stockholders regarding the Merger and enter into an agreement with
respect to a more favorable transaction with a third party, if
such a transaction becomes available prior to the consummation of
the Merger. The Instron Board and the Special Committee also
considered the fact that the Merger Agreement provided for the
payment of liquidated damages equal to approximately 3% of the
aggregate transaction value, as well as expense reimbursement
obligations, which the Instron Board and the Special Committee
believed would not have the effect of unreasonably discouraging
competing bids. See "The Merger -- Terms of the Merger
Agreement -- Solicitation of Acquisition Proposals,"
"-- Termination" and "-- Fees and Expenses."
(8) the fact that the Merger Agreement requires it to be submitted to
the Instron stockholders for approval, which allows for an
informed vote of the Public Stockholders on the merits of the
transaction without requiring a tender of shares or other
potentially coercive transaction structure, and the fact that the
Merger Agreement provides that it may be terminated by Instron if
approval of the holders of two-thirds of the outstanding Instron
Common Stock is not received. See "The Merger -- Terms of the
Merger Agreement."
The Instron Board and the Special Committee also considered the following
factors, all of which the Instron Board and the Special Committee considered as
negative factors, in its deliberations concerning the approval of the Merger
Agreement and the Transactions:
(1) The Instron Board and the Special Committee considered the fact
that consummation of the Merger would preclude the Public
Stockholders from having the opportunity to participate in the
future growth prospects of Instron. In addition, the Instron Board
and the Special Committee recognized that the Other Investors and
the Management Investors will have the opportunity to benefit from
any increases in the value of Instron following the Merger by
reason of their continuing equity interest in the Surviving
Corporation and therefore may realize a substantial economic
benefit from the transaction. In particular, the Instron Board and
the Special Committee considered that the Other Investors and the
Management Investors will own approximately 6.2% and 6.4%,
respectively, of outstanding shares of Surviving Corporation
Common Stock. The Instron Board and the Special Committee also
considered that the Surviving Corporation will reserve
approximately 10.0% of the Surviving Corporation Common Stock on a
fully diluted basis (assuming the exercise of all options,
including the Rollover Options) for the grant of options to
management employees, of which 4.0% will be granted to those
Management Investors who are members of Instron's management upon
consummation of the Merger. The Instron Board and the Special
Committee further considered that certain Management Investors
will amend their existing severance agreements or will enter into
new agreements relating to deferred compensation with the
Surviving Corporation, and that such amended or new agreements
will provide for the payment to them of potential severance
benefits and other compensation or benefits. See "-- Share
Ownership of Instron Following the Merger" and "-- Conflicts of
Interest."
(2) The Instron Board and the Special Committee considered the fact
that the options to purchase shares of Instron Common Stock
previously granted to the Management Investors pursuant to
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<PAGE> 36
Instron's stock option plans would become immediately exercisable
as a result of the Merger. In addition, the Instron Board and the
Special Committee considered the fact that the restrictions on the
shares of Instron Common Stock previously issued to the Management
Investors pursuant to Instron's stock option plans would lapse as
a result of the Merger. The Instron Board and the Special
Committee also considered that the Merger would result in a
"change of control" under the terms of the severance agreements
between Instron and certain of the Management Investors, which
could result in such Management Investors receiving certain
payments under such agreements in the event of the termination of
their employment following the Merger. See "-- Conflicts of
Interest."
(3) The Instron Board and the Special Committee considered the
potential conflicts of interest of the Management Investors and
the Other Investors resulting from the foregoing economic and
other benefits that might be realized by them. However, for the
reasons discussed below, the Instron Board and the Special
Committee believe that the procedures that were followed in the
bidding process and in the negotiation of the Merger Agreement and
the terms of the Transactions properly addressed these conflicts
of interest and were fair to the Public Stockholders.
The Special Committee noted that approximately 22.4% of the outstanding
shares of Instron Common Stock are held by persons who have committed to vote
their shares of Instron Common Stock in favor of the Merger Agreement, including
all of the Other Investors and the Management Investors. The Special Committee
also considered that the obligation of Instron to consummate the Merger is not
conditioned upon the favorable vote of a majority of the Public Stockholders.
Notwithstanding the absence of such a voting requirement, the Special Committee
believes that the procedure that was followed in determining the purchase price
to be paid to the stockholders of Instron was fair to the Public Stockholders.
As described above, the eight-person Instron Board (three of whom (Messrs.
McConnell, Hindman and Burr) are members of the Investor Group) appointed as the
only members of the Special Committee three non-employee directors who were
independent of the Investor Group and who would not have a continuing equity
interest in Instron following the Merger. The Instron Board granted the Special
Committee exclusive authority on behalf of the Instron Board to review,
evaluate, and negotiate the transaction proposed by Kirtland. The Merger
Agreement negotiated by the Special Committee contains provisions that would
enable the Instron Board to withdraw or modify its recommendation to the
stockholders regarding the Merger and to enter into an agreement with respect to
a more favorable transaction with a third party and contains provisions (without
which the Special Committee believes Kirtland would not have entered into the
Merger Agreement) imposing upon Instron a liquidated damages fee and expense
reimbursement obligations that, in the view of the Special Committee, are
reasonable and would not have the effect of unreasonably discouraging competing
bids. Further, the stockholders of Instron may dissent from the Merger and be
paid cash for the "fair value" of their shares as determined in accordance with
Massachusetts law. Thus, although the Merger is not structured to require
approval of a majority of the unaffiliated stockholders, the Special Committee
nevertheless believes, as of the date of this Proxy Statement and for the
reasons set forth above, the Merger is procedurally fair to the Public
Stockholders.
In considering the fairness of the Merger, the Special Committee and the
Instron Board did not consider Instron's liquidation value because they did not
believe such value to be indicative of the value of Instron as a going concern.
However, the Special Committee believes Instron's liquidation value, which takes
into account the appreciated value of Instron's assets, would be substantially
below the Cash Merger Consideration.
In considering the fairness of the Merger, the Special Committee and the
Instron Board also did not consider the fact that Kirtland would provide
resources to continue Instron's strategic direction of growth through
acquisitions. In this regard, the Special Committee and the Instron Board
considered the fact that the Public Stockholders would not be subject to the
benefits and risks of this strategy because they would not participate in the
equity of Instron following the Merger. The Special Committee and the Instron
Board also noted that Kirtland was not contractually bound in any manner to
cause Instron to pursue this strategy or any other strategy following the
Merger.
26
<PAGE> 37
While the Instron Board and the Special Committee considered the foregoing
factors, they did not quantify or attach any particular weight to such factors,
and individual members of the Instron Board and the Special Committee may have
placed different emphasis on particular positive or negative factors in reaching
their determination that the Merger Agreement and the Transactions are fair to
and in the best interests of the Instron stockholders. However, in the opinion
of the Instron Board and the Special Committee, the positive factors set forth
above outweighed the negative factors set forth above and, accordingly, the
Instron Board and the Special Committee each approved the Merger Agreement and
the Transactions, including the Merger.
If the Instron stockholders do not approve the Merger Agreement, or if the
Merger and the other Transactions are not consummated for any other reason, the
Instron Board expects that Instron will continue to pursue its business
objectives principally of (i) designing, developing, manufacturing and servicing
materials and structural testing systems, software and accessories, and (ii)
seeking opportunities to grow through acquisitions of complementary or related
businesses and technologies. In addition, Instron may seek other business
combination opportunities.
INSTRON PROJECTIONS
In connection with Kirtland's review of Instron and in the course of the
negotiations between Instron and Kirtland described in "-- Background of the
Merger," Instron provided Kirtland and other interested parties with certain
non-public business and financial information. This information also was
provided to The Beacon Group and was used by The Beacon Group in its analysis of
the fairness of the Cash Merger Consideration to be received by the Public
Stockholders. See "-- Opinion of Financial Advisor." The non-public information
provided by Instron included certain projections of the future operating
performance of Instron (the "Instron Projections"). The Instron Projections
include management projections of, among other things, Instron's net sales, net
income and EBITDA. Instron provided to Kirtland and The Beacon Group certain
projections as of February 1999 which covered the years 1999 through 2002.
Subsequently, management reviewed Instron's actual results in the first quarter
of 1999 and in April 1999 revised its projections for 1999 based on its review
of the first quarter results and other factors. The Beacon Group required an
additional year of projections for use in its fairness analysis that evaluates a
five-year forecast period. Management of Instron assisted The Beacon Group in
developing the data for 2003 that assumed similar annual revenue growth to that
of the forecast period for years 2000 to 2002 and similar operating margins to
that of the forecast period for year 2002. However, this year 2003 data was not
provided to Kirtland or any other party in the bidding process. The Special
Committee and the Instron Board also reviewed the Instron Projections in
connection with approving the Merger Agreement and the Transactions. The Instron
Projections do not give effect to the Merger or the financing thereof.
Instron does not, as a matter of course, publicly disclose projections as
to future revenues or earnings. The Instron Projections were not prepared with a
view to public disclosure and are included in this Proxy Statement only because
such information was made available to Kirtland in connection with its due
diligence investigation of Instron and was considered by the Special Committee
and the Instron Board in connection with approving the Merger Agreement and the
Transactions. Accordingly, it is expected that there will be differences between
actual and projected results, and actual results may be materially different
than those set forth below. The Instron Projections were not prepared with a
view to compliance with the published guidelines of the Commission regarding
projections, nor were they prepared in accordance with the guidelines
established by the American Institute of Certified Public Accountants for
preparation and presentation of financial projections. Moreover,
PricewaterhouseCoopers LLP, Instron's independent auditors, has not examined,
compiled or applied any procedures to the Instron Projections in accordance with
standards established by the American Institute of Certified Public Accountants
and expresses no opinion or any assurance on their reasonableness, accuracy or
achievability. These forward-looking statements reflect numerous assumptions
made by Instron's management. In addition, factors such as industry performance,
general business, economic, regulatory, and market and financial conditions, all
of which are difficult to predict, may cause the Instron Projections or the
underlying assumptions to be inaccurate. Accordingly, there can be no assurance
that the Instron Projections will be realized, and actual results may be
materially more or less favorable than those contained in the Instron
Projections.
27
<PAGE> 38
The inclusion of the Instron Projections herein should not be regarded as
an indication that the Investor Group, the Special Committee, the Instron Board,
Instron or any of their respective financial advisors considered or consider the
Instron Projections to be a reliable prediction of future events, and the
Instron Projections should not be relied upon as such. None of the Special
Committee, the Instron Board, Instron, the Investor Group, or any of their
financial advisors intends to update or otherwise revise the Instron Projections
to reflect circumstances existing after the date when made or to reflect the
occurrence of future events even in the event that any or all of the assumptions
underlying the Instron Projections are shown to be in error or to otherwise have
changed.
The Instron Projections that Instron provided to Kirtland and that The
Beacon Group analyzed in giving its fairness opinion and the Special Committee
and the Instron Board reviewed in connection with approving the Merger Agreement
and the Transactions are set forth below:
MANAGEMENT PROJECTIONS AS OF FEBRUARY 1999
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING DECEMBER 31,
----------------------------------------------
1999 2000 2001 2002 2003
------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales.................................... $232.1 $238.7 $250.8 $262.9 $276.0
Gross Profit................................. 89.3 95.0 100.4 106.2 111.5
Operating Expense............................ 70.5 73.5 76.4 79.0 82.9
------ ------ ------ ------ ------
EBIT......................................... 18.8 21.5 24.0 27.2 28.6
Net Income................................... 11.3 12.6 14.4 16.6 18.5
====== ====== ====== ====== ======
EBITDA....................................... 27.0 29.9 32.6 36.0 37.4
====== ====== ====== ====== ======
</TABLE>
REVISED MANAGEMENT PROJECTIONS AS OF APRIL 1999 FOR PROJECTED YEAR ENDING
DECEMBER 31, 1999
<TABLE>
<CAPTION>
PROJECTED YEAR ENDING
DECEMBER 31, 1999
---------------------------
NEW PROJECTED AS OF
FORECAST FEBRUARY 1999
-------- ---------------
(IN MILLIONS)
<S> <C> <C>
Net Sales................................................... $228.4 $232.1
EBIT........................................................ 18.1 18.8
EBITDA...................................................... 26.6 27.0
</TABLE>
OPINION OF FINANCIAL ADVISOR
The Beacon Group acted as financial advisor to the Instron Board and the
Special Committee in connection with the Transactions, including the Merger. On
May 4, 1999, The Beacon Group rendered its oral opinion to the Instron Board to
the effect that, as of that date and based on and subject to the assumptions
made, matters considered and limits of the reviews undertaken by The Beacon
Group described in its opinion, the Cash Merger Consideration to be received by
the Public Stockholders pursuant to the Merger was fair from a financial point
of view to such stockholders. The Beacon Group subsequently confirmed this
opinion, as of May 6, 1999, in writing. This written opinion is referred to in
this Proxy Statement as the "Beacon Opinion."
The full text of the Beacon Opinion is included in this Proxy Statement as
Appendix B. The Beacon Opinion is addressed to the Instron Board for its
information concerning the fairness from a financial point of view of the Cash
Merger Consideration and does not address the merits of the underlying decision
of Instron to engage in the Merger or the other Transactions and does not
constitute a recommendation to any holder of
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<PAGE> 39
shares of Instron Common Stock as to how such holder should vote with respect to
the Merger Agreement. The summary of the Beacon Opinion in this section is
qualified in its entirety by reference to the full text of the Beacon Opinion
included in this Proxy Statement as Appendix B. For specific information
concerning the procedures followed, assumptions made, matters considered and
qualifications and limitations of the review undertaken by The Beacon Group in
connection with the Beacon Opinion, holders of shares of Instron Common Stock
should read the Beacon Opinion in its entirety.
In connection with the Beacon Opinion, The Beacon Group reviewed, among
other things:
- the Merger Agreement;
- Annual Reports to stockholders and Annual Reports on Form 10-K of Instron
for the five years ended December 31, 1998;
- certain interim reports to stockholders of Instron and Quarterly Reports
on Form 10-Q of Instron;
- certain other communications from Instron to its stockholders;
- internal financial analyses and forecasts of Instron prepared by
Instron's management; and
- the potential pro forma impact of the Merger on the Surviving
Corporation.
In addition, The Beacon Group held discussions with members of the senior
management of Instron regarding the past and current business, operations and
financial condition and future prospects of Instron, reviewed the reported price
and trading activity of the shares of Instron Common Stock, compared certain
financial and stock market information concerning Instron with similar
information for some other companies the securities of which are publicly
traded, reviewed the financial terms of some recent business combinations in
industries and markets The Beacon Group deemed relevant and performed other
studies and analyses that The Beacon Group considered appropriate, including an
analysis of the pro forma capitalization of Instron after giving effect to the
Merger and proposed financing arrangements related to the Merger.
In preparing the Beacon Opinion, The Beacon Group assumed and relied
without independent verification on the accuracy and completeness of the
financial and other information reviewed by it for purposes of the Beacon
Opinion. With respect to the financial forecasts reviewed and discussed, The
Beacon Group assumed that they had been reasonably prepared on bases reflecting
the best currently available estimates and judgments of Instron's management as
to the future financial performance of Instron. We refer to these financial
forecasts in this Proxy Statement as the Instron Projections, and they are
included in this Proxy Statement on page 28. The Beacon Group did not make an
independent evaluation or appraisal of the assets and liabilities of Instron or
any of its subsidiaries, and The Beacon Group was not furnished with any such
evaluation or appraisal. The Beacon Opinion is necessarily based on economic,
market, financial and other conditions as they existed on, and could be
evaluated as of, the date of the Beacon Opinion.
In evaluating the fairness of the Cash Merger Consideration from a
financial point of view, The Beacon Group also reviewed with the Instron Board
the breadth of the process undertaken by The Beacon Group to identify parties
potentially interested in effecting a transaction with Instron. In rendering the
Beacon Opinion, The Beacon Group considered the fact that, after contacting 49
potentially interested parties, no proposal was forthcoming that was more
attractive to the Instron stockholders than Kirtland's proposal.
A summary of the material financial analyses used by The Beacon Group in
preparing the Beacon Opinion and presented by The Beacon Group to the Instron
Board on May 4, 1999 follows. This summary includes information presented in
tabular form. In order to understand fully the financial analyses performed by
The Beacon Group, the tables must be read together with the text of each
description. The tables alone do not constitute a complete description of the
financial analyses. Considering the data in the tables without considering the
full narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could create a misleading
or incomplete view of the financial analyses performed by The Beacon Group.
29
<PAGE> 40
Comparable Public Company Analysis. The Beacon Group reviewed and compared
financial information and public market multiples for Instron to corresponding
financial information and public market multiples for selected publicly traded
analytical instruments companies, which companies were considered by The Beacon
Group to be reasonably comparable to Instron for purposes of this analysis. The
Beacon Group selected publicly traded companies with analytical instruments
businesses focused on the measurement of various properties across a range of
end markets. The Beacon Group included all of the selected companies in its
analysis. The companies listed in the following table, which are referred to in
this Proxy Statement as the "Comparable Companies," are the companies that The
Beacon Group used for this analysis:
COMPARABLE COMPANIES
<TABLE>
<S> <C>
Beckman Coulter, Inc. MTS Systems Corporation
Bio-Rad Laboratories Thermoquest Corporation
Browne & Sharpe Manufacturing Company Varian Associates
Mettler-Toledo International Inc. Waters Corporation
Modern Controls, Inc.
</TABLE>
Using publicly available information, The Beacon Group calculated and
analyzed, among other things:
- the Equity Value (as defined below) of the Comparable Companies and
Instron as a multiple of certain historical and projected financial
criteria, including net income and tangible book value; and
- the Aggregate Value (as defined below) of the Comparable Companies and
Instron as a multiple of the latest 12 months', or "LTM," sales, earnings
before interest, taxes, depreciation and amortization, or "EBITDA," and
earnings before interest and taxes, or "EBIT."
The "Equity Value" of each company was calculated by multiplying the number
of shares of common stock outstanding for each company by the closing market
price of the company's shares of stock on April 30, 1999, adjusted to include
the impact, if any, of outstanding options. The "Aggregate Value" of each
company was calculated by adding the Equity Value of the company to its Net Debt
(as defined below). The "Net Debt" of each company was calculated by adding the
book value of the company's debt, preferred stock and minority interest and
subtracting cash and cash equivalents. The estimated net income data for Instron
and for each Comparable Company was based on information obtained from
Institutional Brokers Estimate System.
The following table sets forth information concerning the overall ranges of
Equity Value as a multiple of net income and tangible book value and the overall
ranges of Aggregate Value as a multiple of sales, EBITDA and EBIT for all of the
Comparable Companies, and separately for MTS Systems Corporation, which in The
Beacon Group's judgment is Instron's closest comparable publicly-traded company
in terms of certain markets served (the "MTS Trading Multiples"), and the
multiples of the same financial metrics for Instron based on (i) the $17.00 per
share closing price of the Instron Common Stock as of April 30, 1999 (the
"Instron Trading Multiples") and (ii) the $22.00 per share Cash Merger
Consideration (the "Cash Merger Consideration Multiples"):
<TABLE>
<CAPTION>
EQUITY VALUE
AS OF APRIL 30, 1999 AS A MULTIPLE OF:
--------------------------------- AGGREGATE VALUE
NET INCOME AS A MULTIPLE OF LTM:
-------------------- TANGIBLE ---------------------
OVERALL COMPARABLE COMPANIES LTM 1999E 2000E BOOK VALUE SALES EBITDA EBIT
- ---------------------------- --- ----- ----- ---------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C>
Mean................................... 16.8x 13.1x 11.6x 1.9x 1.1x 7.9x 11.1x
Median................................. 14.8 13.1 12.5 1.9 1.0 7.5 11.3
High................................... 37.8 30.9 26.3 53.0 6.3 23.7 28.4
Low.................................... 6.2 6.1 4.9 0.6 0.4 5.8 7.4
MTS Trading Multiples.................. 10.7x 9.9x 8.1x 1.5x 0.8x 6.4x 8.2x
Instron Trading Multiples.............. 15.6 11.0 10.1 1.7 0.7 6.2 9.2
Cash Merger Consideration Multiples.... 20.8 14.3 13.0 2.2 0.9 7.9 11.8
</TABLE>
30
<PAGE> 41
The Beacon Group noted that, while in its judgment MTS Systems Corporation
was Instron's closest comparable company in terms of markets served, no publicly
traded company was directly comparable to Instron and that the Comparable
Companies included certain higher growth, higher technology companies whose
characteristics are materially different from Instron's. Therefore, The Beacon
Group deemed the mean and median multiples derived in the foregoing analysis to
be instructive.
The Beacon Group calculated implied equity per share values for Instron
Common Stock by using Instron's balance sheet as of December 31, 1998, where
applicable, and by applying (1) Aggregate Value to LTM EBITDA multiples ranging
from 7.5x to 7.9x, (2) Aggregate Value to LTM EBIT multiples ranging from 11.1x
to 11.3x, (3) Equity Value to LTM net income multiples ranging from 14.8x to
16.8x and (4) Equity Value to 1999 estimated net income multiple of 13.1x, which
in each case were derived from the foregoing analysis, to Instron's LTM EBITDA,
LTM EBIT, LTM net income (in each case as of December 31, 1998) and estimated
1999 net income obtained from Institutional Brokers Estimate System,
respectively. Because MTS Systems Corporation is comparable to Instron in terms
of certain markets served, The Beacon Group also calculated an implied equity
value per share by applying MTS Systems Corporation's Aggregate Value to LTM
EBITDA multiple of 6.4x to Instron's LTM EBITDA as of December 31, 1998 and
using Instron's balance sheet as of December 31, 1998.
The following table presents the ranges of implied equity per share values
for Instron Common Stock implied by these analyses compared with the $22.00 per
share Cash Merger Consideration:
<TABLE>
<CAPTION>
IMPLIED EQUITY
PER SHARE VALUE OF
INSTRON COMMON STOCK
------------------------
SELECTED COMPARABLE COMPANIES MULTIPLE RANGES APPLIED TO: LOW HIGH
--------------------------------------------------------- ------ ------
<S> <C> <C> <C>
Instron LTM EBITDA.......................................... $20.65 $21.77
Instron LTM EBIT............................................ $20.49 $20.87
Instron LTM Net Income...................................... $18.50 $21.00
Instron Estimated 1999 Net Income........................... $20.17 $20.17
MTS LTM EBITDA Multiple Applied to Instron LTM EBITDA....... $17.55
Per Share Cash Merger Consideration......................... $22.00
</TABLE>
The Beacon Group noted that the Cash Merger Consideration exceeded the
range of implied equity per share values of Instron Common Stock produced by the
comparable public company analysis.
Comparable Merger and Acquisition Transaction Analysis. Using primarily
publicly available information, The Beacon Group reviewed and analyzed 16
selected merger and acquisition transactions involving other companies with a
focus on test and measurement in the analytical instruments industry and related
industries and derived certain financial ratios which it compared with the same
financial ratios for the Merger. While The Beacon Group noted that no merger and
acquisition transaction reviewed was directly comparable to the Merger, The
Beacon Group deemed three of the reviewed transactions most relevant in
evaluating the Cash Merger Consideration (the "Comparable M&A Transactions")
because of their focus on physical property measurement and the reasonable
comparability of their end markets. In reviewing and presenting this data, The
Beacon Group noted that the merger and acquisition transaction environment
varies over time because of macroeconomic factors, including interest rate and
equity market fluctuations, and microeconomic factors, including industry
results and growth expectations, that no transaction reviewed was identical to
the Merger and that, accordingly, an assessment of the results of the Comparable
M&A Transactions analysis necessarily involves considerations and judgments
concerning differences in financial and operating characteristics of Instron and
other factors that would affect the acquisition value of the companies to which
Instron was being compared.
31
<PAGE> 42
The Comparable M&A Transactions are:
<TABLE>
ACQUIROR ACQUIRED COMPANY
- -------- ----------------
<S> <C>
Investor Group.............................................. Buehler International Inc.
Waters Corporation.......................................... TA Instruments, Inc.
EG&G, Inc................................................... Perkin-Elmer Instruments Division
</TABLE>
With respect to the Comparable M&A Transactions and the Merger, The Beacon
Group, among other things, compared:
- the Equity Consideration Value (as defined below) of the acquired
companies and Instron as a multiple of LTM net income; and
- the Aggregate Consideration Value (as defined below) of the acquired
companies and Instron as a multiple of the LTM sales, EBITDA, EBIT and
net book capital.
The "Equity Consideration Value" of each acquired company and Instron was
calculated by multiplying the number of shares of common stock outstanding for
each company and Instron, respectively, by the aggregate consideration payable
per share of common stock in each Comparable M&A Transaction and in the Merger,
adjusted to include the impact, if any, of outstanding options. The "Aggregate
Consideration Value" of each acquired company and Instron was calculated by
adding the Equity Consideration Value of each company and Instron to the
company's and Instron's Net Debt, respectively.
In order to adjust for different growth and market characteristics of the
Comparable M&A Transactions, The Beacon Group analyzed the mean and median
multiples for the Comparable M&A Transactions. The following table presents the
overall mean and median of the Equity Consideration Value as a multiple of net
income and the overall mean and median of Aggregate Consideration Value as a
multiple of sales, EBITDA, EBIT and net book capital for all of the Comparable
M&A Transactions and the multiples of the same financial metrics for Instron
based on the $22.00 per share Cash Merger Consideration.
<TABLE>
<CAPTION>
EQUITY
CONSIDERATION
AS A MULTIPLE AGGREGATE CONSIDERATION
OF LTM: AS A MULTIPLE OF LTM:
------------- --------------------------------
NET NET BOOK
SELECTED M&A TRANSACTION MULTIPLES INCOME SALES EBITDA EBIT CAPITAL
- ---------------------------------- ------------- ----- ------ ---- --------
<S> <C> <C> <C> <C> <C>
Mean............................................. 12.7x 1.3x 7.9x 10.9x 3.7x
Median........................................... 16.3 0.8 7.2 9.8 2.6
Cash Merger Consideration Multiples.............. 20.8x 0.9x 7.9x 11.8x 2.2x
</TABLE>
The Beacon Group calculated implied equity per share values for the Instron
Common Stock by using Instron's balance sheet as of December 31, 1998 (where
applicable) and by applying (1) the Aggregate Consideration Value to LTM EBITDA
multiples ranging from 7.2x to 7.9x, (2) the Aggregate Consideration Value to
LTM EBIT multiples ranging from 9.8x to 10.9x and (3) the Equity Consideration
Value to LTM net income multiples ranging from 12.7x to 16.3x, which in each
case were derived from the foregoing analysis, to the LTM EBITDA, LTM EBIT and
LTM net income, respectively, for Instron as of December 31, 1998.
32
<PAGE> 43
The following table presents the range of implied equity per share values
for the Instron Common Stock implied by these analyses compared with the $22.00
per share Cash Merger Consideration:
<TABLE>
<CAPTION>
IMPLIED EQUITY
PER SHARE VALUE OF
INSTRON COMMON STOCK
--------------------------
SELECTED M&A TRANSACTION MULTIPLES APPLIED TO: LOW HIGH
- ---------------------------------------------- ------ ------
<S> <C> <C> <C>
Instron LTM EBITDA.......................................... $19.80 $21.77
Instron LTM EBIT............................................ $18.04 $20.11
Instron LTM Net Income...................................... $15.88 $20.38
Per Share Cash Merger Consideration......................... $22.00
</TABLE>
The Beacon Group noted that the Cash Merger Consideration exceeded the
range of implied equity per share values of Instron Common Stock produced by the
comparable merger and acquisition transaction analysis.
Discounted Cash Flow Analysis. The Beacon Group performed a discounted
cash flow analysis of the projected unlevered free cash flows of Instron, which
is defined as cash flow available after changes in working capital, capital
spending and tax obligations for the period 1999 through 2003 using the terminal
multiple method. The Beacon Group based this analysis on the Instron
Projections, without any discounts or adjustments to those projections, and a
range of discount rates and terminal values to determine the theoretical present
value of the entire company.
Applying discount rates ranging from 11.2% to 16.1% and terminal value
multiples of estimated Instron EBITDA in 2003 ranging from 6.5x to 8.0x, The
Beacon Group calculated the theoretical implied equity per share value of the
Instron Common Stock to range from $18.40 to $26.74. The Beacon Group arrived at
these discount rates based on its judgment of various factors, including
analysis of the estimated cost of capital and capital structures of selected
reasonably comparable public companies, and arrived at these terminal multiples
based on its review of the trading characteristics of the common stock of
selected reasonably comparable public companies and of reasonably comparable
acquisitions of selected companies.
The Beacon Group noted that the Cash Merger Consideration was within the
range of implied equity per share values of Instron Common Stock produced by the
discounted cash flow analysis.
The Beacon Group noted that a discounted cash flow analysis was generally
of more significance to a strategic buyer than a financial buyer such as
Kirtland or Bidder A. Strategic buyers often perform a discounted cash flow
analysis as part of their evaluation of a potential transaction, whereas
financial buyers generally focus on analyzing potential equity returns (and
their potential enhancement by using appropriate debt financing) rather than on
determining a company's theoretical present value. The Beacon Group also noted
the significant degree of dependency of the discounted cash flow analysis on the
estimated terminal value and, therefore, on the estimated Instron EBITDA for
2003.
Leveraged Recapitalization Analysis. The Beacon Group performed a
leveraged recapitalization analysis to determine the potential implied equity
value per share of Instron Common Stock that might be achieved in an acquisition
of Instron in a leveraged recapitalization transaction based on current market
conditions. In conducting this analysis, The Beacon Group utilized the Instron
Projections, without any discounts or adjustments to those projections, and
assumed that financing for the Merger could be obtained in the high yield and
bank finance markets in an amount not in excess of a certain multiple of the LTM
EBITDA and that a minimum internal rate of return ranging from 25% to 30% on
equity invested during a five year period would be required by the acquiror.
This analysis resulted in an estimated implied equity value per share of Instron
Common Stock on a leveraged recapitalization basis of approximately $20.50 to
$22.00. The Beacon Group noted that the Cash Merger Consideration equaled the
high point of the range of implied equity per share values of Instron Common
Stock produced by the leveraged transaction analysis.
33
<PAGE> 44
Implied Premium Analysis. Using publicly available information, The Beacon
Group performed an analysis of premiums paid in selected acquisitions of
manufacturing companies with transaction values between $150 million and $250
million from January 1, 1993 to April 1, 1999, of which The Beacon Group
identified 28 such transactions. The Beacon Group calculated the mean and median
premiums as of the announcement dates in those transactions over the stock
prices one day, one week, and four weeks, respectively, prior to the
announcement dates. The following table sets forth information concerning the
mean and median premiums The Beacon Group calculated and the implied premium of
the Cash Merger Consideration over the closing price of the Instron Common Stock
one day, one week, and four weeks prior to April 30, 1999, respectively.
<TABLE>
<CAPTION>
OFFER PRICE PREMIUM
TO SHARE PRICE:
--------------------------
AS OF APRIL 30, 1999 1 DAY 1 WEEK 4 WEEKS
SELECTED ACQUISITIONS OF MANUFACTURING COMPANIES PRIOR PRIOR PRIOR
------------------------------------------------ ----- ------ -------
<S> <C> <C> <C>
Mean........................................................ 34.8% 40.3% 42.3%
Median...................................................... 29.2% 31.3% 35.1%
Implied Cash Merger Consideration Premiums.................. 28.5% 34.4% 37.5%
</TABLE>
The Beacon Group calculated implied equity per share values for Instron
ranging from $21.49 to $23.08 by applying the premiums derived in the foregoing
analysis to the respective Instron closing stock price one day, one week, and
four weeks prior to April 30, 1999. The Beacon Group noted that the $22.00 per
share Cash Merger Consideration was within the range of implied equity per share
values of Instron Common Stock produced by the implied premium analysis. The
Beacon Group also noted that the Cash Merger Consideration represents a premium
of 29.4% over Instron's closing stock price on April 30, 1999 and a premium of
6.7% over Instron's all-time high closing stock price of $20.63 on May 5, 1998.
In addition, The Beacon Group noted that it did not consider the analysis
of premiums paid to be as relevant as the other analyses performed by The Beacon
Group and described herein for two primary reasons. First, the liquidity of the
Instron Common Stock was adversely affected by significant insider ownership,
which The Beacon Group believed had caused wide fluctuations in the stock price
based on limited trading volume, and the stock price had ranged from a 52-week
high of $20.63 to a 52-week low of $11.50 with resulting premiums of the Cash
Merger Consideration ranging from 6.7% to 91.3%. Second, reviewing premiums paid
in acquisitions of a large number of manufacturing companies of comparable
transaction values does not, by its nature, take into account the unique set of
facts and circumstances related to each company and each transaction, none of
which are directly comparable to Instron or the Merger.
The information above is a brief summary of the material financial analyses
presented by The Beacon Group to the Instron Board on May 4, 1999. This summary
does not purport to be a complete description of the analyses performed by The
Beacon Group in connection with the rendering of the Beacon Opinion. The
preparation of a fairness opinion is a complex analytical process involving
various qualitative judgments as to the most appropriate and relevant methods of
financial analysis and the application of those methods to particular
circumstances and is not susceptible to partial analysis or summary description.
The Beacon Group believes that its analyses must be considered as a whole and
that selecting portions of its analyses, without considering all factors and
analyses, would create an incomplete view of the process underlying the Beacon
Opinion. In addition, The Beacon Group considered the significance and relevance
of the results of every portion of its analyses and did not assign relative
weights to any portion of its analyses, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to be
The Beacon Group's view of the actual value of Instron.
In performing its analyses, The Beacon Group made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Instron. The analyses
performed by The Beacon Group are not necessarily indicative of actual values,
trading values or actual future results that might be achieved, all of which may
be significantly more or less favorable than suggested by these analyses. No
public company utilized as a comparison is identical
34
<PAGE> 45
or directly comparable to Instron, and none of the Comparable M&A Transactions
or other business combinations utilized as a comparison is identical or directly
comparable to the Merger and the other Transactions. Accordingly, a purely
mathematical analysis of publicly traded comparable companies and comparable
business combinations resulting from the Comparable Companies and Comparable M&A
Transactions analyses is not a meaningful method of using the relevant data;
rather, these analyses involve complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the transaction or the public trading or other values of the
companies to which they are being compared.
In connection with its analyses, The Beacon Group utilized estimates and
forecasts of future operating results provided by the management of Instron,
including the Instron Projections. Analyses based on forecasts of future results
are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by the analyses. The
analyses are inherently subject to uncertainty, being based on numerous factors
or events beyond the control of Instron, and therefore future results or actual
values may be materially different from these forecasts or assumptions. The
analyses were prepared solely as part of The Beacon Group's analysis of the
fairness from a financial point of view of the consideration to be received by
the Public Stockholders pursuant to the Merger, and were provided to the Instron
Board in connection with the delivery of the Beacon Opinion. The Beacon Group's
analyses do not purport to be an appraisal or to reflect the prices at which a
company might actually be sold or the prices at which any securities may be
traded in the future. In addition, the Beacon Opinion was one of many factors
taken into consideration by the Instron Board in making its determination to
approve the Merger Agreement. Consequently, the analyses described above should
not be viewed as determinative of the opinion of either the Instron Board or
management of Instron with respect to the value of Instron or whether either the
Instron Board or management of Instron would have been willing to agree to
different terms for the Merger.
Pursuant to an engagement letter, dated as of July 10, 1998, between
Instron and The Beacon Group, Instron agreed to pay The Beacon Group for
services rendered in connection with the Transactions a fee (the "Transaction
Fee") equal to 0.75% multiplied by the cash paid to the Instron stockholders (on
a fully diluted basis) in a transaction involving the sale of control of Instron
(the "Consideration"), plus an additional percentage fee ranging from 3.0% to
5.0% based on the extent to which the per share Consideration exceeded $23.00.
In addition, pursuant to the engagement letter, Instron agreed to pay The Beacon
Group a non-refundable retainer of $125,000, which shall be credited against the
Transaction Fee. Based on the foregoing formula, the Transaction Fee was agreed
to by Instron and the Beacon Group to be $1,265,000 (0.75% multiplied by $22.00
multiplied by 7,664,838 shares of Instron Common Stock (6,956,838 shares and
708,000 options outstanding as of March 19, 1999 (as reported in Instron's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998))) and,
less the $125,000 retainer (which has already been paid to The Beacon Group),
will be payable at the closing of the Merger. Instron has also agreed to
reimburse The Beacon Group for its reasonable out-of-pocket expenses, including
travel and assorted other expenses, and to indemnify The Beacon Group and
certain of its affiliates against certain liabilities in connection with their
engagement, including liabilities under the federal securities laws.
The Instron Board retained the Beacon Group on the basis of its experience
and expertise. As part of its strategic advisory business, The Beacon Group
engages in the valuation of businesses and their securities in connection with
mergers and acquisitions, financings, private placements, principal investments
and other purposes. The Beacon Group participated in some of the negotiations
relating to the Merger Agreement and the Transactions.
PURPOSE AND REASONS OF THE INVESTOR GROUP FOR THE MERGER
The purpose of the Investor Group for engaging in the Transactions is to
acquire 100% ownership of Instron. The members of the Investor Group regard the
acquisition of Instron as an attractive investment opportunity because they
believe that Instron's future business prospects are favorable and that the
substantial increase in the debt to equity ratio of Instron after the Merger,
although resulting in greater investment risks, will create the potential for
the shareholders' equity value of Instron to increase more rapidly on a
percentage basis than the shareholders' equity value of an identical corporation
having a larger equity base and less debt.
35
<PAGE> 46
While the members of the Investor Group are looking to achieve substantial
returns on their investment in Instron, they believe that such returns are
available only to those investors like themselves who are willing to bear the
substantial risks associated with a highly leveraged investment. The members of
the Investor Group also believe that by acquiring 100% ownership of Instron and
operating Instron as a privately held company, they will be able to more closely
and directly monitor and influence the performance of their investment. The
Equity Investor also believes that Instron's future business prospects can be
improved through its active participation with Instron's management in the
strategic direction and operations of Instron.
The Equity Investor's assessment of the risks and benefits of the Merger
and the other Transactions is based upon publicly available information
regarding Instron, the Equity Investor's due diligence investigation of Instron,
and the Equity Investor's experience in investing in similarly situated
companies. The proposed acquisition of Instron by the Investor Group has been
structured as a merger in order to, among other things, provide for the
redemption of the Instron Common Stock held by the Public Stockholders in
connection with the transfer of the ownership of Instron from the current
stockholders to the Investor Group, to facilitate the required financing for the
Transactions, and to preserve Instron's corporate identity. The Investor Group
did not consider any alternative transaction structure other than an acquisition
of Instron pursuant to the terms of the Merger Agreement. While the Investor
Group believes that there will be significant opportunities associated with its
investment in Instron, there are also substantial risks that such opportunities
may not be fully realized.
The exact amount of the Equity Investor's investment in MergerCo is
dependent upon the level of Net Indebtedness of Instron as of the closing date
of the Merger. At April 3, 1999, Instron's Net Indebtedness was approximately
$3.9 million. The reason for this possible fluctuation is that the Equity
Investor's investment represents the amount of funds necessary to consummate the
Merger less borrowings by the Surviving Corporation in the amount of $114.0
million. Therefore, any fluctuation in Net Indebtedness will directly affect the
amount of funds necessary to consummate the Merger and thus the amount of the
Equity Investor's investment. In the event that Instron's Net Indebtedness is
greater than $3.9 million at the Effective Time, the Equity Investor will be
required to increase its investment in MergerCo resulting in the Equity Investor
receiving more shares of Surviving Corporation Common Stock in the Merger and
its relative ownership percentage in the Surviving Corporation being higher. In
the alternative, if Instron's Net Indebtedness at the Effective Time is less
than $3.9 million, then the Equity Investor will decrease its investment in
MergerCo resulting in the Equity Investor receiving fewer shares of Surviving
Corporation Common Stock in the Merger and its relative ownership percentage in
the Surviving Corporation being lower. Based upon a level of Net Indebtedness of
$3.9 million, as a result of the Merger the Equity Investor will acquire, for an
investment of approximately $49.8 million, approximately 87.4% of the
outstanding shares of Surviving Corporation Common Stock; the Other Investors
will acquire, following the exchange of 160,000 shares of Instron Common Stock
with a value of $22.00 per share, or approximately $3.5 million in the
aggregate, approximately 6.2% of the outstanding shares of Surviving Corporation
Common Stock; and the Management Investors will acquire, following the exchange
of 165,210 shares of Instron Common Stock with a value of $22.00 per share, or
approximately $3.6 million in the aggregate, approximately 6.4% of the
outstanding shares of Surviving Corporation Common Stock. Each member of the
Investor Group will receive one share of Surviving Corporation Common Stock for
each $110 of value invested in the Surviving Corporation, which equates to one
share of Surviving Corporation Common Stock for five shares of Instron Common
Stock. If Net Indebtedness as of the Effective Time were zero, the Equity
Investor, the Other Investors and the Management Investors would own
approximately 86.5%, 6.6% and 6.9%, respectively, of the outstanding shares of
Surviving Corporation Common Stock. If Net Indebtedness as of the Effective Time
were $13.0 million, which is the maximum amount permitted under the Merger
Agreement, the Equity Investor, the Other Investors and the Management Investors
would own approximately 89.2%, 5.3% and 5.5%, respectively, of the outstanding
shares of Surviving Corporation Common Stock. The Management Investors also will
receive the Rollover Options and additional options to purchase shares of
Instron Common Stock granted pursuant to a stock option plan to be adopted by
the Surviving Corporation upon consummation of the Merger which will represent,
in the aggregate, 8.7% of the outstanding shares of Surviving Corporation Common
Stock on a fully diluted basis (assuming the exercise of all Rollover Options
and newly granted options). The exchange by the Other Investors and the
Management Investors of a portion
36
<PAGE> 47
of their equity interest in Instron Common Stock (including a portion of their
outstanding stock options) for an equity interest in the Surviving Corporation
Common Stock will, among other things, enable the Merger to be accounted for as
a recapitalization for accounting purposes. The Other Investors and the
Management Investors also will receive the Cash Merger Consideration for the
remainder of their investment in Instron on the same terms as the Public
Stockholders and, with respect to the remainder of their outstanding stock
options, will receive a cash payment equal to the difference between the Cash
Merger Consideration and the exercise price for such options. The number of
shares of Instron Common Stock held by the Management Investors being exchanged
for shares of Surviving Corporation Common Stock and not being converted into
the right to receive the Cash Merger Consideration was determined through
arms-length negotiations between Kirtland and the Management Investors and
reflects Kirtland's desire that the Management Investors have a significant
equity participation in the Surviving Corporation. The number of shares of
Instron Common Stock held by the Other Investors being exchanged for shares of
Surviving Corporation Common Stock and not being converted into the right to
receive the Cash Merger Consideration was determined through arms-length
negotiations between Kirtland and the Other Investors and reflects a level of
equity participation by the Other Investors which, in the opinion of Kirtland,
enables the Merger to be accounted for as a recapitalization for accounting
purposes.
POSITION OF THE INVESTOR GROUP AS TO FAIRNESS OF THE MERGER
Each member of the Investor Group has considered the analyses and findings
of the Special Committee and the Instron Board (described in detail in "-- The
Special Committee's and the Instron Board's Recommendation") with respect to the
fairness of the Merger to the Public Stockholders based solely upon the reasons
set forth under "-- The Special Committee's and the Instron Board's
Recommendation," which were made known to the Equity Investor subsequent to the
Special Committee's and the Instron Board's determination that the Merger
Agreement and the Transactions were fair to and in the best interests of the
Instron stockholders. Each member of the Investor Group has adopted the analyses
and findings of the Special Committee and the Instron Board with respect to the
fairness of the Merger and believes that the Merger Agreement, the Merger and
the other Transactions are fair to and in the best interests of the Public
Stockholders; provided that no opinion is expressed as to the fairness to any
stockholder making an investment in the Surviving Corporation. In this regard,
the Equity Investor also considered the fact that its review of publicly
available information regarding Instron and due diligence investigation of
Instron, which it had undertaken in connection with the negotiation of the
Merger Agreement and the Transactions, supported its adoption of the analyses
and findings of the Special Committee and the Instron Board with respect to the
fairness of the Merger. The Equity Investor's review of publicly available
information regarding Instron included Instron's Quarterly Reports on Form 10-Q,
Annual Reports on Form 10-K, Annual Reports to Stockholders, Proxy Statements
relating to Annual Meetings of Stockholders and press releases, in each case for
the previous five years. The Equity Investor's due diligence investigation of
Instron included an examination of Instron's debt portfolio, credit arrangements
with its banks, intellectual property rights, organizational documents and
corporate records, employee benefit plans (including Instron's pension and
401(k) plans as well as health and general welfare plans), stock option plans,
employee severance agreements, insurance coverage, recent acquisitions and
dispositions of assets, federal and state tax returns, owned and leased real
estate properties (including material leases), financial books and records
(including the Instron Projections as described above under "-- Instron
Projections"), customers and suppliers information, standard purchase contracts
and warranty arrangements and environmental compliance records. The Other
Investors and the Management Investors also considered the fact that their
understanding and familiarity with Instron's business supported their adoption
of the analyses and findings of the Special Committee and the Instron Board with
respect to the fairness of the Merger.
Each member of the Investor Group also believes that the manner in which
the fairness of the Merger Agreement and the Transactions was considered by the
Special Committee and the Instron Board was procedurally fair to the Public
Stockholders and adopts the analyses and findings of the Special Committee and
the Instron Board in this regard. In particular, each member of the Investor
Group considered the fact that approximately 22.4% of the outstanding shares of
Instron Common Stock are held by persons who have committed to vote their shares
of Instron Common Stock in favor of the Merger Agreement, including all of
37
<PAGE> 48
the Other Investors and the Management Investors. Each of the members of the
Investor Group also considered that the obligation of Instron to consummate the
Merger is not conditioned upon the favorable vote of a majority of the Public
Stockholders; however, notwithstanding the absence of such a voting requirement,
the Investor Group believes that the procedure that was followed by the Instron
Board in determining the purchase price to be paid to the stockholders of
Instron was fair to the Public Stockholders. As described above under "-- The
Special Committee's and the Instron Board's Recommendation," the eight-person
Instron Board (three of whom (Messrs. McConnell, Hindman and Burr) are members
of the Investor Group) appointed as the only members of the Special Committee
three non-employee directors who were independent of the Investor Group and who
would not have a continuing equity interest in Instron following the Merger. The
Instron Board granted the Special Committee exclusive authority on behalf of the
Instron Board to review, evaluate, and negotiate the transaction proposed by
Kirtland. The Merger Agreement negotiated by the Special Committee contains
provisions that would enable the Instron Board to withdraw or modify its
recommendation to the stockholders regarding the Merger and to enter into an
agreement with respect to a more favorable transaction with a third party and
contains provisions (without which the Special Committee believes Kirtland would
not have entered into the Merger Agreement) imposing upon Instron a liquidated
damages fee and expense reimbursement obligations that, in the view of the
Special Committee, are reasonable and would not have the effect of unreasonably
discouraging competing bids. In addition, the Investor Group considered the fact
that the stockholders of Instron may dissent from the Merger and be paid cash
for the "fair value" of their shares as determined in accordance with
Massachusetts law. Thus, although the Merger is not structured to require
approval of a majority of the unaffiliated stockholders, the members of the
Investor Group agree with and adopt the analyses and findings of the Special
Committee and the Instron Board with respect to the procedural fairness of the
Merger Agreement and the Transactions to the Public Stockholders and believe
that, as of the date of this Proxy Statement and for such reasons, the Merger is
procedurally fair to the Public Stockholders.
No member of the Investor Group makes any recommendation as to how the
stockholders of Instron should vote on the Merger Agreement. The Investor Group
has financial interests in the Merger and the Other Investors and the Management
Investors have financial and other interests in the Merger. See "-- Conflicts of
Interest."
CONFLICTS OF INTEREST
In considering the recommendations of the Instron Board and the Special
Committee with respect to the Merger, you should be aware that the Management
Investors and the Other Investors, have interests in connection with the Merger
which may present them with actual or potential conflicts of interest as
summarized below. The Instron Board and the Special Committee were aware of
these interests and considered them among the other matters described under
"-- The Special Committee's and the Instron Board's Recommendation." The Instron
Board and the Special Committee generally considered the Other Investors' and
the Management Investors' conflicts of interest to be a negative factor in their
respective determinations that the Merger is fair and in the best interests of
the Public Stockholders. In particular, the Instron Board and the Special
Committee considered the fact that consummation of the Merger would preclude the
Public Stockholders from having the opportunity to participate in the future
growth prospects of Instron. In addition, the Instron Board and the Special
Committee recognized that the Management Investors and the Other Investors will
have the opportunity to benefit from any increases in the value of Instron
following the Merger by reason of their continuing equity interest in the
Surviving Corporation and therefore may realize a substantial economic benefit
from the transaction.
38
<PAGE> 49
Post-Merger Ownership and Control of the Surviving Corporation. It is
anticipated that immediately after the Merger the following individuals and
entities will beneficially own the number of shares of Surviving Corporation
Common Stock shown in the following table.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SURVIVING CORPORATION PERCENTAGE OF SURVIVING
COMMON STOCK BENEFICIALLY CORPORATION COMMON
NAME OF BENEFICIAL OWNER OWNED STOCK(1)
------------------------ ------------------------- -----------------------
<S> <C> <C>
Kirtland Partners Ltd. (2)........................ 452,618 83.41%
George S. Burr.................................... 12,000 2.21
Helen L. Burr..................................... 4,000 *
The Harold Hindman Trust -- 1969 (3).............. 16,000 2.95
James M. McConnell (4)............................ 19,585 3.61
Joseph E. Amaral (5).............................. 3,000 *
Kenneth L. Andersen (6)........................... 3,567 *
John R. Barrett (7)............................... 458 *
Jonathan L. Burr (8).............................. 8,329 1.53
The Jonathan L. Burr Trust -- 1965 (9)............ 4,000 *
Yahya Gharagozlou (10)............................ 1,062 *
Arthur D. Hindman (11)............................ 2,552 *
William J. Milliken............................... 2,280 *
Linton A. Moulding (includes 2,709 shares owned as
a joint tenant with his wife, Jane Elizabeth
Moulding) (12).................................. 11,409 2.10
Norman L. Smith................................... 1,800 *
</TABLE>
- ---------------
* Less than 1%.
(1) These percentages are (i) based on the number of outstanding shares of
Surviving Corporation Common Stock upon the consummation of the Merger
on a fully diluted basis (assuming the exercise of all Rollover
Options), and (ii) are based on Instron having Net Indebtedness as of
the closing date of the Merger of $3.9 million.
(2) Kirtland Partners Ltd. is the general partner of Kirtland Capital
Partners III L.P. and the managing member of each of Kirtland Capital
Company III LLC and ISN Investments Ltd. As such, Kirtland Partners
Ltd. will exercise complete control over the shares of Surviving
Corporation Common Stock held by Kirtland Capital Partners III L.P.,
Kirtland Capital Company III LLC and ISN Investments Ltd., including
voting control and investment decisions with respect to all such
shares. The exact allocation among these entities is not known at this
time; however, a majority of the shares of Surviving Corporation
Common Stock owned by the Equity Investor will be held by Kirtland
Capital Partners III L.P. Each of John F. Turben, Raymond A.
Lancaster, John G. Nestor and William R. Robertson is an executive
officer, manager and member of Kirtland Partners Ltd., and as a result
of such positions, may be deemed to have beneficial ownership of the
shares of Surviving Corporation Common Stock held by such entities.
Each of Messrs. Turben, Lancaster, Nestor and Robertson disclaim
beneficial ownership of the shares held by the Equity Investor. The
number shown is based on Instron having Net Indebtedness as of the
closing date of the Merger of $3.9 million.
(3) The Harold Hindman Trust -- 1969 is a trust of which Harold Hindman
and Robert N. Shapiro are the trustees and Harold Hindman is the sole
beneficiary, but with respect to which Harold Hindman has sole voting
and dispositive power with respect to all such shares.
(4) The number shown includes 2,400 shares of restricted Surviving
Corporation Common Stock.
39
<PAGE> 50
(5) The number shown is the number of shares which Mr. Amaral has the
right to acquire upon the exercise of his Rollover Options.
(6) The number shown includes (i) 267 shares of restricted Surviving
Corporation Common Stock and (ii) 3,300 shares which Mr. Andersen has
the right to acquire upon the exercise of his Rollover Options.
(7) The number shown represents shares of restricted Surviving Corporation
Common Stock.
(8) The number shown includes (i) 329 shares of restricted Surviving
Corporation Common Stock and (ii) 8,000 shares which Mr. Burr has the
right to acquire upon the exercise of his Rollover Options.
(9) The Jonathan L. Burr Trust -- 1965 is a trust of which Preston
Saunders, Robert C. Pomeroy and Mary-Kathleen O'Connell are the
trustees and Jonathan L. Burr is the sole beneficiary, but with
respect to which Jonathan L. Burr has shared voting power (with Robert
S. Burr, Susan Burr Carlo and Leslie B. Barresi) and sole dispositive
power with respect to all such shares.
(10) The number shown includes 1,062 shares of restricted Surviving
Corporation Common Stock.
(11) The number shown includes (i) 552 shares of restricted Surviving
Corporation Common Stock and (ii) 2,000 shares which Mr. Hindman has
the right to acquire upon the exercise of his Rollover Options.
(12) The number shown also includes 8,700 shares which Mr. Moulding has the
right to acquire upon the exercise of his Rollover Options.
Following consummation of the Merger, it is expected that those Management
Investors who were members of Instron's management prior to the Merger will
continue as management of the Surviving Corporation. The Board of Directors of
the Surviving Corporation following the Merger will be comprised of Mr.
McConnell, one person designated by Mr. McConnell, and at least three persons
designated by Kirtland.
The Other Investors. The Other Investors have also agreed with Kirtland to
maintain an equity ownership position in Instron following the completion of the
Merger. To that end, the Other Investors will exchange an aggregate of 160,000
shares of Instron Common Stock for an aggregate of 32,000 shares of Series B
Preferred Stock immediately prior to the Effective Time. Such shares of Series B
Preferred Stock will be converted at the Effective Time into a like number of
shares of Surviving Corporation Common Stock in the Merger. Upon consummation of
the Transactions, the Other Investors will own approximately 6.2% of the
outstanding shares of Surviving Corporation Common Stock.
The Management Investors. The Management Investors have agreed with
Kirtland to maintain an equity ownership position in Instron following the
completion of the Merger. To that end, certain of the Management Investors will
exchange an aggregate of 165,210 shares of Instron Common Stock for an aggregate
of 33,042 shares of Series B Preferred Stock immediately prior to the Effective
Time. Such shares of Series B Preferred Stock will be converted at the Effective
Time into a like number of shares of Surviving Corporation Common Stock in the
Merger. Of the 165,210 shares of Instron Common Stock to be exchanged for shares
of Series B Preferred Stock, an aggregate of 25,340 shares representing shares
of restricted Instron Common Stock previously issued to certain Management
Investors will be exchanged for 5,068 shares of Series B Preferred Stock. Such
shares of Series B Preferred Stock will be converted at the Effective Time into
a like number of shares of restricted Surviving Corporation Common Stock. These
shares of restricted stock will be governed by the Instron Corporation 1992
Stock Incentive Plan (as such plan is amended as of the Effective Time) (the
"1992 Plan") and certain amended restricted stock award agreements (the
"Restricted Stock Award Agreements"). The Restricted Stock Award Agreements
amend the prior agreements to (i) provide that the Merger shall not constitute a
change in control with respect to an aggregate of 25,340 shares of restricted
Instron Common Stock and that, as a result, such shares, which prior to such
amendment would have fully vested upon consummation of the Merger, will not
vest; (ii) provide that the shares will automatically vest upon four consecutive
quarters in which the Surviving Corporation's EBITDA (as defined in the
Restricted Stock Award Agreements) is in excess of $26,900,000 instead of
automatically vesting upon Instron achieving four consecutive quarters of
cumulative net earnings per share of $1.55; and (iii) provide for the forfeiture
and return of shares to the Company only if the grantee is voluntarily
terminated by the Surviving
40
<PAGE> 51
Corporation other than for Good Reason (as defined in the Restricted Stock Award
Agreements) or involuntarily terminated by the Surviving Corporation for Cause
(as defined in the Restricted Stock Award Agreements), rather than if the
grantee is terminated by Instron for any reason. Upon consummation of the
Transactions, the Management Investors will own approximately 6.4% of the
outstanding shares of Surviving Corporation Common Stock.
In addition, options to purchase up to an aggregate of 125,000 shares of
Instron Common Stock held by certain Management Investors will be assumed by the
Surviving Corporation and converted into the Rollover Options to purchase up to
an aggregate of 25,000 shares of Surviving Corporation Common Stock. The
Rollover Options will be governed by the 1992 Plan and certain amended stock
option agreements (the "Stock Option Agreements"). Each Rollover Option will be
fully vested and exercisable upon the consummation of the Merger. The Rollover
Options will represent approximately 4.6% of the Surviving Corporation Common
Stock on a fully diluted basis (assuming the exercise of all Rollover Options)
immediately following the Effective Time.
Cash Payments to the Other Investors and the Management Investors. The
Other Investors and the Management Investors also will participate in the Merger
as Public Stockholders to the extent that they hold shares of Instron Common
Stock that are not ultimately converted into Surviving Corporation Common Stock,
or hold outstanding options to purchase shares of Instron Common Stock that are
not converted into Rollover Options. In the Merger, the Other Investors and the
Management Investors will be entitled to receive the Cash Merger Consideration
for their unconverted shares of Instron Common Stock. Certain of the Management
Investors also own shares of restricted Instron Common Stock for which they will
be entitled to receive the Cash Merger Consideration in the Merger. They also
will be entitled to receive cash based on the number of shares of Instron Common
Stock underlying their unconverted stock options and the difference between the
applicable per share exercise price of such options and the Cash Merger
Consideration. See "The Merger -- Cash-Out of Instron Stock Options."
The following table sets forth information as of the date of this Proxy
Statement as to the shares of Instron Common Stock owned of record by the Other
Investors and the shares of Instron Common Stock and the options to purchase
shares of Instron Common Stock held by the Management Investors for which cash
payments will be received upon consummation of the Merger.
<TABLE>
<CAPTION>
AMOUNT OF CASH TO BE
RECEIVED FOR
OTHER INVESTOR SHARES CASHED OUT SHARES CASHED OUT
-------------- ----------------- --------------------
<S> <C> <C>
George S. Burr....................................... 199,206 $ 4,382,532
Helen L. Burr........................................ 71,550 1,574,100
The Harold Hindman Trust -- 1969 (includes shares
owned of record by Harold Hindman, a trustee and
the sole beneficiary of The Harold Hindman
Trust -- 1969)..................................... 449,819* 9,896,018*
</TABLE>
- ---------------
* The Harold Hindman Trust -- 1969 will exchange 412,814 shares of Instron
Common Stock and Harold Hindman, a member of the Instron Board and a
trustee and the sole beneficiary of The Harold Hindman Trust -- 1969,
will exchange 37,005 shares of Instron Common Stock, or an aggregate of
449,819 shares of Instron Common Stock, for cash in the aggregate amount
of $9,896,018.
<TABLE>
<CAPTION>
AMOUNT OF CASH TO BE
RECEIVED FOR
MANAGEMENT INVESTOR SHARES CASHED OUT SHARES CASHED OUT
------------------- ----------------- --------------------
<S> <C> <C>
James M. McConnell................................... 116,895 $ 2,571,690
Joseph E. Amaral..................................... 33,423 735,306
Kenneth L. Andersen.................................. 35,473 780,406
John R. Barrett...................................... 25,443 559,746
Jonathan L. Burr..................................... 84,007 1,848,154
</TABLE>
41
<PAGE> 52
<TABLE>
<CAPTION>
AMOUNT OF CASH TO BE
RECEIVED FOR
MANAGEMENT INVESTOR SHARES CASHED OUT SHARES CASHED OUT
------------------- ----------------- --------------------
<S> <C> <C>
The Jonathan L. Burr Trust -- 1965 (shares owned of
record by the Jonathan L. Burr Trust -- 1965 of
which Jonathan L. Burr is the sole beneficiary;
does not include shares held by Jonathan L. Burr
which are listed separately above)................. 40,750 896,500
Yahya Gharagozlou.................................... 21,781 479,182
Arthur D. Hindman (includes shares held individually,
as beneficiary of The Arthur D. Hindman Trust, by
his wife, Nancy Hindman, and as custodian for his
three minor children).............................. 96,929 2,132,438
William J. Milliken.................................. 9,364 206,008
Linton A. Moulding................................... 31,852 700,744
Jane Elizabeth Moulding.............................. 0 0
Norman L. Smith (includes shares held by his wife,
Carolyn Smith)..................................... 19,720 433,840
</TABLE>
<TABLE>
<CAPTION>
AMOUNT OF CASH TO BE
SHARES UNDERLYING RECEIVED FOR STOCK
MANAGEMENT INVESTOR STOCK OPTIONS CASHED OUT OPTIONS CASHED OUT
------------------- ------------------------ --------------------
<S> <C> <C>
James M. McConnell............................. 162,000 $ 1,610,000
Joseph E. Amaral............................... 39,500 411,750
Kenneth L. Andersen............................ 33,625 355,594
John R. Barrett................................ 31,750 281,250
Jonathan L. Burr............................... 11,500 121,875
The Jonathan L. Burr Trust -- 1965 (shares
owned of record by the Jonathan L. Burr
Trust -- 1965 of which Jonathan L. Burr is
the sole beneficiary; does not include shares
held by Jonathan L. Burr which are listed
separately above)............................ 0 0
Yahya Gharagozlou.............................. 30,500 286,344
Arthur D. Hindman.............................. 28,500 282,500
William J. Milliken............................ 0 0
Linton A. Moulding............................. 9,000 93,750
Jane Elizabeth Moulding........................ 0 0
Norman L. Smith................................ 7,000 72,875
</TABLE>
Grant of New Options to the Management Investors. At the Effective Time,
Instron will adopt the Instron Corporation 1999 Stock Option Plan (the "1999
Plan") and reserve for issuance under the plan such number of shares of
Surviving Corporation Common Stock equal to 10% of the aggregate number of
shares of Surviving Corporation Common Stock outstanding on a fully diluted
basis immediately following the Effective Time (the "Available Shares"). At the
Effective Time, the Surviving Corporation will grant to the ten Management
Investors who were members of Instron's management prior to the Merger, options
to purchase, in the aggregate, up to such number of shares of Surviving
Corporation Common Stock equal to 40% of the Available Shares. Each such
Management Investor will receive a grant equal to 3.33% of the Available Shares,
other than Mr. McConnell who will receive a grant equal to 9.99% of the
Available Shares. The options will be incentive stock options intending to
qualifying under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), up to the limitations set forth in the Code, and non-qualified
stock options to the extent of the excess over such limitations. Each option
will be exercisable at the fair market
42
<PAGE> 53
value per share determined in good faith by the Board of Directors of the
Surviving Corporation (estimated to be $110.00 per share at the Effective Time),
and will be exercisable to the extent of one-fifth of the shares on each of the
first five anniversaries of the date of grant for so long as the optionee is in
the continuous employ of the Surviving Corporation. Unexercisable options will
be forfeited upon termination of employment. Upon a change in control of the
Surviving Corporation, all options will become immediately exercisable in full.
Options will be exercisable in cash, or by surrender of Surviving Corporation
Common Stock owned by the optionee. Each option will terminate three months
after the optionee ceases to be an employee of the Surviving Corporation or a
subsidiary for any reason other than death or disability, or six months after
the optionee ceases to be an employee as a result of death or disability, and in
no event more than ten years from the date of grant. Non-qualified stock options
will be transferable to members of an optionee's immediate family (including
trusts and partnerships established for the benefit of the optionee and his
immediate family).
Confidentiality and Noncompetition Agreements with the Management
Investors. In order to induce Kirtland to enter into the Merger, at the
Effective Time each of the Management Investors who will continue as a member of
Instron's management after the Merger will enter into a Confidentiality and
Noncompetition Agreement with Instron. Under the agreement, each such Management
Investor will maintain confidentiality of trade secrets, customer lists and
other confidential business information of Instron and its subsidiaries, and
will not engage in Competition (as such term is defined in the Confidentiality
and Noncompetition Agreement) for so long as he is employed with Instron or any
of its subsidiaries and thereafter until the first anniversary of the date on
which he last worked for Instron.
Severance Agreements with the Management Investors. Each Management
Investor (other than Mr. McConnell) with an Executive Severance Agreement has
agreed to amend such agreement as of the Effective Time. Each such Management
Investor had entered into his Executive Severance Agreement on May 14, 1998 and
had not entered into any amendments thereto. The amendment modifies the
definition of good reason in the Executive Severance Agreement. The Executive
Severance Agreements currently provide that the termination by an executive of
such executive's employment with Instron for "good reason" will entitle the
executive to receive certain severance compensation and benefits. The amendment
revises part of the definition of "good reason". As amended, the Executive
Severance Agreement will provide that the termination by an executive of such
executive's employment with Instron constitutes "good reason" if the Surviving
Corporation fails to maintain the executive in an executive position with duties
and responsibilities in the aggregate normally associated with an executive at
the Surviving Corporation at a vice president level or higher, or if the
executive's title is reduced to below a vice president or, except for John R.
Barrett, the executive is no longer a member of the Executive Committee of the
Surviving Corporation. The amended Executive Severance Agreement will not apply
to any termination of employment that occurs after the second anniversary of the
Effective Time, or to any change in control that occurs after the Effective
Time.
Deferred Compensation Agreement with James M. McConnell. At the Effective
Time, the Surviving Corporation and Mr. McConnell will enter into a Deferred
Compensation Agreement to replace severance compensation and benefits otherwise
payable to Mr. McConnell under his existing Executive Severance Agreement which
had been entered into by Mr. McConnell on May 14, 1998. Pursuant to such
agreement, the Surviving Corporation will credit $1,200,000 to a nonforfeitable
deferred compensation account for Mr. McConnell. The Surviving Corporation will
credit interest on the value of the account in arrears on the last business day
of each quarter at a rate of interest equal to the composite "prime rate" as
quoted in the Eastern Edition of the Wall Street Journal for that day. The
account will be paid to Mr. McConnell in five annual installments commencing on
the fifth anniversary of the Effective Time; provided that commencement of
payments will be accelerated in the event of Mr. McConnell's disability, death
or termination without cause. In addition, upon a change in control of the
Surviving Corporation, the account will be paid to Mr. McConnell in a lump sum.
In the event that any amount to be paid under the Deferred Compensation
Agreement would be an "excess parachute payment" within the meaning of the Code,
then the Surviving Corporation may propose that the payments to be made under
the agreement be reduced to the minimum extent necessary so that no portion of
such payment, if so reduced, constitutes an excess parachute payment. If Mr.
McConnell agrees to
43
<PAGE> 54
any such reduction, interest credited to the account will be reduced to the
minimum extent necessary so that no portion of such interest to be paid, as so
reduced, constitutes an excess parachute payment. If Mr. McConnell does not
agree to such reduction, then the Surviving Corporation may accelerate payments
to Mr. McConnell to the extent required so that no payment to Mr. McConnell
under the agreement will constitute an excess parachute payment. Mr. McConnell
is entitled to receive in the same manner as provided in Mr. McConnell's
Executive Severance Agreement an additional "gross-up payment" to the extent
necessary to offset any federal, state and local income tax, employment tax and
excise tax upon the excess parachute payment.
Voting Agreement. Pursuant to a Voting Agreement dated as of May 6, 1999
(the "Voting Agreement"), the Other Investors and certain of their affiliates
and the Management Investors and certain of their affiliates agreed with
MergerCo to vote (or cause to be voted) at the Special Meeting all of the shares
of Instron Common Stock (the "Voting Shares") owned by them in favor of the
proposal to approve the Merger Agreement. The Other Investors and certain of
their affiliates and the Management Investors and certain of their affiliates
also agreed (i) not to sell, tender, transfer, pledge, encumber, assign or
otherwise dispose of any Voting Shares, or deposit any Voting Shares into a
voting trust or enter into a voting agreement or arrangement with respect to
voting any Voting Shares, or grant any proxy or power of attorney with respect
thereto, (ii) to waive their appraisal rights with respect to the Voting Shares,
and (iii) at the request of Kirtland, to take further lawful actions as may be
necessary or desirable to consummate and make effective the transactions
contemplated by the Voting Agreement. The Voting Shares represent approximately
22.4% of the outstanding shares of Instron Common Stock.
The Voting Agreement will terminate upon the earlier of the consummation of
the Merger or the termination of the Merger Agreement without consummation of
the Merger.
Stockholders Agreement. Upon consummation of the Merger, members of the
Investor Group will enter into the Stockholders Agreement. The Stockholders
Agreement provides that the stockholders of the Surviving Corporation may not
transfer their shares of Surviving Corporation Common Stock except under certain
circumstances. Under the Stockholders Agreement, the Surviving Corporation has a
right of first refusal in the event that an Other Investor or a Management
Investor wishes to sell shares of Surviving Corporation Common Stock, or, in the
event that the Surviving Corporation does not exercise its right of first
refusal, the nontransferring stockholders (other than any management stockholder
who is no longer an employee of the Surviving Corporation) will have the
opportunity to purchase such shares. The Stockholders Agreement also provides
that the Other Investors and the Management Investors will have the opportunity
to participate in certain sales of Surviving Corporation Common Stock by the
Equity Investor, and the Equity Investor has the right to cause the Other
Investors and the Management Investors to participate in certain such sales. In
addition, the Stockholders Agreement provides for certain "puts" and "calls"
upon the termination of a Management Investor's employment with the Surviving
Corporation.
Registration Rights Agreement. Upon consummation of the Merger, the Equity
Investor, the Other Investors, the Management Investors and the Surviving
Corporation will enter into the Registration Rights Agreement, pursuant to which
the Other Investors and the Management Investors will have the right to
participate, or "piggy-back," in equity offerings initiated by the Surviving
Corporation that are registered under the Securities Act, subject, in the case
of the Management Investors, to the approval of the underwriters involved with
any such equity offering and other customary terms and conditions. In the event
that the Equity Investor, in connection with a future business strategy,
considers a public offering of Surviving Corporation Common Stock, these
registration rights could provide the Other Investors and the Management
Investors with a means by which to achieve liquidity for their investments.
The foregoing summaries of the Confidentiality and Noncompetition
Agreements, the amendment to the Executive Severance Agreements, the Deferred
Compensation Agreement, the Voting Agreement, the Stockholders Agreement and the
Registration Rights Agreement are qualified in their entirety by reference to
the actual terms of such agreements, which are filed as exhibits to Instron's
Schedule 13E-3.
Fees and Expenses. Instron has agreed to pay for the reasonable fees and
expenses of the Other Investors' legal counsel up to an aggregate of $40,000.
Instron has also agreed to pay for the reasonable fees and expenses of the
Management Investors' legal counsel up to an aggregate of $85,000.
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Indemnification and Insurance. Under the Merger Agreement, Instron will
indemnify and hold harmless any former or current director, officer, employee,
fiduciary or agent of Instron or any of its subsidiaries, and after the
Effective Time, the Surviving Corporation will indemnify and hold harmless, as
and to the full extent permitted by applicable law, each such indemnified party
against any losses, in connection with any threatened or actual claim, action,
suit, proceeding or investigation, based in whole or in part on, or arising in
whole or in part out of, or pertaining to (i) the fact that he is or was a
director, officer, employee, fiduciary or agent of Instron or any of its
subsidiaries, or is or was serving at the request of Instron or any of its
subsidiaries as a director, officer, employee, fiduciary or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (ii) the
negotiation, execution or performance of the Merger Agreement or any of the
Transactions (whether asserted or arising before or after the Effective Time).
The parties also agree that all rights to indemnification existing in favor of,
and all limitations on the personal liability of, the directors, officers,
employees and agents of Instron and its subsidiaries provided for in Instron's
Restated Articles of Organization or Bylaws as in effect as of the date of the
Merger Agreement with respect to matters occurring prior to the Effective Time,
and including the Merger and the Transactions, shall continue in full force and
effect for a period of six years from the Effective Time.
Prior to the Effective Time, Instron will purchase an extended reporting
period endorsement under its existing directors' and officers' liability
insurance coverage for Instron's directors and officers which shall provide such
directors and officers with coverage at least as favorable as the current policy
for six years following the Effective Time. It is anticipated that the total
aggregate cost of such coverage will be approximately $160,000.
The Beacon Group. The Beacon Group served as financial advisor to the
Instron Board and the Special Committee. Two of the thirteen managing directors
of The Beacon Group are limited partner investors in Kirtland. The Instron
Board, the Special Committee and The Beacon Group believe that the foregoing
relationships do not affect The Beacon Group's ability to act independently and
impartially as financial advisor to the Instron Board and the Special Committee.
The Instron Board and the Special Committee also considered the fact that two of
the thirteen managing directors of The Beacon Group were limited partner
investors in Kirtland, one of whom was actively involved in advising the Instron
Board and the Special Committee during the bidding process. However, the Instron
Board and the Special Committee noted that these individuals were passive
investors in Kirtland who together owned an approximately 0.12% limited partner
interest in Kirtland and did not control in any way the actions of Kirtland.
Moreover, two other senior professionals of The Beacon Group with no economic
interest in Kirtland were actively involved in advising the Instron Board and
the Special Committee during the bidding process. In addition, the Instron Board
and the Special Committee noted that under the terms of The Beacon Group's
engagement with Instron, The Beacon Group's percentage fee would increase as the
price to be paid to the Public Stockholders in any transaction increased.
Accordingly, the Instron Board and the Special Committee believed that despite
the economic interest in Kirtland held by the two managing directors of The
Beacon Group, the terms of The Beacon Group's engagement provided a
substantially greater economic incentive to assist Instron in obtaining the
highest price for the stockholders in any transaction. In view of the foregoing,
the Instron Board and the Special Committee concluded that the aforementioned
relationship between the two managing directors of The Beacon Group and Kirtland
would not affect The Beacon Group's ability to act independently and impartially
as financial advisor to the Instron Board and the Special Committee.
Special Committee. The members of the Special Committee will be treated in
the Merger as Public Stockholders with respect to their shares of Instron Common
Stock. Mr. Young owns 25,000 shares of Instron Common Stock and Mr. Moore owns
2,500 shares of Instron Common Stock. The third member of the Special Committee,
Mr. Smith, does not own any shares of Instron Common Stock. None of the members
of the Special Committee hold any options to purchase Instron Common Stock. Upon
consummation of the Merger, Mr. Young will be entitled to receive $550,000 as
Cash Merger Consideration for his shares of Instron Common Stock and Mr. Moore
will be entitled to receive $55,000 as Cash Merger Consideration for his shares
of Instron Common Stock.
The members of the Special Committee, which held five meetings from March
1999 through the date of this Proxy Statement, will receive compensation from
Instron in connection with these committee meetings. In connection with
establishing the Special Committee, the Instron Board approved the payment of a
one-time
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fee of $7,500 for, and an amount equal to $1,200 for each meeting of the Special
Committee attended by, Mr. Young, the Chairman of the Special Committee. Mr.
Young received from Instron an aggregate of $13,500 as compensation for serving
as the chairman of the Special Committee. The Instron Board also approved the
payment of a one-time fee of $5,000 for, and an amount equal to $700 for each
meeting of the Special Committee attended by, each of Messrs. Moore and Smith.
Messrs. Moore and Smith each received from Instron an aggregate of $8,500 as
compensation for serving on the Special Committee.
Members of the Special Committee will be entitled to certain
indemnification rights and to directors' and officers' liability insurance which
will be continued by Instron following the Merger as described above for the
current and former officers and directors of Instron.
The Instron Board and the Special Committee believe that the foregoing
arrangements do not affect the Special Committee's independence or impartiality.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest in Instron as the
Surviving Corporation will be owned by the Investor Group. The Public
Stockholders will no longer have any interest in, and will not be stockholders
of, Instron, and, therefore, will not participate in Instron's future earnings
and potential growth. Instead, the Public Stockholders will have the right to
receive $22.00 in cash, without interest, for each share of Instron Common Stock
held by them immediately prior to the Effective Time (other than shares in
respect of which appraisal rights have been perfected). An equity investment in
Instron as the Surviving Corporation in the Merger involves substantial risk,
including risks resulting from the limited liquidity of an investment in the
common stock of Instron as a privately held company and risks resulting from
Instron's increased leverage in connection with the financing of the
Transactions. Nonetheless, if Instron successfully executes its business
strategy, the value of such an equity investment could be considerably greater
than the original cost thereof. See " -- Conflicts of Interest" and "Cautionary
Statement Concerning Forward-Looking Information."
Following the Merger, Instron intends to delist the Instron Common Stock
from AMEX. The Surviving Corporation does not intend to apply to have the
Surviving Corporation Common Stock listed on any national securities exchange or
automated quotation system. The registration of Instron Common Stock under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will terminate
in connection with the Merger.
FINANCING OF THE MERGER
Generally. It is estimated that an aggregate of approximately $174.3
million will be required to consummate the Transactions and pay related fees and
expenses. These funds are expected to come from the following sources:
- an equity investment made by the Equity Investor of approximately $49.8
million, assuming a Net Indebtedness of $3.9 million;
- borrowings by the Surviving Corporation of approximately $14.0 million
under the Credit Facility;
- borrowings by the Surviving Corporation of approximately $100.0 million
from the issuance of debt instruments; and
- Instron's available cash reserves which, as of April 3, 1999, were
approximately $10.5 million.
Debt Instruments. Kirtland currently anticipates that $100.0 million of the
funds necessary to consummate the Transactions will be raised through the
issuance of debt instruments by Instron in the private or public capital
markets. However, in the event that Kirtland is unable to arrange for such debt
financing, Kirtland has obtained the DLJ Bridge Letter pursuant to which DLJ
Bridge has committed to purchase from Instron $100.0 million in principal amount
of Bridge Notes. If issued by Instron and purchased by DLJ Bridge, it is
anticipated that the Bridge Notes would have the following features: (i)
subordinated to Instron's senior credit facility (which National City Bank has
committed to provide in connection with the Merger); (ii) a term of six and
one-half years, subject to certain conditions; (iii) guaranteed by Instron and
its subsidiaries if such entity is a guarantor of Instron's senior credit
facility; (iv) interest paid quarterly at a fluctuating rate not to exceed 17%
and not to be less than 10%; (v) registration and resale rights with respect
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to the Bridge Notes; and (vi) mandatory redemption upon Instron's issuance of
debt or equity or certain asset sales, in any case resulting in proceeds in
excess of the amount required to be paid under Instron's senior credit facility.
It also is anticipated that the Bridge Notes would contain covenants that are
customary for this type of financing including restrictions on indebtedness,
dividends, liens, affiliate transactions, stock repurchases, asset sales and
mergers.
Revolving Credit Facility. Kirtland also has received the National City
Letter in which National City Bank has committed to provide Instron with the
Credit Facility in connection with the Merger. It is expected that the Credit
Facility will have the following features: (i) maximum availability of $50.0
million subject to sublimits for the issuance of standby letters of credit and
borrowings denominated in a liquid currency other than U.S. dollars; (ii)
six-year term; (iii) collateralized by receivables, inventory, equipment and
other assets and a first priority lien on 100% of the common stock of Instron's
domestic subsidiaries and 65% of the common stock of Instron's foreign
subsidiaries; (iv) interest at alternative fluctuating rates, as selected by
Instron, of either a prime rate or the federal funds rate plus 0.5%, or a LIBOR
rate, in each case plus an applicable margin; (v) required payment of various
commitment and other fees; and (vi) customary financial and other
representations and warranties and covenants. The availability of the credit
contemplated by the National City Letter is dependent upon satisfaction of a
number of conditions, including delivery of all required documentation,
consummation of the Merger and other Transactions, receipt of all required
regulatory approvals, and there not having been any material litigation
involving Instron nor any material adverse change in the financial condition or
business of Instron. At the closing of the Merger, approximately $14.0 million
will be used to finance the consummation of the Transactions. Undrawn amounts
under the Credit Facility will be available to support working capital needs and
general corporate purposes.
The foregoing is only a summary of the National City Letter and is
qualified in its entirety by reference to the actual terms of the National City
Letter, which is filed as an exhibit to Instron's Schedule 13E-3.
The definitive agreements for the issuance and sale of the debt securities
and the Credit Facility have not been negotiated and completed. Accordingly, the
terms of such arrangements described above may change as a result of the
negotiation of definitive agreements. In addition, the obligation of National
City Bank to provide its respective financing is subject to the satisfaction of
numerous conditions including, without limitation, the condition that no
material adverse change in the business, assets, condition (financial or
otherwise) or results of operations of Instron and its subsidiaries taken as a
whole shall have occurred and that there shall not have occurred any event or
other circumstance which would, individually or in the aggregate, reasonably be
expected to result in any such material adverse change prior to the Effective
Time.
CONDUCT OF INSTRON'S BUSINESS AFTER THE MERGER
Instron designs, develops, manufactures, markets, and services materials
and structural testing systems, software, and accessories. These products are
used principally in research and development and quality control applications to
test the mechanical properties of various materials, components, and structures.
The materials tested include metals, plastics, textiles, composites, ceramics
and rubber. Instron systems test virtually all natural and man-made materials
from fragile fibers to the exotic materials needed for space exploration.
The Investor Group is continuing to evaluate Instron's business, practices,
operations, properties, corporate structure, capitalization, management, and
personnel and will determine what changes, if any, will be desirable. Such
changes may include, without limitation, entering into an extraordinary
corporate transaction, a sale of assets, a change in the composition of the
Instron Board, or a change in Instron's dividend policy. Subject to the
foregoing, the Investor Group expects that the day-to-day business and
operations of Instron will be conducted substantially as they are currently
being conducted by Instron.
It is expected that the Management Investors who are members of Instron's
management prior to the Merger will remain as management of the Surviving
Corporation. Such Management Investors, other than John R. Barrett, will also
serve on the Executive Committee of the Surviving Corporation. The Investor
Group does not currently contemplate any material change in the composition of
management or personnel. The Board of Directors of the Surviving Corporation
will be comprised of Mr. McConnell, one person designated by Mr. McConnell, and
at least three persons designated by Kirtland.
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THE SPECIAL MEETING
DATE, TIME, AND PLACE OF THE SPECIAL MEETING
The Special Meeting will be held on August 20, 1999, at 10:00 a.m., local
time, at the Hilton Dedham Place, 25 Allied Drive, Dedham, Massachusetts 02026.
PROXY SOLICITATION
This Proxy Statement is being solicited by the Instron Board. All expenses
incurred in connection with solicitation of the enclosed proxy will be paid by
Instron. Officers, directors, and regular employees of Instron, who will receive
no additional compensation for their services, may solicit proxies by telephone
or personal call. In addition, Instron has retained MacKenzie Partners, Inc. to
solicit proxies for a fee of $5,500 plus expenses. Instron has requested brokers
and nominees who hold stock in their names to furnish this proxy material to
their customers, and Instron will reimburse such brokers and nominees for their
related out-of-pocket expenses. This Proxy Statement and the accompanying proxy
card are being mailed to stockholders on or about July 23, 1999.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, Instron stockholders will be asked to consider and
vote upon a proposal to approve the Merger Agreement. A copy of the Merger
Agreement is attached as Appendix A to this Proxy Statement. Instron
stockholders may also be asked to vote on adjournment of the Special Meeting if
a motion to adjourn the Special Meeting is properly brought.
RECORD DATE AND QUORUM REQUIREMENT
Instron Common Stock was the only class of voting security of Instron
outstanding as of the Record Date. The Instron Board has fixed the close of
business on July 12, 1999 as the Record Date for the determination of
stockholders entitled to notice of, and to vote at, the Special Meeting. Each
holder of record of Instron Common Stock at the close of business on the Record
Date is entitled to one vote for each share then held on each matter submitted
to a vote of stockholders. At the close of business on the Record Date, there
were 6,978,448 shares of Instron Common Stock issued and outstanding held by
approximately 416 holders of record.
The holders of a majority of the outstanding shares entitled to vote at the
Special Meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business.
VOTING PROCEDURES
Pursuant to the MBCL, approval of the Merger Agreement, which is attached
as Appendix A hereto, will require the affirmative vote of the holders of
two-thirds of the outstanding shares of Instron Common Stock entitled to vote at
the Special Meeting. A failure to vote or a vote to abstain will have the same
legal effect as a vote cast against approval of the Merger Agreement. Brokers
and, in many cases, nominees will not have discretionary power to vote on the
proposal to be presented at the Special Meeting. Accordingly, beneficial owners
of shares should instruct their brokers or nominees how to vote. A broker
non-vote will have the same effect as a vote against the Merger Agreement.
Any proposal to adjourn the Special Meeting for the purpose of soliciting
additional proxies must be approved by a majority of the Instron stockholders
present in person or by proxy. Votes to abstain or broker non-votes will
constitute, in effect, votes against such adjournment. If the Special Meeting is
adjourned for any purpose, at any subsequent reconvening of the Special Meeting,
all proxies will be voted in the same manner as such proxies would have been
voted at the original convening of the meeting (except for any proxies which
have been revoked or withdrawn), notwithstanding that they may have been voted
on the same or any other matter at a previous meeting.
The Merger was not structured so that approval of at least a majority of
Instron stockholders not affiliated with Instron or the Investor Group is
required in order to consummate the Merger.
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Any stockholder of Instron has the right to dissent from approval of the
Merger Agreement and, subject to strict compliance with certain requirements and
procedures set forth in Sections 85 to 98, inclusive, of the MBCL, to receive
payment of the "fair value," as defined in the MBCL, of his or her shares of
Instron Common Stock. See "Appraisal Rights."
VOTING AND REVOCATION OF PROXIES
A stockholder giving a proxy has the power to revoke it at any time before
it is exercised by (i) filing with the Clerk of Instron an instrument revoking
it, (ii) submitting a duly executed proxy bearing a later date or (iii) voting
in person at the Special Meeting. Subject to such revocation, all shares
represented by each properly executed proxy received by the Clerk of Instron
will be voted in accordance with the instructions indicated thereon, and if no
instructions are indicated, will be voted FOR approval of the Merger Agreement,
FOR adjournment of the Special Meeting for the purpose of soliciting additional
proxies and in such manner as the persons named on the enclosed proxy card in
their discretion determine upon such other business as may properly come before
the Special Meeting.
The shares of Instron Common Stock represented by the accompanying proxy
card and entitled to vote will be voted if the proxy card is properly signed and
received by the Clerk of Instron prior to the Special Meeting.
VOTING AGREEMENT
Pursuant to the Voting Agreement, the Other Investors and certain of their
affiliates and the Management Investors and certain of their affiliates agreed
with MergerCo to vote (or cause to be voted) at the Special Meeting the Voting
Shares in favor of the proposal to approve the Merger Agreement. The Other
Investors and certain of their affiliates and the Management Investors and
certain of their affiliates also agreed (i) not to sell, tender, transfer,
pledge, encumber, assign or otherwise dispose of any Voting Shares, or deposit
any Voting Shares into a voting trust or enter into a voting agreement or
arrangement with respect to voting any Voting Shares or grant any proxy or power
of attorney with respect thereto, (ii) to waive their appraisal rights with
respect to the Voting Shares, and (iii) at the request of Kirtland, to take
further lawful actions as may be necessary or desirable to consummate and make
effective the transactions contemplated by the Voting Agreement. The Voting
Shares represent approximately 22.4% of the outstanding shares of Instron Common
Stock.
The Voting Agreement will terminate upon the earlier of the consummation of
the Merger or the termination of the Merger Agreement without consummation of
the Merger.
EFFECTIVE TIME OF THE MERGER AND PAYMENT FOR SHARES
The Effective Time of the Merger, which shall be the date and time of
filing of Articles of Merger with the Secretary of State of The Commonwealth of
Massachusetts, is currently expected to occur as soon as practicable after the
Special Meeting, subject to approval of the Merger Agreement at the Special
Meeting and satisfaction or waiver of the terms and conditions of the Merger
Agreement. Detailed instructions with regard to the surrender of Instron Common
Stock certificates, together with a letter of transmittal, will be forwarded to
stockholders by Instron's exchange agent, BankBoston, N.A. (the "Exchange
Agent"), promptly following the Effective Time. Stockholders should not submit
their certificates to the Exchange Agent until they have received such
materials. The Exchange Agent will send payment of the Cash Merger Consideration
to stockholders as promptly as practicable following receipt by the Exchange
Agent of their certificates and other required documents. No interest will be
paid or accrued on the cash payable upon the surrender of certificates.
Stockholders should not send any certificates at this time.
OTHER MATTERS TO BE CONSIDERED
The Instron Board is not aware of any other matters which will be brought
before the Special Meeting. If, however, other matters are presented, proxies
will be voted in accordance with the discretion of the holders of such proxies.
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THE MERGER
TERMS OF THE MERGER AGREEMENT
General. The Merger Agreement provides that subject to satisfaction of
certain conditions, MergerCo will be merged with and into Instron, and that
following the Merger, the separate existence of MergerCo will cease and Instron
will continue as the Surviving Corporation. At the Effective Time, and subject
to the terms and conditions set forth in the Merger Agreement, each share of
issued and outstanding Instron Common Stock (other than shares of Instron Common
Stock owned by Instron or any of its wholly-owned subsidiaries, or owned by
MergerCo, or shares of Instron Common Stock as to which appraisal rights are
properly perfected and not withdrawn (collectively the "Excluded Shares")),
will, by virtue of the Merger, be canceled and converted into the right to
receive the Cash Merger Consideration. As a result of the Merger, the Instron
Common Stock will no longer be publicly traded and the equity of the Surviving
Corporation will be 100% owned by the Investor Group.
The terms of and conditions to the Merger are contained in the Merger
Agreement which is included in full as Appendix A to this Proxy Statement and is
incorporated herein by reference. The discussion in this Proxy Statement of the
Merger and the description of the terms of the Merger Agreement constitute a
summary of the material features of the Merger and the material terms of the
Merger Agreement.
Merger Consideration. At the Effective Time, each share of Instron Common
Stock issued and outstanding immediately prior to the Effective Time (other than
the Excluded Shares) will be converted into the right to receive the Cash Merger
Consideration. All such shares of Instron Common Stock, when converted pursuant
to the Merger Agreement, shall no longer be outstanding and shall automatically
be canceled and retired and shall cease to exist, and each certificate (a
"Certificate"), which immediately prior to the Effective Time evidenced shares
of Instron Common Stock, shall thereafter represent only the right to receive
the Cash Merger Consideration. The holders of Certificates previously evidencing
shares of Instron Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to the Instron Common Stock
except as otherwise provided in the Merger Agreement or by law and, upon the
surrender of Certificates in accordance with the Merger Agreement, shall only
represent the right to receive for their shares of Instron Common Stock, the
Cash Merger Consideration, without any interest thereon.
At the Effective Time, each share of Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted into one
share of Surviving Corporation Common Stock. All such shares of Series B
Preferred Stock, when converted pursuant to the Merger Agreement, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each certificate previously evidencing such shares of Series
B Preferred Stock shall thereafter represent only the right to receive shares of
Surviving Corporation Common Stock. The holders of certificates previously
evidencing shares of Series B Preferred Stock outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to the Series B
Preferred Stock except as otherwise provided in the Merger Agreement or by law.
The Management Investors will in the aggregate have 33,042 shares of Series B
Preferred Stock converted in the Merger into 33,042 shares of Surviving
Corporation Common Stock. In addition, the Other Investors will in the aggregate
have 32,000 shares of Series B Preferred Stock converted in the Merger into
32,000 shares of Surviving Corporation Common Stock.
Payment for Shares. Promptly after the Effective Time, MergerCo will cause
the Exchange Agent to mail to each holder of record of a Certificate (other than
holders of Excluded Shares) a form of letter of transmittal and instructions for
use in effecting the surrender of the Certificate in exchange for payment
therefor. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such duly executed letter of transmittal, and any
additional requested items, the holder of such Certificate will be entitled to
receive in exchange therefor cash in an amount equal to the product of (x) the
number of shares of Instron Common Stock represented by such Certificate and (y)
the Cash Merger Consideration (net of any applicable withholding taxes).
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Cash-Out of Instron Stock Options. The Merger Agreement provides that each
option to purchase shares of Instron Common Stock under Instron's stock option
plans will become fully vested and exercisable, immediately prior to the Merger.
Holders of options outstanding immediately prior to the Effective Time, other
than certain options held by certain Management Investors which are to be
assumed by the Surviving Corporation and converted into the Rollover Options
(the "Cash-Out Options"), will receive cash equal to the product of (x) the
number of shares of Instron Common Stock underlying the Cash-Out Option and (y)
the excess of the Cash Merger Consideration over the per share exercise price of
such Cash-Out Option (the "Option Consideration"). Such holder will be entitled
to receive the Option Consideration from Instron upon the cancellation of such
Cash-Out Option and the surrender and cancellation of the applicable option
agreement. In connection with the Merger, as of April 3, 1999, holders of
Cash-Out Options to purchase an aggregate of 587,797 shares of Instron Common
Stock will be entitled to receive as Option Consideration an aggregate of
approximately $5.5 million. In addition, options to purchase up to an aggregate
of 125,000 shares of Instron Common Stock held by certain Management Investors
will be assumed by the Surviving Corporation and converted into the Rollover
Options. The Rollover Options will be governed by the 1992 Plan and the Stock
Option Agreements. The Rollover Options will be fully vested and exercisable
immediately upon consummation of the Merger.
Payment for Restricted Stock Awards. In connection with the Merger
Agreement, all restricted stock awards granted under Instron's stock option
plans, other than restricted stock awards held by certain Management Investors
which will be converted into restricted shares of Surviving Corporation Common
Stock as described below, have vested or will vest (as of the date of approval
of the Merger Agreement by the Instron stockholders at the Special Meeting) and
the restrictions associated with such restricted stock awards have or will be
deemed automatically waived. The shares of Instron Common Stock subject to such
restricted stock awards will be treated in the Merger as Instron Common Stock
and converted into the right to receive the Cash Merger Consideration. Certain
Management Investors have agreed to waive the vesting of their restricted stock
awards with respect to an aggregate of 25,340 shares of Instron Common Stock; as
a result, these shares of restricted stock will not be cashed out as described
above, and, instead, will be assumed by the Surviving Corporation. Prior to the
Effective Time, the 25,340 shares of Instron Common Stock subject to such
restricted stock awards will be exchanged for 5,068 shares of Series B Preferred
Stock and, in the Merger, such shares of Series B Preferred Stock will be
converted into a like number of shares of restricted Surviving Corporation
Common Stock. Such shares will continue to be subject to the 1992 Plan and will
be subject to the Restricted Stock Award Agreements.
Transfer of Shares. At the Effective Time, the stock transfer books of
Instron will be closed and there will be no further registration of transfer of
shares of Instron Common Stock thereafter on the records of Instron. If after
the Effective Time, any Certificates are presented to the Surviving Corporation
or the Exchange Agent, they will be surrendered and canceled in return for the
payment of the Cash Merger Consideration.
Conditions to the Merger. Each party's respective obligation to effect the
Merger is subject to the fulfillment or waiver, if permissible, at or prior to
the Closing Date, of each of the following conditions: (i) the approval and
adoption of the Merger Agreement by the affirmative vote of the holders of
two-thirds of the outstanding shares of Instron Common Stock entitled to vote at
the Special Meeting; (ii) the waiting period (and any extension thereof)
applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, shall have expired or been terminated; (iii) all necessary
approvals, authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in full
force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated; (iv) no
preliminary or permanent injunction or other order, decree or ruling issued by a
court of competent jurisdiction or by a governmental authority nor any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would make the consummation of the Merger
illegal, or otherwise restrict, prevent or prohibit the consummation of any of
the Transactions, including the Merger; and (v) each of the Instron Board and
the Board of Directors of MergerCo (the "MergerCo Board") shall have received a
letter
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from an appraisal firm reasonably satisfactory to Instron indicating that
immediately after the Effective Time, and after giving effect to the Merger and
the financing thereof, that the Surviving Corporation will not be insolvent or
have unreasonably small capital with which to engage in its business.
The obligations of MergerCo to effect the Merger are further subject to the
following conditions: (i) those representations and warranties of Instron set
forth in the Merger Agreement which are qualified by materiality or words of
similar effect shall be true and correct, and those representations and
warranties of Instron set forth in the Merger Agreement which are not so
qualified shall be true and correct in all material respects, in each case as of
the date of the Merger Agreement and as of the date of the closing date of the
Merger Agreement (the "Closing Date") as though made on and as of the Closing
Date (except to the extent such representations and warranties expressly relate
to a specific date, in which case such representations and warranties shall be
true and correct in all material respects as of such date); (ii) Instron shall
have performed in all material respects all obligations required to be performed
by it under the Merger Agreement; (iii) Instron shall have obtained or made all
third party consents, authorizations, orders or approvals identified in the
Merger Agreement or otherwise identified by MergerCo (unless not material); (iv)
there shall not have been entered any order of any governmental entity which
prohibits or limits Instron's or any of its subsidiaries' ability to own or
operate any of its business, properties or assets which is material to Instron
and its subsidiaries as a whole, or compels Instron or any of its subsidiaries
to dispose of or hold separate any portion of Instron's or its subsidiaries'
business, properties or assets which is material to Instron and its subsidiaries
as a whole; (v) there shall not have occurred any material adverse change in the
business, assets, condition (financial or otherwise) or results of operations of
Instron and its subsidiaries taken as a whole; (vi) there shall not have
occurred any material disruption or material adverse change in the banking,
financial or capital markets generally or in the market for senior credit
facilities or for new issuances of high yield securities which has caused either
of Kirtland's lenders to withdraw its respective commitment to provide financing
as contemplated by their respective financing commitment letters (a "Financing
Material Adverse Change"); (vii) as of immediately prior to the Effective Time,
no more than 5% of the outstanding shares of Instron Common Stock shall have
taken actions to assert dissenter's rights under the MBCL; (viii) the Commission
shall not have disapproved the statement in this Proxy Statement to the effect
that the Merger shall be treated as a recapitalization for accounting purposes;
(ix) there shall not be pending any action, claim, proceeding or investigation
instituted by any governmental entity challenging or prohibiting the
consummation of the Merger and the other Transactions; (x) the exchange of the
shares of Instron Common Stock of the Other Investors and the Management
Investors for Series B Preferred Stock contemplated by the Merger Agreement
shall have been completed to the reasonable satisfaction of MergerCo; and (xi)
Instron's Net Indebtedness on the Closing Date shall not exceed $13.0 million.
The obligation of Instron to effect the Merger is further subject to the
following conditions: (i) those representations and warranties of Kirtland and
MergerCo set forth in the Merger Agreement which are qualified by materiality or
words of similar effect shall be true and correct, and those representations and
warranties of Kirtland and MergerCo set forth in the Merger Agreement which are
not so qualified shall be true and correct in all material respects, in each
case, as of the date of the Merger Agreement and as of the Closing Date as
though made on the Closing Date (except to the extent such representations and
warranties expressly relate to a specific date, in which case such
representations and warranties shall be true and correct in all material
respects as of such date); and (ii) each of Kirtland and MergerCo shall have
performed all obligations required to be performed by it under the Merger
Agreement, except where any failure to perform would, individually or in the
aggregate, not materially impair or significantly delay the ability of Instron
to consummate the Merger.
EVEN IF THE STOCKHOLDERS APPROVE THE MERGER, THERE CAN BE NO ASSURANCE THAT
THE MERGER WILL BE CONSUMMATED.
Representations and Warranties. Instron has made representations and
warranties in the Merger Agreement regarding, among other things, its
organization and good standing, authority to enter into the Transactions,
compliance with all applicable laws, its capitalization, its financial
statements, its ownership of all subsidiaries and their organization and good
standing, requisite governmental and other consents and
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<PAGE> 63
approvals, the content and submission of forms and reports required to be filed
by Instron with the Commission, absence of litigation to which Instron is a
party, the absence of certain changes in the business of Instron since December
31, 1998, requisite tax filings, maintenance of books and records, properties
owned or leased by the Company, ownership or licence for all material
intellectual property, environmental matters, employee benefits, labor matters,
brokers and finders fees, opinion of financial advisor, Year 2000 compliance,
insurance, absence of defaults under material contracts, and takeover laws.
Certain of Instron's representations and warranties in the Merger Agreement
are qualified by the term "Company Material Adverse Effect." For purposes of the
Merger Agreement, a "Company Material Adverse Effect" means a material adverse
effect on the business, results of operations or condition (financial or
otherwise) of Instron and its subsidiaries taken as a whole.
MergerCo and Kirtland have, jointly and severally, made representations and
warranties in the Merger Agreement regarding, among other things, their
organization and good standing, authority to enter into the Transactions, the
requisite governmental and other consents and approvals, required financing,
takeover laws, formation of MergerCo, MergerCo's beneficial ownership of shares
of Instron Common Stock, and the financial condition of Kirtland.
Certain of the representations and warranties of MergerCo and Kirtland are
qualified by the term "Parent Material Adverse Effect." For purposes of the
Merger Agreement, a "Parent Material Adverse Effect" means a material adverse
effect on the business, results of operations or condition (financial or
otherwise) of Kirtland.
The representations, warranties, and agreements in the Merger Agreement or
in any instrument delivered pursuant to the Merger Agreement will expire at the
Effective Time.
Covenants. Instron has agreed under the Merger Agreement that during the
period from the date of the Merger Agreement to the Effective Time, except as
otherwise contemplated by the Merger Agreement or otherwise agreed to in writing
by MergerCo or Parent, Instron shall, and shall cause each of its subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course, consistent with past practice, and use their best efforts to preserve
intact their present business organizations, keep available the services of
their present advisors, managers, officers and employees and preserve their
relationships with customers, suppliers, licensors and others having business
dealings with them and continue existing contracts as in effect on the date of
the Merger Agreement (for the term provided in such contracts). Specifically,
Instron has agreed not to, among other things, (i) pay dividends or make
distributions, or take certain actions with respect to its capital stock, (ii)
authorize the issuance of securities (except in connection with the
Transactions), (iii) acquire, dispose or encumber any assets outside the
ordinary course of business, (iv) make loans, advances or capital contributions
other than in the ordinary course of business, (v) pay any liabilities (other
than in the ordinary course of business or in connection with the Transactions),
(vi) take certain actions with respect to employee benefits, (vii) amend its
organizational documents (except in connection with the Transactions), or (viii)
settle or compromise any litigation.
Instron, MergerCo and Kirtland each have also agreed to prepare and file
certain filings required under the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act (including this Proxy Statement), or any
other federal, state or foreign law relating to the Merger and the other
Transactions.
Financing. Under the Merger Agreement, each of Kirtland and MergerCo agreed
to use its reasonable best efforts to arrange the financing of the Transactions
and to satisfy the conditions set forth in the financing commitment letters from
Kirtland's lenders. In the event that they are unable to arrange any portion of
the financing in the manner or from the sources contemplated by such financing
commitment letters, Kirtland and MergerCo will arrange (or in the event that
such inability arises as a result of a Financing Material Adverse Change, use
its reasonable best efforts to arrange) any such portion from alternative
sources on substantially the same terms and with substantially the same
conditions as the portion of the financing that Kirtland and MergerCo were
unable to arrange. Instron will use its reasonable best efforts to assist
Kirtland and MergerCo in obtaining the financing for the Transactions.
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<PAGE> 64
Solicitation of Acquisition Proposals. Under the Merger Agreement, Instron
is prohibited from authorizing or permitting any of its officers, directors or
employees or any investment banker, financial advisor, attorney, accountant or
other representative retained by it, to, directly or indirectly, (i) solicit,
initiate or encourage (including by way of furnishing non-public information),
or take any other action to facilitate, any inquiries or the making of any
proposal that constitutes a proposed or actual (A) merger, consolidation or
similar transaction involving Instron, (B) sale, lease or other disposition,
directly or indirectly, of any assets of Instron or its subsidiaries
representing 15% or more of the consolidated assets of Instron and its
subsidiaries, (C) issue, sale or other disposition by Instron of securities
representing 15% or more of the votes associated with the outstanding securities
of Instron, (D) tender offer or exchange offer in which any person or group
shall acquire beneficial ownership, or the right to acquire beneficial
ownership, of 15% or more of the outstanding shares of Instron Common Stock, or
(E) recapitalization, restructuring, liquidation, dissolution, or other similar
type of transaction with respect to Instron (an "Acquisition Proposal"), or (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal; provided, however, that at any time prior to the approval of the
Merger Agreement by the Instron stockholders, if Instron receives an Acquisition
Proposal that was unsolicited or that did not otherwise result from a breach of
the foregoing restrictions, Instron may furnish non-public information to and
participate in negotiations with the third party making the Acquisition Proposal
if (X) the Instron Board determines based on the advice of independent legal
counsel that failure to do so would be reasonably likely to constitute a breach
of its fiduciary duties to the Instron stockholders under applicable law, and
(Y) the Instron Board determines that such Acquisition Proposal is reasonably
likely to lead to an Acquisition Proposal that the Instron Board determines, on
the advice of its financial advisor, is more favorable to the Instron
stockholders from a financial point of view than the Transactions (a "Superior
Proposal"). Notwithstanding the foregoing, Instron shall, prior to furnishing
any non-public information with respect to Instron and its subsidiaries to such
third party, enter into a confidentiality agreement with such third party on
terms no less favorable than those in the confidentiality agreement executed by
Instron and Kirtland. Instron shall promptly notify (but in any event within two
calendar days) MergerCo of Instron's first receipt of a written Acquisition
Proposal by such third party and of the material terms and conditions thereof.
Instron generally shall have no duty to notify or update Kirtland or MergerCo on
the status of discussions or negotiations (including the status of such
Acquisition Proposal or any amendments or proposed amendments thereto) between
Instron and such third party.
The Merger Agreement also provides that at any time prior to the approval
of the Merger Agreement by the Instron stockholders, the Instron Board may (i)
withdraw or modify in a manner material and adverse to Kirtland or MergerCo its
approval or recommendation of the Merger Agreement or the Merger, (ii) approve
or recommend an Acquisition Proposal to its stockholders or (iii) cause Instron
to enter into any definitive acquisition agreement with respect to an
Acquisition Proposal, in each such case if (A) the Instron Board determines
based on the advice of independent legal counsel that failure to take such
action would be reasonably likely to constitute a breach of its fiduciary duties
to the Instron stockholders under applicable law, and (B) the Instron Board
determines based on the advice of its financial advisors that such Acquisition
Proposal constitutes a Superior Proposal.
Indemnification and Insurance. Under the Merger Agreement, Instron will
indemnify and hold harmless any person who is now, or has been at any time prior
to the date hereof, or who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of Instron or any of its subsidiaries, and
after the Effective Time the Surviving Corporation will indemnify and hold
harmless, as and to the full extent permitted by applicable law, each such
indemnified party against, any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorneys' fees and expenses), judgments, fines
and amounts paid in settlement in connection with any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person who is now, or has been at any
time prior to the date of the Merger Agreement, or who becomes prior to the
Effective Time, a director, officer, employee, fiduciary or agent of Instron or
any of its subsidiaries is, or is threatened to be, made a party based in whole
or in part on, or arising in whole or in part out of, or pertaining to (i) the
fact that he is or was a director, officer, employee,
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<PAGE> 65
fiduciary or agent of Instron or any of its subsidiaries, or is or was serving
at the request of Instron or any of its subsidiaries as a director, officer,
employee, fiduciary or agent of another corporation, partnership, joint venture,
trust or other enterprise, or (ii) the negotiation, execution or performance of
the Merger Agreement or any of the Transactions (whether asserted or arising
before or after the Effective Time). The parties also agree that all rights to
indemnification existing in favor of, and all limitations on the personal
liability of, the directors, officers, employees and agents of Instron and its
subsidiaries provided for in Instron's Restated Articles of Organization or
Amended and Restated Bylaws as in effect as of the date of the Merger Agreement
with respect to matters occurring prior to the Effective Time, and including the
Merger and the Transactions, shall continue in full force and effect for a
period of six years from the Effective Time.
Prior to the Effective Time, Instron shall purchase an extended reporting
period endorsement under its existing directors' and officers' liability
insurance coverage for Instron's directors and officers which shall provide such
directors and officers with coverage at least as favorable as the current policy
for six years following the Effective Time. If, however, the total aggregate
cost of such coverage exceeds $175,000, then Instron will instead maintain, for
such six-year period, the maximum amount of comparable coverage as shall be
available for $175,000 on such terms.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger Agreement by
the Instron stockholders: (a) by mutual written consent of MergerCo and Instron;
(b) by either of Instron or MergerCo (i) if the Instron stockholders shall have
failed to give the required approval of the Merger Agreement, (ii) if any
governmental authority shall have issued a permanent injunction or taken such
other final and non-appealable action which permanently restrains, enjoins or
otherwise prohibits the Merger, or (iii) if, without any material breach by the
terminating party of its obligations under the Merger Agreement, the Merger
shall not have occurred on or before November 30, 1999; (c) by Instron (i) in
connection with entering into a definitive agreement to effect a Superior
Proposal, (ii) if MergerCo or Kirtland shall have breached in any material
respect any of their respective representations, warranties, covenants or other
agreements, which breach is not cured within 15 days following receipt by
MergerCo or Kirtland of notice of such breach, except, in any case, for such
breaches which are not reasonably likely to affect Kirtland's or MergerCo's
ability to consummate the Merger, or (iii) after 60 days following receipt by
Instron of a Kirtland Financing Notice; (d) by MergerCo (i) if Instron shall
have breached in any respect any of its respective representations, warranties
or covenants, which breach is not cured within 15 days following receipt by
Instron of notice of such breach, except, in any case, for such breaches of such
representations and warranties which are not reasonably likely to result in a
Company Material Adverse Effect, (ii) if the Instron Board shall (A) fail to
include a recommendation in this Proxy Statement of the Merger Agreement and the
Transactions, (B) withdraw or modify or change, or propose or announce any
intention to withdraw or modify or change, in a manner material and adverse to
MergerCo, its approval or recommendation of the Merger Agreement or the
Transactions, (C) approve or recommend or propose to announce any intention to
approve or recommend any Acquisition Proposal, or (D) propose or announce any
intention to enter into any agreement, other than a confidentiality agreement,
with respect to an Acquisition Proposal, or (iii) after 60 days following
delivery by Kirtland or MergerCo to Instron of a Kirtland Financing Notice.
Fees and Expenses. Generally, Instron, on the one hand, and Kirtland and
MergerCo on the other hand, will pay their own fees, costs, and expenses
incurred in connection with the Merger Agreement and the Transactions. However,
Instron will pay MergerCo "liquidated damages" in an amount equal to $5.0
million plus an amount equal to the reasonable out-of-pocket costs and expenses
incurred by Kirtland and MergerCo in connection with the Merger Agreement and
the Transactions (not to exceed $1.0 million) under certain circumstances,
including if:
- MergerCo terminates the Merger Agreement as a result of Instron having
wilfully breached its obligation to call a special meeting of
stockholders or to take certain actions with respect to the preparation
of this Proxy Statement;
- Instron terminates the Merger Agreement in connection with entering into
a definitive agreement to effect a Superior Proposal;
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<PAGE> 66
- MergerCo terminates the Merger Agreement because of a material and
adverse withdrawal, modification or change in the approval or
recommendation of the Instron Board of the Merger Agreement or the
Transactions; or
- Either Instron or MergerCo terminates the Merger Agreement because the
Instron stockholders shall have failed to approve the Merger Agreement
and, within nine months of such termination, Instron enters into a
definitive agreement with respect to another acquisition transaction with
a person or an affiliate thereof who had made a proposal for an
acquisition transaction directly to the Instron stockholders or publicly
announced such a transaction or solicited proxies or consents in
opposition to the Merger prior to the Special Meeting.
Amendment. Subject to applicable law, the Merger Agreement may be amended
by the parties to the Merger Agreement; provided, however, that, after the
Merger Agreement is approved by the Instron stockholders, no such amendment
shall be made that requires further approval by the Instron stockholders without
obtaining such approval. Any amendment to the Merger Agreement must be in
writing and signed by the parties to the Merger Agreement.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Estimated fees and expenses incurred or to be incurred by the Surviving
Corporation in connection with the Transactions are approximately as follows:
<TABLE>
<S> <C>
Financial advisory fees..................................... $ 750,000
Lender fees and expenses.................................... 4,500,000
Legal, accounting and printing fees and expenses............ 1,750,000
Investment banking fees and expenses........................ 1,365,000
Exchange Agent fees and expenses............................ 35,000
Proxy solicitation fees and expenses........................ 25,000
Commission filing fee....................................... 30,333
Miscellaneous expenses...................................... 44,667
Total............................................. $8,500,000
</TABLE>
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<PAGE> 67
APPRAISAL RIGHTS
Sections 85 through 98, inclusive, of the MBCL (a copy of which is attached
hereto as Appendix C) entitle any holder of record of shares of Instron Common
Stock who files a written objection to the proposal to approve the Merger
Agreement (the "Merger Proposal") before the vote to approve such proposal is
taken at the Special Meeting and who does not vote in favor of the Merger
Proposal to demand in writing that the Surviving Corporation pay to such
stockholder in cash the fair value of such shares (exclusive of any element of
value arising out of the expectation or accomplishment of the Merger).
Any person having a beneficial interest in shares of Instron Common Stock
that are held of record in the name of another person, such as a broker or
nominee, must act promptly to cause the record holder to follow the steps
summarized below properly and in a timely manner to perfect such beneficial
owner's appraisal rights, if any.
Any stockholder of record contemplating making a demand for appraisal is
urged to review carefully the provisions of Sections 85 through 98 of the MBCL,
particularly the procedural statute specifying the requirements necessary to
perfect dissenter's appraisal rights thereunder. Appraisal rights will be lost
if the procedural requirements of Sections 85 through 98 of the MBCL are not
fully satisfied.
SET FORTH BELOW IS A SUMMARY OF THE PROCEDURES RELATING TO THE EXERCISE OF
APPRAISAL RIGHTS. THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE A COMPLETE
STATEMENT OF THE PROVISIONS OF SECTIONS 85 THROUGH 98 OF THE MBCL AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPENDIX C HERETO AND TO ANY
AMENDMENTS TO SUCH SECTIONS AS MAY BE ADOPTED AFTER THE DATE OF THIS PROXY
STATEMENT.
Filing Written Objection. An Instron stockholder who intends to exercise
appraisal rights must deliver to Instron prior to the vote of the Instron
stockholders on the Merger Proposal, a written objection to the Merger Proposal,
stating that such stockholder intends to demand payment for the shares of
Instron Common Stock held by such stockholder if the Merger is consummated. Such
written objection should be addressed to Instron Corporation, 100 Royall Street,
Canton, Massachusetts 02021, Attention: Corporate Clerk. A vote against the
Merger Proposal will not satisfy the requirement that a written objection be
filed with Instron. The written objection to the Merger Proposal must be in
addition to and separate from any proxy or vote against the Merger Proposal.
No Vote in Favor of the Merger Proposal. Shares of Instron Common Stock for
which appraisal is sought must not be voted in favor of the Merger Proposal. The
submission of a signed blank proxy card will serve to waive appraisal rights,
but failure to return a proxy card or vote (or abstaining from vote) will not
waive appraisal rights.
Notice By Surviving Corporation. Within ten days after the Effective Time,
the Surviving Corporation will notify each holder of record of shares of Instron
Common Stock who has purported to comply with the provisions of Section 86 of
the MBCL and whose shares were not voted in favor of the Merger Proposal that
the Merger has become effective as provided in Section 88 of the MBCL. The
giving of such notice shall not be deemed to create any rights in the
stockholder receiving the same to demand payment for such holder's shares of
Instron Common Stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at such stockholder's last known address as it
appears in the records of Instron immediately prior to the Effective Time.
Written Demand. Within twenty days after the mailing of notice by the
Surviving Corporation, any dissenting stockholder who wishes to exercise
appraisal rights must demand in writing from the Surviving Corporation payment
for the fair value of such holder's shares of Instron Common Stock. Such written
demand should be sent to the Surviving Corporation, 100 Royall Street, Canton,
Massachusetts 02021, Attention: Corporate Clerk. The Surviving Corporation is
required to make payment of the fair value of the shares of Instron Common Stock
owned by each dissenting stockholder within thirty days (the "Payment Period")
after the expiration of the twenty day period during which a written demand for
payment may be made. If the Surviving Corporation and such stockholder shall
have agreed as to the fair value of such shares,
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<PAGE> 68
the Surviving Corporation shall pay to said stockholder the agreed value of such
stockholder's shares of Instron Common Stock within the Payment Period.
Settlement or Appraisal. Any stockholder shall, with the Surviving
Corporation's written consent, have the right to withdraw such stockholder's
demand for appraisal and to accept the terms offered in the Merger Proposal
within four months after the expiration of the Payment Period. If the Surviving
Corporation and any stockholder seeking appraisal have not agreed on the fair
value of such holder's shares of Instron Common Stock within the Payment Period,
any such stockholder who has complied with Section 86 of the MBCL, or the
Surviving Corporation, by filing a bill in equity with the Superior Court of
Norfolk County in The Commonwealth of Massachusetts (the "Norfolk Superior
Court"), may demand a determination of the fair value of the shares of all such
stockholders. If no such bill is filed within such four-month period, no holder
of shares will be entitled to appraisal rights. Upon the filing of any such
bill, notice of the time and place fixed for a hearing will be given by the
Surviving Corporation to all stockholders who have demanded payment for their
shares and with whom agreements as to the fair value of their shares have not
been reached. After the hearing on such bill, the Norfolk Superior Court will
determine the stockholders who have complied with the provisions of Section 86
of the MBCL and who have become entitled to appraisal rights. After determining
those stockholders entitled to an appraisal, the Norfolk Superior Court shall
appraise the shares of Instron Common Stock, determining the fair value as of
the day preceding the Special Meeting and exclusive of any element of value
arising from the expectation or accomplishment of the Merger. Such determination
shall be binding on all such stockholders. Instron has not yet determined
whether it, as the Surviving Corporation, will file such a bill in equity and,
therefore, any dissenting stockholder who desires such a bill in equity to be
filed is advised to file it on a timely basis.
Payment and Costs. When the value is so determined, the Norfolk Superior
Court will direct payment by the Surviving Corporation of such value, with
interest thereon, if any, as the Norfolk Superior Court determines, to the
stockholders entitled to receive the same upon surrender to the Surviving
Corporation by such stockholders of the Certificates representing their shares
of Instron Common Stock. The cost of the appraisal proceeding (other than
attorneys' and experts' fees) and the reasonable compensation and expenses of
any master appointed by the Norfolk Superior Court may be apportioned in such
manner as appears to the Norfolk Superior Court to be equitable; however, all
costs of giving notice to the dissenting stockholders entitled to notice of the
filing of such an action will be paid by the Surviving Corporation.
Exclusive Remedy; Exception. The MBCL provides that the enforcement by a
stockholder of appraisal rights pursuant to the procedure summarized above is
such stockholder's exclusive remedy, except that this does not exclude the right
of such stockholder to maintain an appropriate proceeding to obtain relief on
the ground that such corporate action will be or is illegal or fraudulent as to
such stockholder. In addition, under Massachusetts law dissenting stockholders
may not be limited to the statutory remedy of judicial appraisal where
violations of fiduciary duty are found. Furthermore, dissenting stockholders may
seek remedies under the federal securities laws.
ANY INSTRON STOCKHOLDER WHO DESIRES TO EXERCISE APPRAISAL RIGHTS SHOULD
CAREFULLY REVIEW THE MBCL AND IS ADVISED TO CONSULT SUCH STOCKHOLDER'S LEGAL
ADVISOR BEFORE EXERCISING OR ATTEMPTING TO EXERCISE SUCH RIGHTS.
REGULATORY APPROVALS
Instron is required to make filings with or obtain approvals from certain
United States antitrust regulatory authorities in connection with the Merger.
These consents and approvals include the approval of the United States Federal
Trade Commission and the Department of Justice. An application and notice was
filed with the Federal Trade Commission and the Department of Justice and the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, expired on June 21, 1999.
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<PAGE> 69
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP
OF MANAGEMENT AND OTHERS
The following table sets forth, as of July 3, 1999, certain information
regarding the ownership of Instron Common Stock by: (i) the stockholders known
by Instron to be beneficial owners of more than five percent (5%) of the
outstanding shares of Instron Common Stock; (ii) each Director of Instron, (iii)
the Chief Executive Officer and the four other most highly compensated executive
officers of Instron; (iv) all Directors and executive officers of Instron as a
group; and (v) each of the other members of the Investor Group and certain other
persons who are listed under "Certain Information Concerning MergerCo and the
Investor Group."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED (1)
---------------------
NAME OF BENEFICIAL OWNER (2) NUMBER PERCENT
---------------------------- ---------- -------
<S> <C> <C>
Kirtland Capital Partners III L.P. (3)...................... 1,560,115 22.4%
2250 SOM Center Road
Suite 105
Willoughby Hills, Ohio 44094
David L. Babson & Co. (4)................................... 757,500 10.9
One Memorial Drive
Cambridge, MA 02142
Dimensional Fund Advisors Inc. (5).......................... 500,000 7.2
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
George S. Burr (6).......................................... 350,756 5.0
Harold Hindman (7).......................................... 590,682 8.5
John W. Lacey (8)........................................... 2,000 *
James M. McConnell (9)...................................... 364,313 5.1
Dennis J. Moore............................................. 2,500 *
Sheldon Rutstein............................................ -- --
John F. Smith............................................... -- --
Richard W. Young............................................ 25,000 *
Linton A. Moulding (10)..................................... 94,171 1.3
Joseph E. Amaral (11)....................................... 84,194 1.2
William J. Milliken (12).................................... 20,791 *
Yahya Gharagozlou (13)...................................... 53,866 *
Helen L. Burr (14).......................................... 350,756 5.0
The Harold Hindman Trust -- 1969 (15)....................... 492,814 7.1
Jonathan L. Burr (16)....................................... 194,173 2.8
Arthur D. Hindman (17)...................................... 134,465 1.9
Norman L. Smith (18)........................................ 35,470 *
Kenneth L. Andersen (19).................................... 83,194 1.2
John R. Barrett (20)........................................ 53,254 *
The Jonathan L. Burr Trust -- 1965 (21)..................... 60,750 *
Jane Elizabeth Moulding (22)................................ 94,171 1.3
All Directors and executive officers as a group (17 persons)
(23)...................................................... 2,088,829 28.2%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, Instron believes that each of the
stockholders listed above has sole voting and investment power with
respect to the shares of Instron Common Stock that are beneficially
owned by them.
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<PAGE> 70
(2) Unless otherwise set forth above, the address of the listed
stockholders is c/o Instron Corporation, 100 Royall Street, Canton,
Massachusetts 02021.
(3) The number of shares beneficially owned is based solely on information
as set forth on a Schedule 13D that reports shared voting power with
respect to 1,560,115 shares of Instron Common Stock and shared
dispositive power with respect to 1,560,115 shares of Instron Common
Stock. According to the Schedule 13D, the Equity Investor, the Other
Investors and the Management Investors may be deemed to be a group
within the meaning of Section 13(d) of the Exchange Act as a result of
their execution of the Voting Agreement. According to the Schedule
13D, all securities reported are owned by the Other Investors and the
Management Investors, but if the group exists, the group would
beneficially own such securities. The Equity Investor disclaims
beneficial ownership of all such securities.
(4) The number of shares beneficially owned is based solely on information
as set forth on a Schedule 13G dated January 21, 1999. The Schedule
13G provides ownership information as of December 31, 1998. David L.
Babson & Co. has sole voting and investment power with respect to
757,700 shares. David L. Babson & Co. is an investment counseling firm
managing stock and bond portfolios for a variety of clients, ranging
from large personal accounts to Fortune 500 and state government
retirement funds.
(5) The number of shares beneficially owned is based solely on information
as set forth on a Schedule 13G dated February 11, 1999. The Schedule
13G provides ownership information as of December 31, 1998.
Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered
under the Investment Company Act of 1940, and serves as investment
manager to certain other investment vehicles, including commingled
group trusts (collectively, the "Portfolios"). In its role as
investment advisor and investment manager, Dimensional possesses both
voting and investment power over the securities of Instron owned by
the Portfolios. All securities reported are owned by the Portfolios,
and Dimensional disclaims beneficial ownership of such securities.
(6) Mr. Burr has sole voting and investment power with respect to 259,206
of these shares. The number shown also includes 91,550 shares which
are owned by Mr. Burr's wife, as to which Mr. Burr disclaims
beneficial ownership. All of these shares are subject to the Voting
Agreement.
(7) Mr. Hindman has sole voting and investment power with respect to
37,005 of these shares. The number shown also includes 492,814 shares
of which Mr. Hindman has sole voting and investment power as a trustee
and the sole beneficiary of the Harold Hindman Trust -- 1969 and
60,863 shares which are owned by Mr. Hindman's wife, as to which Mr.
Hindman disclaims beneficial ownership. All of these shares, other
than the 60,863 shares owned by Mr. Hindman's wife, are subject to the
Voting Agreement.
(8) Mr. Lacey has sole voting and investment power with respect to 1,000
of these shares. The number shown also includes 1,000 shares held by
Mr. Lacey's wife.
(9) Mr. McConnell has sole voting and investment power with respect to
214,813 of these shares, which includes 4,701 shares allocated to Mr.
McConnell's account pursuant to Instron's 401(k) Plan. All of these
214,813 shares are subject to the Voting Agreement. The number shown
also includes 149,500 shares which Mr. McConnell has the right to
acquire within 60 days of July 3, 1999 upon the exercise of stock
options granted under Instron's stock option plans.
(10) Mr. Moulding has sole voting and investment power with respect to
31,874 of these shares, which includes 6,874 shares allocated to Mr.
Moulding's account pursuant to Instron's 401(k) Plan. The number shown
also includes 13,547 shares held jointly with his wife and 48,750
shares which Mr. Moulding has the right to acquire within 60 days of
July 3, 1999 upon the exercise of stock options granted under
Instron's stock option plans. All of these shares, other than the
48,750 shares which Mr. Moulding has the right to acquire, are subject
to the Voting Agreement.
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<PAGE> 71
(11) Mr. Amaral has sole voting and investment power with respect to 33,444
of these shares, which includes 4,444 shares allocated to Mr. Amaral's
account pursuant to Instron's 401(k) Plan. All of these 33,444 shares
are subject to the Voting Agreement. The number shown also includes
50,750 shares which Mr. Amaral has the right to acquire within 60 days
of July 3, 1999 upon the exercise of stock options granted under the
Instron's stock option plans.
(12) Mr. Milliken has sole voting and investment power with respect to
20,791 of these shares, which includes 291 shares allocated to Mr.
Milliken's account pursuant to Instron's 401(k) Plan. All of these
shares are subject to the Voting Agreement.
(13) Mr. Gharagozlou has sole voting and investment power with respect to
27,116 of these shares, which includes 2,116 shares allocated to Mr.
Gharagozlou's account pursuant to Instron's 401(k) Plan. All of these
27,116 shares are subject to the Voting Agreement. The number shown
also includes 26,750 shares which Mr. Gharagozlou has the right to
acquire within 60 days of July 3, 1999 upon the exercise of stock
options granted under Instron's stock option plans.
(14) Mrs. Burr has sole voting and investment power with respect to 91,550
of these shares. The number shown also includes 259,206 shares which
are owned by Mrs. Burr's husband, as to which Mrs. Burr disclaims
beneficial ownership. All of these shares are subject to the Voting
Agreement.
(15) Shares owned by The Harold Hindman Trust -- 1969 of which Harold
Hindman and Robert N. Shapiro are the trustees and Harold Hindman is
the sole beneficiary, but with respect to which Harold Hindman has
sole voting and investment power with respect to all such shares. All
of these shares are subject to the Voting Agreement.
(16) Mr. Burr has sole voting and investment power with respect to 85,673
of these shares, which includes 3,659 shares allocated to Mr. Burr's
account pursuant to Instron's 401(k) Plan. The number shown also
includes (i) 60,750 shares of which Mr. Burr has shared voting and
sole investment power as sole beneficiary of The Jonathan L. Burr
Trust -- 1965, and (ii) 47,750 shares which Mr. Burr has the right to
acquire within 60 days of July 3, 1999 upon the exercise of stock
options granted under Instron's stock option plans. All of these
shares, other than the 47,750 shares which Mr. Burr has the right to
acquire, are subject to the Voting Agreement.
(17) Mr. Hindman has sole voting and investment power with respect to
58,515 of these shares, which includes 8,554 shares allocated to Mr.
Hindman's account pursuant to Instron's 401(k) Plan. The number shown
also includes (i) 40,200 shares owned by Mr. Hindman's minor children
as to which Mr. Hindman disclaims beneficial ownership, (ii) 1,000
shares owned by Mr. Hindman's wife as to which Mr. Hindman disclaims
beneficial ownership, and (iii) 34,750 shares which Mr. Hindman has
the right to acquire within 60 days of July 3, 1999. All of these
shares, other than the 34,750 shares which Mr. Hindman has the right
to acquire, are subject to the Voting Agreement.
(18) Mr. Smith has sole voting and investment power with respect to 26,720
of these shares. The number shown also includes (i) 2,000 shares owned
by Mr. Smith's wife, as to which Mr. Smith disclaims beneficial
ownership, and (ii) 6,750 shares which Mr. Smith has the right to
acquire within 60 days of July 3, 1999. All of these shares, other
than the 6,750 shares which Mr. Smith has the right to acquire, are
subject to the Voting Agreement.
(19) Mr. Andersen has sole voting and investment power with respect to
36,819 of these shares, which includes 11,491 shares allocated to Mr.
Andersen's account pursuant to Instron's 401(k) Plan. All of these
36,819 shares are subject to the Voting Agreement. The number shown
also includes 46,375 shares which Mr. Andersen has the right to
acquire within 60 days of July 3, 1999 upon the exercise of stock
options granted under Instron's stock option plans.
(20) Mr. Barrett has sole voting and investment power with respect to
27,754 of these shares, which includes 2,754 shares allocated to Mr.
Barrett's account pursuant to Instron's 401(k) Plan. All of these
27,754 shares are subject to the Voting Agreement. The number shown
also includes 25,500 shares which Mr. Barrett has the right to acquire
within 60 days of July 3, 1999 upon the exercise of stock options
granted under Instron's stock option plans.
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<PAGE> 72
(21) Shares owned by The Jonathan L. Burr Trust -- 1965 of which Preston
Saunders, Robert C. Pomeroy and Mary-Kathleen O'Connell are the
trustees and Jonathan L. Burr is the sole beneficiary, but with
respect to which Jonathan L. Burr has shared voting power (with Robert
S. Burr, Susan Burr Carlo and Leslie B. Barresi) and sole dispositive
power with respect to all such shares. All of these shares are subject
to the Voting Agreement.
(22) Mrs. Moulding has sole voting and investment power with respect to
none of these shares. The number shown includes 13,547 shares held
jointly with her husband and 80,624 shares which are beneficially
owned by Mrs. Moulding's husband, as to which Mrs. Moulding disclaims
beneficial ownership. All of these shares, other than 48,750 shares
which Mrs. Moulding's husband has the right to acquire within 60 days
of July 3, 1999 upon the exercise of stock options granted under
Instron's stock option plans, are subject to the Voting Agreement.
(23) The share information provided are based on information provided by
the Directors and executive officers of Instron, except for
information concerning shares allocated to the accounts of such
persons under Instron's 401(k) Plan, which information was provided by
the trustee of Instron's 401(k) Plan. The indicated ownership includes
436,875 shares which all executive officers as a group have a right to
acquire within 60 days of July 3, 1999 upon the exercise of stock
options granted under Instron's stock option plans.
There have been no transactions in the Instron Common Stock effected during
the past 60 days by Instron or any member of the Investor Group other than
transactions pursuant to Instron's 401(k) Plan.
Information relating to transactions involving Instron's Common Stock
effected by Instron and members of the Investor Group since January 1, 1997 is
set forth on Appendix D to this Proxy Statement. The Equity Investor has not
purchased any shares of Instron Common Stock since January 1, 1997.
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<PAGE> 73
CERTAIN INFORMATION CONCERNING MERGERCO
AND THE INVESTOR GROUP
The Investor Group consists of Kirtland, MergerCo, the Other Investors and
the Management Investors.
THE EQUITY INVESTOR
Kirtland is an Ohio limited partnership of which Kirtland Partners Ltd.
("Kirtland Ltd.") is the general partner. Kirtland Ltd. is an Ohio limited
liability company. Kirtland Ltd. is also the managing member of each of Kirtland
Capital Company III LLC, a Turks and Caicos Islands limited liability company,
and ISN Investments Ltd., an as yet unformed Ohio limited liability company.
John F. Turben joined the Equity Investor in 1977. He is an executive
officer, manager and member of Kirtland Ltd. and serves as a director of NACCO
Industries, Unifrax Corp. and PVC Container Corp.
Raymond A. Lancaster joined the Equity Investor in 1995. Prior to that
time, Mr. Lancaster was a general partner of Key Equity Partners. Mr. Lancaster
is an executive officer, manager and member of Kirtland Ltd. and is a director
of Unifrax Corp., PVC Container Corp. and STERIS Corp.
John G. Nestor joined the Equity Investors in 1986. He is an executive
officer, manager and member of Kirtland Ltd. and is a director of Unifrax Corp.
William R. Robertson joined the Equity Investor in 1997. Prior to that
time, he was President and Deputy Chairman of National City Corporation. Mr.
Robertson is an executive officer, manager and member of Kirtland Ltd. and is a
director of Brush Wellman, Inc.
Each of Messrs. Turben, Nestor, Lancaster and Robertson, as a result of
their positions with Kirtland Ltd., may be deemed to control Kirtland, Kirtland
Ltd. and their affiliates. The principal business and office address of each of
the foregoing is 2250 SOM Center Road, Suite 105, Willoughby Hills, Ohio 44094.
MERGERCO
ISN Acquisition Corporation, a Massachusetts corporation and a wholly owned
subsidiary of Kirtland, was created solely for the purpose of engaging in the
Transactions.
THE OTHER INVESTORS
George S. Burr has been a Director of Instron since 1946. Mr. Burr is
retired and currently serves as Vice Chairman of the Instron Board.
Helen L. Burr is the wife of George S. Burr.
The Harold Hindman Trust -- 1969 is a trust of which Harold Hindman is a
trustee and the sole beneficiary. Mr. Hindman has been a Director of Instron
since 1946. Mr. Hindman is retired and currently serves as Chairman of the
Instron Board. Prior to 1990, Mr. Hindman was Chairman of the Instron Board and
Chief Executive Officer of Instron.
The business address for each of the Other Investors is c/o Instron
Corporation, 100 Royall Street, Canton, Massachusetts 02021.
THE MANAGEMENT INVESTORS
The following Management Investors are executive officers of Instron and
are expected to be executive officers of the Surviving Corporation:
James M. McConnell joined Instron in 1990 as President and Chief Executive
Officer. From 1987 to 1990, Mr. McConnell was President and Chief Executive
Officer of Automatic Switch Company, and from 1986 to 1987, he was President of
Rosemont, Inc. (both are wholly-owned subsidiaries of Emerson Electric Co.)
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<PAGE> 74
Joseph E. Amaral joined Instron in 1978. Since 1985, Mr. Amaral has held
positions as Corporate Technology Manager, Corporate Product Planning Manager,
and Vice President, Corporate Technical Director. In March 1995, he was elected
Vice President, General Manager of North America Operations.
Kenneth L. Andersen joined Instron in 1983. Since 1983, Mr. Andersen has
held positions as Director of Software Business Group, Director of Structures
Business Group, and Corporate Marketing Director. In 1993, he was elected Vice
President of Sales, North America.
John R. Barrett joined Instron in 1988 as Assistant Treasurer. From 1979 to
1988, Mr. Barrett held various financial management positions with
Computervision Corporation. In 1993, he was elected Treasurer of Instron and, in
1999, he was elected Treasurer and Vice President of Corporate Development.
Jonathan L. Burr joined Instron in 1979. He has held positions as Personnel
Administrator, Director of Personnel, and Corporate Director of Human Resources.
In 1993, he was elected Vice President, Corporate Director of Human Resources.
Mr. Burr is the son of George S. Burr, Vice Chairman of the Board of Directors.
The Jonathan L. Burr Trust -- 1965 is a trust of which Jonathan Burr is the
sole beneficiary.
Yahya Gharagozlou joined Instron in 1981. He has held positions as
Corporate Product Manager for Software, Marketing Manager, Product Planning
Manager, and Director of Engineering. In 1996, he was elected Vice President,
Corporate Technical Director.
Arthur D. Hindman joined Instron in 1979. Since 1979, Mr. Hindman has held
positions as Manager, Marketing Administration; International Sales Manager, and
General Manager, Asia/Latin America. In 1993, he was elected Vice President and
General Manager, Asia Pacific/Latin America. Mr. Hindman is the son of Harold
Hindman, Chairman of the Board of Directors.
William J. Milliken joined Instron in 1997 as Vice President, Corporate
Director of Manufacturing. From 1988 to 1997, Mr. Milliken was Director of
Manufacturing for Otis Elevator's Asia division. From 1978 to 1988 he held
various financial and manufacturing management positions with General Motors
Corporation.
Linton A. Moulding joined Instron in 1985. He has held positions as
Corporate Controller, Director of US Operations, Corporate Vice President of
Manufacturing, and Vice President of Finance and Treasurer. In 1993, he was
elected Chief Financial Officer of Instron.
Jane Elizabeth Moulding is the wife of Linton A. Moulding. She is, and for
more than the past five years has been, Director of the Middle School at
Buckingham, Browne & Nichols. Mrs. Moulding's business address is c/o
Buckingham, Browne & Nichols, 80 Sparks Street, Cambridge, Massachusetts 02138.
Norman L. Smith joined Instron Limited, a subsidiary of Instron, in 1982 as
Marketing Director Designate and assumed the position of Marketing Director in
1983. In January 1996, he was promoted to Deputy Managing Director and was
elected Vice President of Instron and Managing Director of Instron Limited in
November 1996.
Except as otherwise set forth above, the business address for each of the
Management Investors is c/o Instron Corporation, 100 Royall Street, Canton,
Massachusetts 02021.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Instron Common Stock. This discussion is based on currently existing
provisions of the Code, existing and proposed Treasury Regulations thereunder,
and current administrative rulings and court decisions, all of which are subject
to change. Any such change, which may or may not be retroactive, could alter the
tax consequences to the holders of Instron Common Stock as described herein.
Special tax consequences not described below may be applicable to particular
classes of taxpayers, including financial institutions, broker-dealers, persons
who are not citizens or residents of the United States or who are foreign
corporations, foreign partnerships, or foreign estates or trusts as to the
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<PAGE> 75
United States, persons who will own, actually or constructively, stock of
Instron after the Merger, and holders who acquired their stock through the
exercise of an employee stock option or otherwise as compensation.
The receipt of the Cash Merger Consideration in the Merger by holders of
Instron Common Stock will be a taxable transaction for federal income tax
purposes. Each holder's gain or loss per share of Instron Common Stock will be
equal to the difference between $22.00 and the holder's adjusted basis in that
particular share of the Instron Common Stock. Such gain or loss generally will
be a capital gain or loss. In the case of individuals, trusts, and estates, such
capital gain will be subject to a maximum federal income tax rate of 20% for
shares of Instron Common Stock held for more than 12 months prior to the date of
disposition.
A holder of Instron Common Stock may be subject to backup withholding at
the rate of 31% with respect to Cash Merger Consideration received pursuant to
the Merger, unless the holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (b) provides a
correct taxpayer identification number ("TIN"), certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. To prevent the possibility of
backup federal income tax withholding on payments made with respect to shares of
Instron Common Stock pursuant to the Merger, each holder must provide the
Exchange Agent with his or her correct TIN by completing a Form W-9 or
substitute Form W-9. A holder of Instron Common Stock who does not provide
Instron with his or her correct TIN may be subject to penalties imposed by the
Internal Revenue Service (the "IRS"), as well as backup withholding. Any amount
withheld under these rules will be creditable against the holder's federal
income tax liability. Instron (or its agent) will report to the holders of
Instron Common Stock and the IRS the amount of any "reportable payments," as
defined in Section 3406 of the Code, and the amount of tax, if any, withheld
with respect thereto.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND
IS BASED UPON PRESENT LAW. THE FOREGOING DISCUSSION DOES NOT DISCUSS TAX
CONSEQUENCES UNDER THE LAWS OF STATES OR LOCAL GOVERNMENTS OR OF ANY OTHER
JURISDICTION OR TAX CONSEQUENCES TO CATEGORIES OF STOCKHOLDERS THAT MAY BE
SUBJECT TO SPECIAL RULES, SUCH AS FOREIGN PERSONS, TAX-EXEMPT ENTITIES,
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, AND DEALERS IN STOCKS AND
SECURITIES. THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO A STOCKHOLDER WHO
CONTINUES TO OWN, ACTUALLY OR CONSTRUCTIVELY, STOCK OF INSTRON AFTER THE MERGER
OR WHO ACQUIRED HIS OR HER SHARES OF INSTRON COMMON STOCK PURSUANT TO THE
EXERCISE OF STOCK OPTIONS OR OTHERWISE AS COMPENSATION. EACH HOLDER OF INSTRON
COMMON STOCK SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE APPLICATION AND EFFECT
OF FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF CHANGES
IN SUCH TAX LAWS.
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<PAGE> 76
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data of
Instron has been prepared to give effect to the Merger and the other
Transactions as a leveraged recapitalization (the "Recapitalization") for
financial reporting purposes. Accordingly, the historical basis of Instron's
assets and liabilities will not be affected by the transactions. For a
discussion of the Merger and the other Transactions, see "The Merger."
The pro forma adjustments presented are based upon available information
and certain assumptions that Instron believes are reasonable under the
circumstances. The historical condensed consolidated statement of income data
for the three months ended April 3, 1999, and the historical condensed
consolidated balance sheet data as of April 3, 1999, were derived from the
unaudited condensed consolidated financial statements of Instron included in
Instron's Quarterly Report on Form 10-Q incorporated by reference in this Proxy
Statement. The historical condensed consolidated statement of income data for
the year ended December 31, 1998 were derived from the audited consolidated
financial statements of Instron included in Instron's Annual Report on Form 10-K
incorporated by reference in this Proxy Statement.
The unaudited pro forma condensed consolidated statement of income data of
Instron for the three months ended April 3, 1999 give effect to the Merger as if
it had occurred on January 1, 1999. The unaudited pro forma condensed
consolidated statement of income data of Instron for the year ended December 31,
1998 give effect to (i) the Merger as if it had occurred on January 1, 1998,
(ii) the acquisition of Satec on August 4, 1998 as if that acquisition had
occurred on January 1, 1998, and (iii) the acquisition of the remaining interest
in IST on September 27, 1998, as if that acquisition had occurred on January 1,
1998. The unaudited pro forma consolidated balance sheet data of Instron as of
April 3, 1999 give effect to the Merger assuming that it was completed on April
3, 1999.
The unaudited pro forma financial data should be read in conjunction with
the historical consolidated financial statements of Instron and notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the other financial data included elsewhere or incorporated by
reference in this Proxy Statement, as well as the information concerning the
Merger, including the sources and uses therefor, contained in "The Merger."
The pro forma financial data and related notes are provided for
informational purposes only and do not necessarily reflect the results of
operations or financial position of Instron that would have actually resulted
had the events referred to above or in the notes to the unaudited pro forma
financial data been consummated as of the date and for the period indicated and
are not intended to project Instron's financial position or results of
operations for any future period.
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<PAGE> 77
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
FOR THE THREE MONTH PERIOD ENDED APRIL 3, 1999
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED RECAPITALIZATION PRO FORMA
APRIL 3, 1999 ADJUSTMENTS APRIL 3, 1999
------------- ---------------- -------------
<S> <C> <C> <C>
Revenue:
Sales.......................................... $ 40,377 $ 40,377
Service........................................ 8,368 8,368
---------- --------
Total Revenue............................. 48,745 48,745
Cost of Revenue:
Sales............................................... 23,026 23,026
Service............................................. 5,828 5,828
---------- --------
Total Cost of Revenue..................... 28,854 28,854
---------- --------
Gross Profit.............................. 19,891 19,891
Operating expenses:
Selling and administrative.......................... 14,489 $ 125(b) 14,426
(188)(c)
Research and development............................ 2,708 2,708
---------- ------- --------
Total operating expenses....................... 17,197 (63) 17,134
---------- ------- --------
Income from operations......................... 2,694 63 2,757
Other (income) expense:
Interest expense............................... 376 3,290(a) 3,666
Interest income................................ (232) (232)
Foreign exchange (gains) losses................ (19) (19)
---------- ------- --------
Total other expenses........................... 125 3,290 3,415
Income (loss) before income taxes................... 2,569 (3,227) (658)
Provision (benefit) for income taxes................ 976 (1,226)(d) (250)
---------- ------- --------
Net income (loss)................................... $ 1,593 $(2,001) $ (408)
========== ======= ========
Weighted average number of basic common shares...... 6,744,776 517,660
========== ========
Income (loss) per share -- basic.................... $ 0.24 $ (0.79)(h)
========== ========
Weighted average number of diluted common shares.... 7,096,126 517,660
========== ========
Income (loss) per share -- diluted.................. $ 0.22 $ (0.79)(h)
========== ========
Dividends declared.................................. $ 0.04 $ --(e)
========== ========
</TABLE>
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<PAGE> 78
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME DATA
FOR THE YEAR ENDED DECEMBER 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED PRO FORMA PRO FORMA
DECEMBER 31, INCLUDING RECAPITALIZATION DECEMBER 31,
1998 ACQUISITIONS(G) ACQUISITIONS ADJUSTMENTS 1998
------------ --------------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales.......................... $ 152,879 $33,283 $186,162 $186,162
Service........................ 30,150 3,436 33,586 33,586
---------- ------- -------- --------
Total Revenue............... 183,029 36,719 219,748 219,748
Cost of Revenue:.................
Sales.......................... 91,410 22,094 113,504 113,504
Service........................ 19,644 2,369 22,013 22,013
---------- ------- -------- --------
Total Cost of Revenue....... 111,054 24,463 135,517 135,517
---------- ------- -------- --------
Gross Profit................ 71,975 12,256 84,231 84,231
Operating expenses:
Selling and administrative....... 48,869 10,046 58,915 $ 500(b) 58,665
(750)(c)
Research and development......... 8,485 3,315 11,800 11,800
Special items charge............. 4,975 4,975 4,975
---------- ------- -------- ------- --------
Total operating expenses.... 62,329 13,361 75,690 (250) 75,440
---------- ------- -------- ------- --------
Income from operations...... 9,646 (1,105) 8,541 250 8,791
Other (Income) Expense
Gain on sale of land........... (11,076) (11,076) (11,076)
Interest expense............... 1,175 740 1,915 13,159(a) 15,074
Interest income................ (943) (943) (943)
Foreign exchange losses........ 157 37 194 194
---------- ------- -------- ------- --------
Total other (income)
expenses.................. (10,687) 777 (9,910) 13,159 3,249
Income (loss) before income
taxes.......................... 20,333 (1,882) 18,451 (12,909) 5,542
Provision (benefit) for income
taxes.......................... 8,874 (715) 8,159 (4,905)(d) 3,254
---------- ------- -------- ------- --------
Net income (loss)................ $ 11,459 $(1,167) $ 10,292 $(8,004) $ 2,288
========== ======= ======== ======= ========
Weighted average number of basic
common shares.................. 6,667,914 517,660
========== ========
Earnings per share -- basic...... $ 1.72 $ 4.42(h)
========== ========
Weighted average number of
diluted common shares.......... 7,066,257 522,901
========== ========
Earnings per share -- diluted.... $ 1.62 $ 4.38(h)
========== ========
Dividends declared............... $ 0.16 $ --(e)
========== ========
</TABLE>
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<PAGE> 79
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
APRIL 3, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C> <C>
(a) Reflects the following:
Interest resulting from borrowings of $14,000 under the
$50,000 revolving credit facility at an assumed interest
rate of LIBOR plus 2.5% (7.4%).............................. $ 259 $ 1,036
Interest resulting from $100,000 of gross proceeds related
to the issuance of debt securities at an assumed interest
rate of 11.5%............................................... 2,875 11,500
Amortization of debt issuance costs of $6,225 associated
with the revolving credit facility and the issuance of debt
securities.................................................. 156 623
------- -------
Total....................................................... $ 3,290 $13,159
======= =======
Debt issuance costs almost entirely relate to the cost of
raising the $100,000 in debt securities. These securities
are expected to have a term of 10 years, and therefore the
debt issuance costs are being amortized over a 10 year
period.
(b) Reflects the annual fee payable to Kirtland for management
and financial consulting services provided to Instron....... $ 125 $ 500
======= =======
(c) Estimated cost savings, principally related to directors'
fees, legal costs and administrative support, as a direct
result of the Recapitalization. Estimated cost savings
represent costs currently incurred by Instron that will not
be incurred by the Surviving Corporation. These costs
primarily relate to costs currently incurred by virtue of
Instron being a publicly-traded company subject to the
reporting requirements of the Exchange Act and costs
relating to the payment of fees to the current directors for
their services as directors (including expenses incurred by
Instron for directors' and officers' insurance)............. $ (188) $ (750)
======= =======
(d) Reflects the tax effect of the pro forma adjustments
assuming an effective tax rate of 38%....................... $(1,226) $(4,905)
======= =======
(e) Instron does not currently expect to declare dividends after
the Recapitalization.
(f) The Unaudited Pro Forma Condensed Consolidated Statements of
Income exclude the following non-recurring items that are
directly attributable to the Recapitalization, the effects
of which are included in the Balance Sheet adjustment (see
note (n)):
1. A compensation charge associated with the cash settlement
relating to 587,797 stock options that will be retired as a
result of the Recapitalization........................... $ 5,519
2. A non-cash compensation charge relating to the conversion
and acceleration of 15,250 stock options into fully vested
and exercisable equivalent options to purchase shares of
Surviving Corporation Common Stock....................... 130
3. A compensation charge related to the cash settlement for
the retirement of 224,760 shares of restricted common
stock.................................................... 2,147
4. A non-cash charge related to the acceleration of vesting
and conversion of restricted common stock into Surviving
Corporation Common Stock................................. 140
5. Acceleration of the deferred compensation related to
restricted stock......................................... 2,540
</TABLE>
69
<PAGE> 80
<TABLE>
<S> <C> <C> <C>
6. Charge related to the modification of certain existing employment
agreements............................................................... 1,200
---------
11,676
Total tax benefit of the non recurring items that are directly related to
the Recapitalization assuming an effective tax rate of 38%.................. (4,440)
-------
Total....................................................................... $ 7,236
-------
</TABLE>
(g) Represents the pre-acquisition results for Satec for the period January 1,
1998 to August 4, 1998 and the pre-acquisition results for the remaining
interest in IST for the period January 1, 1998 to September 27, 1998.
(h) Pro forma basic and diluted earnings per share have been calculated giving
effect to the new capital structure of the Surviving Corporation. Pro Forma
weighted average number of basic common shares includes shares of Surviving
Corporation Common Stock outstanding, assuming the Recapitalization was
consummated at the beginning of the period presented. Pro Forma weighted
average number of diluted common shares includes shares of Surviving
Corporation Common Stock outstanding plus the effect of any dilutive
potential common shares that were outstanding during the period, assuming
the Recapitalization was consummated at the beginning of the period
presented. Potential common shares include rollover options held by
management. The following is a reconciliation of the basic and dilutive
potential shares of Surviving Corporation Common Stock outstanding.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
APRIL 3, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C>
Weighted average number of basic common shares
outstanding............................................ 517,660 517,660
Dilutive potential common shares......................... -- 5,241
------- -------
Weighted average number of dilutive common shares
outstanding............................................ 517,660 522,901
======= =======
</TABLE>
The dilutive potential common shares have been excluded from the calculation
of weighted average number of diluted common shares outstanding for the three
months ended April 3, 1999, as their inclusion would have an antidilutive
effect on earnings per share.
(i) Because interest rates in connection with the Credit Facility and the debt
securities have not been determined as of the date hereof, the pro forma
data is indicative of Instron's best current estimate of interest expense. A
1/8 percentage point increase or decrease in the assumed interest rates on
the Credit Facility and the debt securities would change the annual net
interest expense by approximately $35 and $140 for the three months ended
April 3, 1999, and the year ended December 31, 1998, respectively.
(j) The Unaudited Pro Forma Condensed Consolidated Statements of Income have not
been adjusted to reflect the following non-recurring costs (benefits):
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
APRIL 3, 1999 DECEMBER 31, 1998
------------------ -----------------
<S> <C> <C> <C> <C>
1. Estimated operating cost savings related to the
closure of the German manufacturing facility....... $ -- 940
======= ========
2. Non-cash non-recurring operating costs (benefits)
related to the acquisition of Satec and the
remaining interest in IST.......................... $ (270) $ 690
======= ========
3. Special items charge for the cost of consolidating
European operations and to write down the value of
non-performing assets.............................. $ -- $ 4,975
======= ========
4. Gain on the sale of excess land in Canton,
Massachusetts...................................... $ -- $(11,076)
======= ========
</TABLE>
70
<PAGE> 81
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET DATA
AS OF APRIL 3, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
RECAPITALIZATION
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 10,554 $ (10,554)(k) $ --
Accounts receivable, net.............................. 54,041 54,041
Inventories........................................... 39,603 39,603
Deferred income taxes................................. 2,956 2,956
Prepaid expenses and other current assets............. 2,974 2,974
-------- --------- --------
Total current assets.......................... 110,128 (10,554) 99,574
Property, plant and equipment, net...................... 23,781 23,781
Goodwill................................................ 11,998 11,998
Deferred income taxes................................... 925 505(l) 1,430
Other assets............................................ 6,036 6,225(k) 12,261
-------- --------- --------
Total assets.................................. $152,868 $ (3,824) $149,044
======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current portion of
long-term debt..................................... $ 7,549 $ 14,000(k) $ 14,000
(7,549)(k)
Accounts payable...................................... 13,982 13,982
Accrued liabilities................................... 22,146 22,146
Accrued compensation and benefits..................... 5,251 1,200(m) 6,451
Accrued income taxes.................................. 1,026 (3,935)(l) (2,909)
Advance payments received on contracts................ 10,104 10,104
-------- --------- --------
Total current liabilities..................... 60,058 3,716 63,774
Long-term debt.......................................... 6,878 100,000(k) 100,000
(6,878)(k)
Pension and other long-term liabilities................. 6,573 6,573
-------- --------- --------
Total liabilities............................. 73,509 96,838 170,347
Total shareholders' equity (deficit).......... 79,359 (100,662)(n) (21,303)
-------- --------- --------
Total liabilities and shareholders' equity
(deficit)................................... $152,868 $ (3,824) $149,044
======== ========= ========
</TABLE>
71
<PAGE> 82
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET DATA -- (CONTINUED)
AS OF APRIL 3, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(k) The sources and uses of funds are as follows
SOURCES:
Cash on hand........................................................ $ 10,554
Borrowing under Credit Facility..................................... 14,000
Proceeds from sale of debt securities............................... 100,000
Proceeds from the Equity Investor for issuance of new shares of
Surviving Corporation Common Stock................................. 49,788
Value of shares and options rolled over to the Surviving
Corporation........................................................ 9,905
---------
184,247
=========
USES:
Value of shares and options rolled over to the Surviving
Corporation........................................................ $ 9,905
Cash paid to purchase shares and options from existing
shareholders....................................................... 151,415
Cash paid to reduce existing debt:
Current........................................................ 7,549
Long Term...................................................... 6,878
Estimated transaction fees:
Debt related...................................... $ 6,225
Equity related.................................... 2,275
---------
$ 8,500 8,500
---------
$ 184,247
=========
The exact amount of the Equity Investor's investment in the
Surviving Corporation depends upon the level of Instron's Net
Indebtedness as of the closing date of the Recapitalization. At
April 3, 1999, Instron's Net Indebtedness was approximately $3.9
million.
(l) Tax benefit related to the non recurring items that are directly
attributable to the Recapitalization (see Note (f)):
Deferred tax assets............................................ $ 505
Current tax.................................................... 3,935
---------
$ 4,440
=========
(m) Liability related to the modification of certain existing employment
agreements........................................................... $ 1,200
=========
</TABLE>
72
<PAGE> 83
<TABLE>
<S> <C>
(n) Adjustments related to Shareholders' Equity (Deficit):
Increase for:
Issuance of new shares of Surviving Corporation Common Stock............................. $ 49,788
Tax benefits related to the non recurring recapitalization charges....................... 4,440
-----------
54,228
-----------
</TABLE>
<TABLE>
<S> <C> <C>
Decrease for:
Purchase of shares from existing shareholders:
Cash payment related to the settlement of stock options (Calculated on
a per option basis, with total options to purchase common
stock amounting to 587,797, multiplied by the difference
between $22 and the respective exercise price of each option).......... (5,519)
Cash payment related to the purchase of common stock and restricted
common stock from existing shareholders (Calculated by
multiplying $22 per share, by the sum of 6,406,868 shares of
common stock and 224,760 shares of restricted common stock)............ (145,896)
--------
(151,415) (151,415)
Equity related fees....................................................................... (2,275)
Cost related to the modification of certain existing employment agreements................ (1,200)
---------
(154,890)
---------
Net Pro Forma adjustment............................................................. $(100,662)
=========
</TABLE>
Other non-recurring charges to income (see note (f)), directly attributable to
the Recapitalization, which have been included as adjustments to the retained
earnings component of Shareholder's Equity (Deficit) within this Unaudited Pro
Forma Condensed Consolidated Balance Sheet Data are as follows:
<TABLE>
<S> <C>
1. A non-cash compensation charge relating to the
conversion and acceleration of 15,250 stock options
into fully vested and exercisable equivalent options
to purchase shares of Surviving Corporation Common
Stock............................................... $ 130
2. A non-cash charge related to the acceleration of
vesting and conversion of restricted common stock
into Surviving Corporation Common Stock............. 140
3. Acceleration of the deferred compensation related to
restricted stock.................................... 2,540
</TABLE>
73
<PAGE> 84
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA
----------------------
THREE MONTHS THREE MONTHS
YEAR YEAR ENDED YEAR ENDED
ENDED ENDED APRIL 3, ENDED APRIL 3,
1997 1998 1999 1998 1999
------- ------- ------------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes
and losses from equity
investees........................ $12,295 $21,140 $2,569 $6,349 $ (658)
Add:
Portion of rents representative
of interest factor............ 1,232 1,333 333 1,333 333
Interest on indebtedness......... 1,465 1,175 376 14,451 3,510
Amortization of debt expenses.... -- -- -- 623 156
------- ------- ------ ------ -------
Income as adjusted................. 14,992 23,648 3,278 22,756 3,341
------- ------- ------ ------ -------
Fixed charges:
Portion of rents representative
of interest factor............ 1,232 1,333 333 1,333 333
Interest on indebtedness......... 1,465 1,175 376 14,451 3,510
Amortization of debt expenses.... -- -- -- 623 156
------- ------- ------ ------ -------
Fixed charges...................... 2,697 2,508 709 16,407 3,999
------- ------- ------ ------ -------
Ratio of earnings to fixed
charges.......................... 5.6 9.4 4.6 1.4 (A)
======= ======= ====== ====== =======
</TABLE>
- ---------------
(A) Due to Instron's Pro Forma loss in the three month period ended April 3,
1999, the ratio coverage was less than 1:1. Instron would have had to
generate additional earnings of $658,000 to achieve a coverage ratio of 1:1
for the period.
74
<PAGE> 85
INDEPENDENT AUDITORS
The consolidated balance sheets as of December 31, 1998 and December 31,
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three fiscal years in the period ended December
31, 1998, incorporated by reference in this Proxy Statement, have been audited
by PricewaterhouseCoopers LLP, independent auditors. A representative of
PricewaterhouseCoopers LLP will be at the Special Meeting to answer appropriate
questions from stockholders and will have the opportunity to make a statement,
if so desired.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Instron
(SEC File No. 001-05641) are incorporated by reference in this Proxy Statement:
(i) Instron's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
(ii) Instron's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 3, 1999; and
(iii) Instron's Current Report on Form 8-K filed on May 12, 1999.
All documents filed by Instron with the Commission pursuant to Sections
13(a), 13(c), 14, and 15(d) of the Exchange Act after the date hereof and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statements contained in a document incorporated by reference
herein or contained in this Proxy Statement shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated by
reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof except as
so modified or superseded.
STOCKHOLDER PROPOSALS
If the Merger is not consummated for any reason, stockholder proposals
intended to be presented at Instron's 2000 Annual Meeting of Stockholders must
be received by Instron on or before December 16, 1999 in order to be considered
for inclusion in Instron's proxy statement and form of proxy for that meeting.
These proposals must also comply with the rules of the Commission governing the
form and content of proposals in order to be included in Instron's proxy
statement and form of proxy and should be directed to: Clerk, Instron
Corporation, 100 Royall Street, Canton, Massachusetts, 02021.
If the Merger is not consummated for any reason, a stockholder who wishes
to present a proposal at Instron's 2000 Annual Meeting of Stockholders, other
than a proposal to be considered for inclusion in Instron's proxy statement and
form of proxy as described above, must deliver the proposal to Instron at the
address set forth above. Such written proposal must be delivered not less than
75 days nor more than 120 days prior to the date of the scheduled annual
meeting; provided, however, that in the event that less than 90 days notice or
prior public disclosure of the scheduled date of the meeting is given or made to
stockholders, such written proposal must be received no later than the close of
business on the 15th day following the day on which such notice of the scheduled
date of the meeting was mailed or such disclosure was made, whichever first
occurs. The proposal must also comply with the other requirements contained in
Instron's Amended and Restated By-laws, including supporting documentation and
other information. Proxies solicited by the Instron Board will confer
discretionary voting authority with respect to these proposals, subject to the
Commission's rules governing the exercise of this authority.
OTHER MATTERS
Management knows of no other business to be presented at the Special
Meeting. If other matters do properly come before the meeting, or any
adjournment or postponement thereof, it is the intention of the persons named in
the proxy to vote on such matters according to their best judgment and in their
discretion.
75
<PAGE> 86
WHERE YOU CAN FIND MORE INFORMATION
Instron files annual, quarterly, and current reports, proxy statements, and
other information with the Commission. You may read and copy any reports,
statements, or other information that Instron files at the Commission's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. Instron public filings are also available to the public
from commercial document retrieval services and at the Internet World Wide Web
site maintained by the Commission at http://www.sec.gov. Reports, proxy
statements, and other information concerning Instron also may be inspected at
the offices of the American Stock Exchange, 86 Trinity Place, New York, NY
10006-1881.
The Commission allows Instron to "incorporate by reference" information
into this document, which means that Instron can disclose important information
to you by referring you to another document filed separately with the
Commission. The information incorporated by reference is deemed to be a part of
this document, except for any information superseded by information contained
directly in this document. This document incorporates by reference certain
documents that Instron has previously filed with the Commission. These documents
contain important business information about Instron and its financial
condition.
Instron may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through Instron or the Commission or
the Commission's Internet World Wide Web site described above. Documents
incorporated by reference are available from Instron without charge, excluding
all exhibits unless specifically incorporated by reference as an exhibit to this
document. Stockholders may obtain documents incorporated by reference in this
document upon written or oral request to the following address or telephone
number:
INSTRON CORPORATION
100 Royall Street
Canton, MA 02021
Telephone: (781) 828-2500
Attention: Linton A. Moulding
Instron will send any document so requested to the requesting stockholder
by first class mail or other equally prompt means within one day of receiving
such request. You should note that James M. McConnell, as well as the other
executive officers of Instron, are participants in the Merger.
Instron and the Investor Group have filed a Schedule 13E-3 with the
Commission with respect to the Transactions, including the Merger. As permitted
by the Commission, this Proxy Statement omits certain information contained in
the Schedule 13E-3. The Schedule 13E-3, including any amendments and exhibits
filed or incorporated by reference as a part thereof, is available for
inspection or copying as set forth above.
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM INSTRON, PLEASE DO SO AT LEAST
FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN ORDER TO RECEIVE
TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO THE SPECIAL MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the Special Meeting. Instron
has not authorized anyone to provide you with information that is different from
what is contained in this document. This document is dated July 23, 1999. You
should not assume that the information contained in this document is accurate as
of any date other than that date, and the mailing of this document to
stockholders does not create any implication to the contrary. This Proxy
Statement does not constitute a solicitation of a proxy in any jurisdiction
where, or to or from any person to whom, it is unlawful to make such proxy
solicitation in such jurisdiction.
76
<PAGE> 87
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
KIRTLAND CAPITAL PARTNERS III L.P.,
ISN ACQUISITION CORPORATION
AND
INSTRON CORPORATION
DATED AS OF MAY 6, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 88
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER.................................................................... A-1
1.1 The Merger.................................................. A-1
1.2 Effective Time.............................................. A-2
1.3 Closing..................................................... A-2
1.4 Directors and Officers...................................... A-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS........................................................... A-2
2.1 Effect on Capital Stock..................................... A-2
2.2 Company Stock Options and Related Matters................... A-3
ARTICLE III
PAYMENT FOR SHARES; DISSENTING SHARES................................... A-4
3.1 Payment for Shares of Company Common Stock.................. A-4
3.2 Appraisal Rights............................................ A-5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO................... A-5
4.1 Organization................................................ A-5
4.2 Authorization; Validity of Agreement; Necessary Action...... A-6
4.3 Consents and Approvals; No Violations....................... A-6
4.4 Required Financing.......................................... A-6
4.5 Takeover Laws............................................... A-7
4.6 Formation of MergerCo; No Prior Activities.................. A-7
4.7 Beneficial Ownership........................................ A-7
4.8 Financial Condition of Parent............................... A-7
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... A-7
5.1 Existence; Good Standing; Authority; Compliance With Law.... A-7
5.2 Authorization, Validity and Effect of Agreements............ A-8
5.3 Capitalization.............................................. A-8
5.4 Subsidiaries................................................ A-9
5.5 Other Interests............................................. A-10
5.6 No Violation; Consents...................................... A-10
5.7 SEC Documents............................................... A-10
5.8 Litigation.................................................. A-11
5.9 Absence of Certain Changes.................................. A-11
5.10 Taxes....................................................... A-11
5.11 Books and Records........................................... A-11
5.12 Properties.................................................. A-12
5.13 Intellectual Property....................................... A-12
5.14 Environmental Matters....................................... A-13
5.15 Employee Benefit Plans...................................... A-14
5.16 Labor Matters............................................... A-16
5.17 No Brokers.................................................. A-16
5.18 Opinion of Financial Advisors............................... A-16
5.19 Year 2000................................................... A-16
5.20 Insurance................................................... A-16
5.21 Contracts................................................... A-16
5.22 Takeover Laws............................................... A-17
</TABLE>
A-(i)
<PAGE> 89
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.23 Vote Required............................................... A-17
5.24 Definition of the Company's Knowledge....................... A-17
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER.................................. A-17
6.1 Conduct of Business by the Company.......................... A-17
ARTICLE VII
ADDITIONAL AGREEMENTS................................................... A-19
7.1 Stockholders Meeting........................................ A-19
7.2 Other Filings............................................... A-20
7.3 Additional Agreements....................................... A-20
7.4 Fees and Expenses........................................... A-21
7.5 No Solicitations............................................ A-21
7.6 Officers' and Directors' Indemnification.................... A-22
7.7 Access to Information; Confidentiality...................... A-23
7.8 Financial and Other Statements.............................. A-24
7.9 Public Announcements........................................ A-24
7.10 Employee Benefit Arrangements............................... A-24
7.11 Required Financing.......................................... A-24
7.12 Recapitalization Accounting Treatment....................... A-25
7.13 Delisting................................................... A-25
7.14 Exchange of Common Stock.................................... A-25
7.15 Solvency Letters............................................ A-25
7.16 Purchase of Company Shares.................................. A-25
ARTICLE VIII
CONDITIONS TO THE MERGER................................................ A-26
8.1 Conditions to the Obligations of Each Party to Effect the
Merger...................................................... A-26
8.2 Conditions to Obligations of MergerCo....................... A-26
8.3 Conditions to Obligations of the Company.................... A-28
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER....................................... A-28
9.1 Termination................................................. A-28
9.2 Effect of Termination....................................... A-29
9.3 Amendment................................................... A-30
9.4 Extension; Waiver........................................... A-31
ARTICLE X
GENERAL PROVISIONS...................................................... A-31
10.1 Notices..................................................... A-31
10.2 Interpretation.............................................. A-31
10.3 Non-Survival of Representations, Warranties, Covenants and
Agreements.................................................. A-31
10.4 Miscellaneous............................................... A-32
10.5 Assignment.................................................. A-32
10.6 Severability................................................ A-32
10.7 Choice of Law/Consent to Jurisdiction....................... A-32
10.8 No Agreement Until Executed................................. A-32
</TABLE>
A-(ii)
<PAGE> 90
PARENT AND MERGERCO DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
SECTION TITLE
- ------- -----
<S> <C>
4.2 Exceptions to Parent's and MergerCo's Representations
</TABLE>
COMPANY DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
SECTION TITLE
- ------- -----
<S> <C>
2.2 Rollover of Certain Options
5.1 Organizational and Good Standing
5.1(d) Organizational Documents of the Company Subsidiaries
5.3 Capitalization
5.4 Subsidiaries
5.5 Other Interests
5.6 Consents
5.8 Litigation
5.9 Absence of Changes
5.10 Taxes
5.12 Properties
5.13 Intellectual Property
5.14 Environmental Matters
5.15 Employee Benefit Plans
5.16 Labor Matters
5.20 Insurance
5.24 Definition of Knowledge
6.1(a) Rollover Stockholders
6.1(c) Conduct of Business Pending the Merger
6.1(g) Certain Executive Officers
6.1(h) Rights, Preferences and Designations of the Series B Stock
7.10 Employee Benefit Arrangements
8.2(c) Consents of Third Parties
</TABLE>
A-(iii)
<PAGE> 91
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 6, 1999, by
and among Kirtland Capital Partners III L.P., an Ohio limited partnership
("Parent"), ISN Acquisition Corporation, a Massachusetts corporation and a
wholly owned subsidiary of Parent ("MergerCo"), and Instron Corporation, a
Massachusetts corporation (the "Company").
RECITALS
WHEREAS, the respective Boards of Directors of MergerCo and the Company and
the general partner of Parent (the "General Partner") have approved the merger
of MergerCo with and into the Company (the "Merger") in accordance with the
Massachusetts Business Corporation Law (the "MBCL") and, upon the terms and
subject to the conditions set forth in this Agreement, holders of shares of
common stock, par value $1.00 per share, of the Company (the "Common Stock")
issued and outstanding immediately prior to the Effective Time (as hereinafter
defined) will be entitled, subject to the terms and conditions hereof, to the
right to receive cash;
WHEREAS, the Board of Directors of the Company (the "Company Board") has,
in light of and subject to the terms and conditions set forth herein, (i)
determined that (A) the consideration to be paid for each share of Common Stock
in the Merger is fair to the stockholders of the Company, and (B) the Merger is
otherwise in the best interests of the Company and its stockholders, and (ii)
resolved to approve and adopt this Agreement and the transactions contemplated
or required by this Agreement, including the Merger (collectively, the
"Transactions"), and to recommend approval and adoption by the stockholders of
the Company of this Agreement and the Transactions;
WHEREAS, as a condition to the willingness of Parent and MergerCo to enter
into this Agreement, certain stockholders of the Company (the "Voting Agreement
Stockholders") have entered into a Voting Agreement, dated as of the date
hereof, with Parent and MergerCo (the "Voting Agreement"), pursuant to which
each Voting Agreement Stockholder has agreed, among other things, to vote his
shares of Common Stock in favor of the approval of the Transactions and the
approval of any other matter relating to consummation of the Transactions, upon
the terms and subject to the conditions set forth in the Voting Agreement;
WHEREAS, Parent, MergerCo and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Transactions, and also to prescribe various conditions to the Transactions; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, Parent, MergerCo and the Company hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time, the Company and MergerCo shall consummate the Merger
pursuant to which (a) MergerCo shall be merged with and into the Company and the
separate corporate existence of MergerCo shall thereupon cease, (b) the Company
shall be the successor or surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall continue to be
governed by the laws of the Commonwealth of Massachusetts, and (c) the separate
corporate existence of the Company with all its rights, privileges, immunities,
powers and franchises shall continue unaffected by the Merger. The Company shall
take such steps as are permitted under the MBCL to (i) amend the Articles of
Organization of the Company (the "Articles of Organization") so that the
Articles of Organization of MergerCo, as in effect immediately prior
A-1
<PAGE> 92
to the Effective Time, shall be the Articles of Organization of the Surviving
Corporation until thereafter amended as provided by law and such Articles of
Organization, and (ii) amend the Bylaws of the Company (the "Bylaws") so that
the Bylaws of MergerCo, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended as
provided by law, by the Articles of Organization of the Surviving Corporation
and by such Bylaws. Notwithstanding the foregoing, the name of the Surviving
Corporation shall be "Instron Corporation" and the Articles of Organization and
Bylaws of the Surviving Corporation shall so provide. The Merger shall have the
effects specified in the MBCL. The purpose of the Surviving Corporation shall be
to carry on a manufacturing, contracting, merchandising, and research business,
and in general, to carry on any business or other activity which may be lawfully
carried on by a corporation organized under Chapter 156B of the Massachusetts
General Laws (the "MGL").
1.2 Effective Time. On the Closing Date (as hereinafter defined), MergerCo
and the Company shall duly execute and file articles of merger (the "Articles of
Merger") with the Secretary of State of the Commonwealth of Massachusetts in
accordance with the MBCL. The Merger shall become effective at such time as the
Articles of Merger, accompanied by payment of the filing fee (as provided in
Chapter 156B, Section 114 of the MBCL), have been examined by and received the
endorsed approval of the Secretary of State of the Commonwealth of Massachusetts
(the "Effective Time").
1.3 Closing. The closing of the Merger (the "Closing") shall occur as
promptly as practicable (but in no event later than the second business day)
after all of the conditions set forth in Article VIII shall have been satisfied
or, if permissible, waived by the party entitled to the benefit of the same,
and, subject to the foregoing, shall take place at such time and on a date to be
specified by the parties (the "Closing Date"); provided, however, that in no
event shall the Closing occur earlier than July 8, 1999. The Closing shall take
place at the offices of Jones, Day, Reavis & Pogue, 901 Lakeside Avenue,
Cleveland, Ohio 44114, unless another place is agreed to by the parties hereto.
1.4 Directors and Officers. The directors of MergerCo immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
and the officers of the Company immediately prior to the Effective Time shall be
the initial officers of the Surviving Corporation, each to hold office in
accordance with the Articles of Organization and Bylaws of the Surviving
Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Common
Stock or Series B Stock (as hereinafter defined) or any shares of capital stock
of MergerCo:
(a) Each share of common stock, par value $.01 per share, of MergerCo
(the "MergerCo Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted into one fully paid and nonassessable
share of common stock, par value $1.00 per share, of the Surviving
Corporation (the "Surviving Corporation Common Stock") following the
Merger.
(b) Each share of Common Stock that is owned by the Company, or by any
wholly owned Subsidiary (as defined in Section 10.2) of the Company or by
MergerCo shall automatically be canceled and retired and shall cease to
exist, and no cash or other consideration shall be delivered or deliverable
in exchange therefor.
(c) Each share of Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares owned by the Company, any of
its wholly owned Subsidiaries or MergerCo and Dissenting Shares (as defined
in Section 3.2)) shall be converted into the right to receive $22.00 per
share, net to the seller in cash, payable to the holder thereof, without
any interest thereon (the "Merger Consideration"), upon surrender and
exchange of the Certificate (as hereinafter defined) representing such
share of Common Stock.
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(d) Each share of Series B Preferred Stock, par value $1.00 per share,
of the Company (the "Series B Stock") issued and outstanding immediately
prior to the Effective Time (other than shares owned by the Company or any
of its wholly owned Subsidiaries) shall be converted into one fully paid
and nonassessable share of Surviving Corporation Common Stock following the
Merger.
(e) All shares of Common Stock, when converted as provided in Section
2.1(c), shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each Certificate (as hereinafter
defined) previously evidencing such shares shall thereafter represent only
the right to receive the Merger Consideration. The holders of Certificates
previously evidencing shares of Common Stock outstanding immediately prior
to the Effective Time shall cease to have any rights with respect to the
Common Stock except as otherwise provided herein or by law and, upon the
surrender of Certificates in accordance with the provisions of Section 3.1,
shall only represent the right to receive for their shares of Common Stock,
the Merger Consideration, without any interest thereon.
(f) All shares of Series B Stock, when converted as provided in
Section 2.1(d) shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate
previously evidencing such shares of Series B Stock shall thereafter
represent only the right to receive shares of Surviving Corporation Common
Stock. The holders of certificates previously evidencing shares of Series B
Stock outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to the Series B Stock except as otherwise
provided herein or by law.
2.2 Company Stock Options and Related Matters.
(a) Each option (collectively, the "Options") granted under the Company's
1992 Stock Incentive Plan (the "1992 Plan"), the 1984 United Kingdom Share
Option Scheme (the "1984 Plan"), the 1982 Incentive Stock Option Plan (the "1982
Plan") and the 1979 Non-Qualified Plan (the "1979 Plan" and, together with the
1992 Plan, the 1984 Plan and the 1982 Plan, the "Stock Option Plans"), which is
outstanding (whether or not then exercisable) as of immediately prior to the
Effective Time and which has not been exercised or canceled prior thereto (other
than the Options identified in Section 2.2 of the Company Disclosure Schedule
(as hereinafter defined), such Options being hereinafter referred to as the
"Rollover Options"), shall, at the Effective Time, be canceled and upon the
surrender and cancellation of the option agreement representing such Option, the
Company shall (x) pay to the holder thereof cash in an amount equal to the
product of (i) the number of shares of Common Stock provided for in such Option
and (ii) the excess, if any, of the Merger Consideration over the exercise price
per share provided for in such Option, which cash payment shall be treated as
compensation and shall be net of any applicable federal or state withholding tax
(the "Option Consideration"). The Company shall take all actions necessary to
ensure that (i) all Options, to the extent not exercised prior to the Effective
Time, shall terminate and be canceled as of the Effective Time and thereafter be
of no further force or effect, and (ii) no Options are granted after the date of
this Agreement.
(b) Each Rollover Option which is outstanding (whether or not then
exercisable) as of immediately prior to the Effective Time shall, at the
Effective Time, be automatically converted into an option to acquire 0.2 fully
paid and nonassessable shares of Surviving Corporation Common Stock at an
exercise price per share equal to (i) five (5) multiplied by (ii) the exercise
price per share provided for in the Option for which such Rollover Option is
surrendered; provided, however, that such exercise price shall be rounded up to
the nearest whole cent. From and after the Effective Time, the Rollover Options
shall be governed by the terms of the Stock Option Plans applicable to the
Option for which such Rollover Option is surrendered. The adjustments provided
herein with respect to any Rollover Options that are "incentive stock options"
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), shall be and are intended to be effected in a manner which is
consistent with Section 424(a) of the Code.
(c) Except as set forth in Section 2.2 of the Company Disclosure Schedule,
the Stock 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 of any other interest in respect of the capital stock of the Company or
any of the Company Subsidiaries shall be of no further force and effect and
shall be deemed to be deleted as of the Effective Time and no holder of an
Option or any participant in any Stock Option Plan or any other plans,
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programs or arrangements (other than holders of Rollover Options) shall have any
right thereunder to acquire any equity securities of the Company, the Surviving
Corporation or any Subsidiary thereof.
(d) Except as set forth in Section 2.2 of the Company Disclosure Schedule,
Parent and MergerCo acknowledge that all restricted stock awards granted under
the Stock Option Plans shall immediately vest and the restrictions associated
therewith shall automatically be deemed waived as provided by the Stock Option
Plans but in no event later than the date on which the Company's stockholders
approve this Agreement and the Transactions.
ARTICLE III
PAYMENT FOR SHARES; DISSENTING SHARES
3.1 Payment for Shares of Company Common Stock.
(a) From and after the Effective Time, such bank or trust company as shall
be mutually acceptable to MergerCo and the Company shall act as exchange agent
(the "Exchange Agent"). At or prior to the Effective Time, MergerCo shall
deposit, or MergerCo shall otherwise take all steps necessary to cause to be
deposited, with the Exchange Agent in an account (the "Exchange Fund") the
aggregate Merger Consideration (net of any applicable withholding taxes) to
which holders of shares of Common Stock shall be entitled at the Effective Time
pursuant to Section 2.1(c).
(b) Promptly after the Effective Time, MergerCo shall cause the Exchange
Agent to mail to each record holder of Certificates (the "Certificates") that
immediately prior to the Effective Time represented shares of Common Stock a
form of letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent and instructions for
use in surrendering such Certificates and receiving the Merger Consideration in
respect thereof.
(c) In effecting the payment of the Merger Consideration with respect to
shares of Common Stock represented by Certificates entitled to payment of the
Merger Consideration pursuant to Section 2.1(c) (the "Cashed Shares"), upon the
surrender of each such Certificate, the Exchange Agent shall pay the holder of
such Certificate the Merger Consideration multiplied by the number of Cashed
Shares (net of any applicable withholding taxes), in consideration therefor.
Upon such payment such Certificate shall forthwith be canceled.
(d) Until surrendered in accordance with paragraph (c) above, each such
Certificate (other than Certificates representing shares of Common Stock held by
MergerCo or any of its affiliates, in the treasury of the Company or by any
wholly owned Subsidiary of the Company or Dissenting Shares) shall represent
solely the right to receive the Merger Consideration relating thereto. No
interest or dividends shall be paid or accrued on the Merger Consideration. If
the Merger Consideration (or any portion thereof) is to be delivered to any
person other than the person in whose name the Certificate formerly representing
shares of Common Stock surrendered therefor is registered, it shall be a
condition to such right to receive such Merger Consideration that the
Certificate so surrendered shall be properly endorsed or otherwise be in proper
form for transfer and that the person surrendering such shares of Common Stock
shall pay to the Exchange Agent any transfer or other taxes required by reason
of the payment of the Merger Consideration to a person other than the registered
holder of the Certificate surrendered, or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
(e) No dividends or other distributions with respect to shares of Common
Stock shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Common Stock represented thereby.
(f) Promptly following the date which is 180 days after the Effective Time,
the Exchange Agent shall deliver to the Surviving Corporation all cash,
Certificates and other documents in its possession relating to the Transactions,
and the Exchange Agent's duties shall terminate. Thereafter, each holder of a
Certificate formerly representing a share of Common Stock may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in consideration therefor the Merger
Consideration relating thereto without any interest or dividends thereon.
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(g) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of any shares of Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates formerly representing shares of Common Stock are
presented to the Surviving Corporation or the Exchange Agent, they shall be
surrendered and canceled in return for the payment of the Merger Consideration
relating thereto, as provided in this Article III.
(h) None of Parent, MergerCo, the Company or the Exchange Agent shall be
liable to any person in respect of any cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law. If any Certificate shall not have been surrendered prior to seven
years after the Effective Time, any such shares, cash, dividends or
distributions in respect of such Certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interest of any person previously entitled thereto.
3.2 Appraisal Rights.
(a) Notwithstanding anything in this Agreement to the contrary, any shares
of Common Stock ("Dissenting Shares") which are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders of
the Company who have filed with the Company, before the taking of the vote of
the stockholders of the Company to approve this Agreement, written objections to
such approval stating their intention to demand payment for such shares of
Common Stock, and who have not voted such shares of Common Stock in favor of the
adoption of this Agreement, will not be converted as described in Section 2.1
hereof, but will thereafter constitute only the right to receive payment of the
fair value of such shares of Common Stock in accordance with the applicable
provisions of Chapter 156B of the MBCL (the "Appraisal Rights Provisions");
provided, however, that all shares of Common Stock held by stockholders who
shall have failed to perfect or who effectively shall have withdrawn or lost
their rights to appraisal of such shares of Common Stock under the Appraisal
Rights Provisions shall thereupon be deemed to have been canceled and retired
and to have been converted, as of the Effective Time, into the right to receive
the Merger Consideration, without interest, in the manner provided in Section
2.1. Persons who have perfected statutory rights with respect to Dissenting
Shares as aforesaid will not be paid by the Surviving Corporation as provided in
this Agreement and will have only such rights as are provided by the Appraisal
Rights Provisions with respect to such Dissenting Shares. Notwithstanding
anything in this Agreement to the contrary, if Parent, MergerCo or the Company
abandon or are finally enjoined or prevented from carrying out, or the
stockholders rescind their adoption of, this Agreement, the right of each holder
of Dissenting Shares to receive the fair value of such Dissenting Shares in
accordance with the Appraisal Rights Provisions will terminate, effective as of
the time of such abandonment, injunction, prevention or rescission. The Company
shall give MergerCo prompt notice of any demands received by the Company for the
exercise of appraisal rights with respect to shares of Common Stock 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 (which shall not be unreasonably withheld), make any payment
with respect to, or settle or offer to settle, any such demands.
(b) Each dissenting stockholder who becomes entitled under the MBCL to
payment for Dissenting Shares shall receive payment therefor after the Effective
Time from the Surviving Corporation (but only after the amount thereof shall
have been agreed upon or finally determined pursuant to the MBCL), and such
shares of Common Stock shall be canceled.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGERCO
Parent and MergerCo jointly and severally hereby represent and warrant to
the Company as follows:
4.1 Organization. Parent is a limited partnership duly organized and
validly existing under the laws of the State of Ohio and MergerCo is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts, and each has all requisite power and
authority and all
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necessary governmental approvals to own, lease and operate their properties and
to carry on their businesses as now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority,
and governmental approvals would not have a material adverse effect on the
business, results of operations or condition (financial or otherwise) of Parent
(a "Parent Material Adverse Effect"). Parent is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Parent Material Adverse Effect.
4.2 Authorization; Validity of Agreement; Necessary Action. Each of Parent
and MergerCo has full power and authority to execute and deliver this Agreement
and to consummate the Transactions. The execution, delivery and performance by
Parent and MergerCo of this Agreement and the consummation of the Transactions
have been duly authorized by all necessary partnership action on behalf of
Parent (the "Parent Board") and the Board of Directors of MergerCo (the
"MergerCo Board") and by the stockholders of MergerCo, and, except as set forth
in Section 4.2 of the schedule attached to this Agreement setting forth
exceptions to Parent's and MergerCo's representations and warranties set forth
herein (the "Parent and MergerCo Disclosure Schedule"), no other action on the
part of Parent and MergerCo is necessary to authorize the execution and delivery
by Parent and MergerCo of this Agreement and the consummation of the
Transactions. This Agreement has been duly executed and delivered by Parent and
MergerCo and, assuming due and valid authorization, execution and delivery
hereof by the Company, is a valid and binding obligation of each of Parent and
MergerCo, as the case may be, enforceable against each of them in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
4.3 Consents and Approvals; No Violations. Except as set forth in Section
4.2 of the Parent and MergerCo Disclosure Schedule and except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Securities Act of 1933, as amended (the
"Securities Act"), the HSR Act (as hereinafter defined), the antitrust and
competition laws of foreign countries and state securities or state "Blue Sky"
laws, none of the execution, delivery or performance of this Agreement by Parent
or MergerCo, the consummation by Parent or MergerCo of the Transactions or
compliance by Parent or MergerCo with any of the provisions hereof will (i)
conflict with or result in any breach of any provision of the limited
partnership agreement of Parent or the articles of organization or bylaws of
MergerCo, (ii) require any filing with, or permit, authorization, consent or
approval of, any Governmental Entity (as hereinafter defined), (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) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or MergerCo is a party or by which
either of them or any of their respective properties or assets may be bound, or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent or MergerCo or any of their properties or assets, excluding
from the foregoing clauses (ii), (iii) and (iv) such violations, breaches or
defaults which would not, individually or in the aggregate, have a Parent
Material Adverse Effect.
4.4 Required Financing. Parent and MergerCo have revolving credit facility
and high yield bridge financing commitments in place which, if funded in
accordance with their terms, together with equity capital commitments from the
limited partners of Parent and certain additional equity capital commitments
from certain of the limited partners of Parent (the "Side-by-Side Equity
Commitments"), will provide sufficient funds to consummate the Transactions
(collectively, the "Transaction Costs"), including, without limitation, to (i)
pay the Merger Consideration pursuant to Section 2.1(c), (ii) refinance the
outstanding indebtedness of the Company, (iii) pay any fees and expenses in
connection with the Transactions or the financing thereof and (iv) provide for
the working capital needs of the Company following the Merger, including,
without limitation, if applicable, letters of credit. Neither Parent nor
MergerCo has any reason to believe that any condition to such financing
commitments cannot or will not be waived or satisfied prior to the Effective
Time. Parent has provided to the Company true, complete and correct copies of
all financing commitment letters
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executed by the revolving credit facility lender and the high yield bridge
lender (collectively, the "Lenders"), including any exhibits, schedules or
amendments thereto (the "Financing Letters"). Parent has provided to the Company
true, complete and correct copies of each Side-by-Side Equity Commitment letter
executed by the limited partner of Parent signatory thereto, including any
exhibits, schedules or amendments thereto. The advisory board of Parent has
approved an investment by Parent of $40,000,000 of Fund Capital (as hereinafter
defined) in the Company and, from and after the date of this Agreement, the
advisory board of Parent shall not withdraw or change such approval unless this
Agreement shall have been terminated in accordance with its terms.
4.5 Takeover Laws. Neither Parent nor MergerCo was, immediately prior to
the execution of this Agreement, an "interested stockholder" within the meaning
of Chapter 110F of the MGL.
4.6 Formation of MergerCo; No Prior Activities. MergerCo was formed solely
for the purpose of engaging in the transactions contemplated by this Agreement.
As of the date hereof and as of the Effective Time, except for (i) obligations
or liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement and (ii) this Agreement and any
other agreements or arrangements contemplated by this Agreement or in
furtherance of the transactions contemplated hereby, MergerCo has not incurred,
directly or indirectly, through any subsidiary or affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
4.7 Beneficial Ownership. Except to the extent permitted by Section 7.16
hereof or as a result of the execution by Parent and MergerCo of the Voting
Agreement, neither Parent nor MergerCo "beneficially owns" (as defined in Rule
13d-3 under the Exchange Act) any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock.
4.8 Financial Condition of Parent. Parent has provided to the Company true,
complete and correct copies of the audited financial statements of Parent for
the fiscal year ended December 31, 1998 and the unaudited financial statements
of Parent for the interim period ended March 31, 1999. Such financial statements
fairly present the financial position of Parent as of the respective dates
thereof, and the other related statements (including the related notes) included
therein fairly present the results of operations of Parent for the respective
fiscal periods set forth above. Parent has equity commitments from its limited
partners in an aggregate amount in excess of $185,000,000 (the "Fund Capital").
The General Partner may, in its sole discretion, call such portion of the Fund
Capital as is necessary to satisfy any of Parent's or MergerCo's obligations
under or arising out of this Agreement and the performance by Parent and
MergerCo thereof. None of the Fund Capital has been pledged or is subject to any
material lien, security interest or other encumbrance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedules delivered at or prior to
the execution hereof to Parent and MergerCo, which shall refer to the relevant
Sections of this Agreement (the "Company Disclosure Schedule"), the Company
represents and warrants to Parent and MergerCo as follows:
5.1 Existence; Good Standing; Authority; Compliance With Law.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts and has all
requisite corporate or other power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as now being conducted, except where the failure to be so organized, existing
and in good standing or to have such power, authority and governmental approvals
would not reasonably be expected to have a Company Material Adverse Effect (as
hereinafter defined). Except as set forth in Section 5.1 of the Company
Disclosure Schedule, the Company is duly qualified or licensed to do business
and is in good standing (with respect to jurisdictions that recognize such
concept) in each jurisdiction in which the nature of its business or the
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ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect. For purposes of this Agreement, a "Company Material Adverse Effect"
shall mean a material adverse effect on the business, results of operations or
condition (financial or otherwise) of the Company and the Company Subsidiaries
taken as a whole.
(b) Except as set forth in Section 5.1 of the Company Disclosure Schedule,
each of the Company Subsidiaries is a corporation, partnership or limited
liability company (or similar entity or association in the case of those Company
Subsidiaries organized and existing other than under the laws of a State of the
United States) duly incorporated or organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has the corporate or other power and authority to own its properties and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership of
its property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing could not reasonably be expected to have a Company Material Adverse
Effect.
(c) Neither the Company nor any of the Company Subsidiaries is in violation
of any order of any court, governmental authority or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to which the
Company or any Company Subsidiary or any of their respective properties or
assets is subject, where such violation could have a Company Material Adverse
Effect. The Company and the Company Subsidiaries have obtained all licenses,
permits and other authorizations and have taken all actions required by
applicable law or governmental regulations in connection with their businesses
as now conducted, where the failure to obtain any such license, permit or
authorization or to take any such action could have a Company Material Adverse
Effect.
(d) Except as set forth in Section 5.1(d) of the Company Disclosure
Schedule, copies of the Articles of Organization and Bylaws and the other
charter documents, bylaws, organizational documents and partnership, limited
liability company and joint venture agreements (and in each such case, all
amendments thereto) of each of the Company Subsidiaries have been provided to
MergerCo or its representatives and are true and correct in all material
respects.
5.2 Authorization, Validity and Effect of Agreements. Each of the Company
and the Company Subsidiaries has the requisite power and authority to enter into
the Transactions and to execute and deliver this Agreement. The Company Board
has approved this Agreement and the Transactions. In connection with the
foregoing, the Company Board has taken such actions and votes as are necessary
on its part to render the provisions of Chapter 110C and Chapter 110F of the MGL
and all other applicable takeover statutes inapplicable to this Agreement and
the Transactions. Subject only to the approval of this Agreement by the holders
of the Common Stock, the execution by the Company of this Agreement and
consummation of the Transactions have been duly authorized by all requisite
corporate action on the part of the Company. This Agreement, assuming due and
valid authorization, execution and delivery thereof by Parent and MergerCo,
constitutes a valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
5.3 Capitalization. The authorized capital stock of the Company consists of
10,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, par
value $1.00 per share, of the Company (the "Preferred Stock"). As of the date of
this Agreement, (i) 6,956,838 shares of Common Stock were issued and
outstanding, (ii) 791,500, 650,000, 190,000 and 900,000 shares of Common Stock
have been authorized and reserved for issuance pursuant to the 1979 Plan, the
1982 Plan, the 1984 Plan and the 1992 Plan, respectively, subject to adjustment
on the terms set forth in the applicable Stock Option Plans, (iii) 200,588,
69,546 and 437,851 Options were outstanding under the 1979 Plan, the 1984 Plan
and the 1992 Plan, respectively, (iv) no Options were outstanding under the 1982
Plan, (v) no shares of Preferred Stock were issued and outstanding, (vi) 108,262
shares of Common Stock and no shares of Preferred Stock were held in the
treasury of the Company and (vii) 100,000 shares of Preferred Stock had been
designated as Series A
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Junior Participating Cumulative Preferred Stock, par value $1.00 per share. As
of the date of this Agreement, the Company had no shares of Common Stock
reserved for issuance other than as described above. Section 5.3 of the Company
Disclosure Schedule sets forth a description of the Common Stock, the Preferred
Stock and the Series A Junior Participating Cumulative Preferred Stock. All such
issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. The parties acknowledge and agree that 75,000 shares of Preferred Stock
will be designated by the Company as the Series B Stock prior to the Closing
Date and up to such amount will be issued to the Rollover Stockholders (as
hereinafter defined) prior to the Closing Date in accordance with Section 7.14
hereof. The Series B Stock, when issued, will be duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. The Company has
no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of the Company on any
matter. Except as set forth above and for the Options (all of which have been
issued under the Stock Option Plans), there are not as of the date of this
Agreement issued, reserved for issuance or outstanding, (i) any shares of
capital stock or other voting securities of the Company, (ii) any securities
convertible into or exchangeable or exercisable for shares of capital stock or
voting securities of the Company, or (iii) any warrants, calls, options or other
rights to acquire from the Company or any Company Subsidiary, and no obligation
of the Company or any Company Subsidiary to issue, any capital stock or voting
securities of the Company. Section 5.3 of the Company Disclosure Schedule sets
forth a full list of Options, including the name of the person to whom such
Options have been granted, the number of shares subject to each Option, the per
share exercise price for each Option and the vesting schedule for each Option.
Except as set forth in Section 2.2 hereof and Section 5.3 of the Company
Disclosure Schedule and as provided in the Stock Option Plans, the vesting
schedule of all Options shall not be changed or affected by the execution of
this Agreement or consummation of the Transactions. Other than the Voting
Agreement and other than awards made pursuant to any of the Stock Option Plans,
there are no agreements or understandings to which the Company or any Company
Subsidiary is a party with respect to the voting of any shares of capital stock
of the Company or which restrict the transfer of any such shares, nor does the
Company have knowledge of any third party agreements or understandings with
respect to the voting of any such shares or which restrict the transfer of any
such shares. Other than (i) as set forth above, (ii) awards made pursuant to any
of the Stock Option Plans, and (iii) as expressly contemplated by this Agreement
and the Transactions, there are no outstanding contractual obligations of the
Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any
shares of capital stock, partnership interests or any other securities of the
Company or any Company Subsidiary. Except as set forth in Section 5.3 of the
Company Disclosure Schedule and as expressly contemplated by this Agreement and
the Transactions, neither the Company nor any Company Subsidiary is under any
obligation, contingent or otherwise, by reason of any agreement to register the
offer and sale or resale of any of their securities under the Securities Act.
5.4 Subsidiaries. Except as set forth in Section 5.4 of the Company
Disclosure Schedule, the Company owns directly or indirectly each of the
outstanding shares of capital stock or other equity interest of each of the
Company Subsidiaries. Each of the outstanding shares of capital stock of each of
the Company Subsidiaries having corporate form is duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Section 5.4 of the
Company Disclosure Schedule, each of the outstanding shares of capital stock or
other equity interest of each of the Company Subsidiaries is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims or other encumbrances. The following information for each
Company Subsidiary as of the date of this Agreement is set forth in Section 5.4
of the Company Disclosure Schedule: (i) its name and jurisdiction of
incorporation or organization; (ii) its authorized capital stock, share capital
or other equity interest, to the extent applicable; and (iii) the name of each
stockholder or equity interest holder and the number of issued and outstanding
shares of capital stock, share capital or other equity interest held by it.
There are no (i) securities convertible into or exchangeable or exercisable for
shares of capital stock or voting securities of any Company Subsidiary, or (ii)
warrants, calls, options or other rights to acquire from any Company Subsidiary,
and no obligation of any Company Subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable or exercisable for any capital stock, voting securities or
ownership interests
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in, any Company Subsidiary. There are no outstanding contractual obligations of
any Company Subsidiary to repurchase, redeem or otherwise acquire any such
securities of Company Subsidiaries or to issue, deliver or sell, or cause to be
issued, delivered or sold, any such securities.
5.5 Other Interests. Except as set forth in Section 5.5 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, limited liability company, joint venture,
business, trust or other entity (other than investments in short-term investment
securities).
5.6 No Violation; Consents. Except as set forth in Section 5.6 of the
Company Disclosure Schedule, neither the execution and delivery by the Company
of this Agreement nor consummation by the Company of the Transactions in
accordance with the terms hereof, will conflict with or result in a breach of
any provisions of the Articles of Organization, Bylaws, or the organizational
documents of the Company or any Company Subsidiary. Except as set forth in
Section 5.6 of the Company Disclosure Schedule, the execution and delivery by
the Company of this Agreement and consummation by the Company of the
Transactions in accordance with the terms hereof will not violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or in a right of termination or cancellation
of, or accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties of the
Company or the Company Subsidiaries under, or result in being declared void,
voidable or without further binding effect, any of the terms, conditions or
provisions of (x) any note, bond, mortgage, indenture, deed of trust or (y) any
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which the Company or any of the Company Subsidiaries
is a party, or by which the Company or any of the Company Subsidiaries or any of
their properties is bound, except as otherwise would not have a Company Material
Adverse Effect. Other than the filings provided for in Article II of this
Agreement, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"), the antitrust and competition laws of foreign countries, the Exchange
Act, the Securities Act, or applicable state securities and "Blue Sky" laws
(collectively, the "Regulatory Filings"), the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company and consummation of the Transactions does not, require any consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority, except where the failure to obtain any
such consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority would not have a
Company Material Adverse Effect.
5.7 SEC Documents. The Company has filed all required forms, reports and
documents with the Securities and Exchange Commission (the "SEC") since December
31, 1995 (collectively, the "Company SEC Reports"), all of which were prepared
in accordance with the applicable requirements of the Exchange Act, the
Securities Act and the rules and regulations promulgated thereunder (the
"Securities Laws"). All required Company SEC Reports have been filed with the
SEC and constitute all forms, reports and documents required to be filed by the
Company under the Securities Laws since December 31, 1995. As of their
respective dates, the Company SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the Securities Laws and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. Each of the consolidated balance sheets of the Company included in
or incorporated by reference into the Company SEC Reports (including the related
notes and schedules) fairly presents the consolidated financial position of the
Company and the Company Subsidiaries as of its date and each of the consolidated
statements of income, retained earnings and cash flows of the Company included
in or incorporated by reference into the Company SEC Reports (including any
related notes and schedules) fairly presents the results of operations, retained
earnings or cash flows, as the case may be, of the Company and the Company
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d) of the
Exchange Act.
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5.8 Litigation. Except as set forth in Section 5.8 of the Company
Disclosure Schedule, no action, proceeding or investigation by any Governmental
Entity and no suit, action or proceeding by any person, in each such case, with
respect to the Company or any Company Subsidiary or any of their respective
properties, is pending, or, to the knowledge of the Company, threatened, other
than, in each case, those the outcome of which, individually or in the
aggregate, would not reasonably be expected to have a Company Material Adverse
Effect or that would not reasonably be expected to prevent or materially delay
consummation of the Transactions.
5.9 Absence of Certain Changes. Except as set forth in Section 5.9 of the
Company Disclosure Schedule, since December 31, 1998 the Company and the Company
Subsidiaries have conducted their businesses only in the ordinary course of
business and there has not been: (i) any Company Material Adverse Effect; (ii)
any declaration, setting aside or payment of any dividend or other distribution
with respect to the Common Stock; (iii) any material commitment, contractual
obligation (including, without limitation, any management or franchise
agreement, any lease (capital or otherwise) or any letter of intent), borrowing,
liability, guaranty, capital expenditure or transaction (each, a "Commitment")
entered into by the Company or any of the Company Subsidiaries outside the
ordinary course of business except for Commitments for expenses of attorneys,
accountants and investment bankers incurred in connection with the Transactions;
or (iv) any material change in the Company's accounting principles, practices or
methods.
5.10 Taxes.
(a) Except as set forth in Section 5.10 of the Company Disclosure Schedule,
each of the Company and the Company Subsidiaries (i) has timely filed all Tax
Returns (as hereinafter defined) which the Company was required to file (after
giving effect to any filing extension granted by a Governmental Entity) and (ii)
has paid all Taxes (as hereinafter defined) required to be paid by it, except,
in each case, where the failure to file such Tax Returns or pay such Taxes would
not have a Company Material Adverse Effect. Except as set forth in Section 5.10
of the Company Disclosure Schedule, the most recent audited financial statements
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 reflect, to the knowledge of the Company, an adequate reserve
for all material Taxes payable by the Company and the Company Subsidiaries for
all taxable periods and portions thereof through the date of such financial
statements in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis. Except as set forth in
Section 5.10 of the Company Disclosure Schedule, (w) no deficiencies for any
Taxes have been proposed, asserted or assessed against the Company or any of the
Company Subsidiaries, (x) no federal income Tax Returns for a taxable period
beginning after December 31, 1990 have been or are being audited, (y) no
agreements or consents are in effect for the extension or waiver of the time in
which to file any Tax Return or assess or collect any Taxes from the Company or
any Company Subsidiary, and (z) neither the Company nor any Company Subsidiary
is a party to any Tax sharing agreement, agreement for an exemption with any
Governmental Entity, or agreement, contract, arrangement or plan that would
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code.
(b) For purposes of this Agreement, "Taxes" means all federal, state, local
and foreign net or gross income, alternative or add-on minimum, environmental,
gross receipts, property, sales, use, franchise, employment, withholding, excise
and other taxes, tariffs or governmental charges of any nature whatsoever,
together with any interest, penalties or additions to Tax with respect thereto.
(c) For purposes of this Agreement, "Tax Returns" means all reports,
returns (including information returns), declarations, statements or other
information required to be supplied to a Governmental Entity in connection with
Taxes.
5.11 Books and Records.
(a) The books of account and other financial records of the Company and
each of the Company Subsidiaries are true, complete and correct in all material
respects, have been maintained in accordance with good business practices, and
are accurately reflected in all material respects in the financial statements
included in the Company SEC Reports.
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(b) The minute books and other records of the Company and each of the
Company Subsidiaries have been made available to MergerCo or its
representatives, contain in all material respects accurate records of all
meetings and accurately reflect in all material respects all other corporate
action of the stockholders and directors and any committees of the Company Board
and the boards of directors of each of the Company Subsidiaries and all actions
of the partners or managers of each of the Company Subsidiaries, as applicable,
except in each such case as would otherwise not have a Company Material Adverse
Effect.
5.12 Properties.
(a) All of the real estate properties owned or leased by the Company or any
of the Company Subsidiaries and material to the business and operations of the
Company and the Company Subsidiaries taken as a whole are set forth in Section
5.12 of the Company Disclosure Schedule. Except as set forth in Section 5.12 of
the Company Disclosure Schedule, the Company or a Company Subsidiary owns fee
simple title to each of the owned real properties identified in Section 5.12 of
the Company Disclosure Schedule (the "Company Properties"), free and clear of
liens which secure the payment of money, mortgages or deeds of trust, monetary
charges which are liens, security interests or other encumbrances on title which
secure the payment of money (collectively, "Encumbrances"), and the Company
Properties are not subject to any easements, rights of way, covenants,
conditions, restrictions or other written agreements, laws, ordinances and
regulations materially and adversely affecting the current use or occupancy of
any of the Company Properties by the Company or the Company Subsidiaries, as
applicable (collectively, "Property Restrictions"), except for (i) Property
Restrictions imposed or promulgated by law or any governmental body or authority
with respect to real property, including zoning regulations, that do not
materially and adversely affect the current use of the property by the Company,
(ii) Property Restrictions disclosed on any title policies or reports or surveys
received by, made available to, or otherwise obtained by, MergerCo, (iii)
Property Restrictions that would be disclosed by current, accurate surveys or
title policies or reports, and (iv) mechanics', carriers', suppliers', workmen's
or repairmen's liens and other Encumbrances, Property Restrictions and other
limitations of any kind, if any, which, individually or in the aggregate, are
not material in amount, do not materially detract from the value of or
materially interfere with the present use of any of the Company Properties
subject thereto or affected thereby, and do not otherwise materially impair
business operations conducted by the Company and the Company Subsidiaries and
which have arisen or been incurred only in the ordinary course of business.
Except as set forth in Section 5.12 of the Company Disclosure Schedule, (A) the
Company has not received any written notice of any material violation of any
federal, state or municipal law, ordinance, order, regulation or requirement
affecting any portion of any of the Company Properties by any Governmental
Entity; (B) to the Company's knowledge, there are no material structural defects
relating to any of the Company Properties; (C) to the Company's knowledge, there
is no Company Property whose building systems are not in working order in any
material respect; and (D) to the Company's knowledge, there is no physical
damage, other than ordinary wear and tear, for which the Company is responsible
to any Company Property in excess of $250,000 for which there is no insurance in
effect covering the full cost of the restoration.
(b) The Company and the Company Subsidiaries own good title, free and clear
of all Encumbrances, to all of the personal property and assets shown on the
Company's balance sheet at December 31, 1998 as reflected in the Company SEC
Reports (the "Balance Sheet") or acquired after December 31, 1998, except for
(A) assets which have been disposed of to nonaffiliated third parties since
December 31, 1998 in the ordinary course of business, (B) Encumbrances reflected
in the Balance Sheet, (C) Encumbrances or imperfections of title which are not,
individually or in the aggregate, material in character, amount or extent and
which do not materially detract from the value or materially interfere with the
present or presently contemplated use of the assets subject thereto or affected
thereby, and (D) Encumbrances for current Taxes not yet due and payable. All of
the machinery, equipment and other tangible personal property and assets owned
or used by the Company and the Company Subsidiaries are in good condition and
repair to the extent necessary to permit the Company and the Company
Subsidiaries to conduct their businesses as they are currently being conducted.
5.13 Intellectual Property. The Company or the Company Subsidiaries are the
owner of, or a licensee under a valid license for, all items of intangible
property which are material to the business of the Company
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and the Company Subsidiaries as currently conducted, taken as a whole,
including, without limitation, trade names, unregistered trademarks and service
marks, brand names, software, patents and copyrights, except where the failure
to own or be a licensee for such intangible property would not have a Company
Material Adverse Effect. Except as disclosed in Section 5.13 of the Company
Disclosure Schedule, there are no claims pending or, to the Company's knowledge,
threatened, that the Company or any Company Subsidiary is in violation of any
such intellectual property right of any third party which would have a Company
Material Adverse Effect, and, to the Company's best knowledge, no third party is
in violation of any intellectual property rights of the Company or any Company
Subsidiary which would have a Company Material Adverse Effect.
5.14 Environmental Matters. The Company and the Company Subsidiaries are in
compliance with all Environmental Laws (as hereinafter defined), except for any
noncompliance that, either singly or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect. As used in this Agreement,
"Environmental Laws" shall mean all federal, state, local and foreign laws,
rules, regulations, ordinances and orders that purport to regulate the release
of hazardous substances or other materials into the environment, or impose
limitations, requirements or obligations relating to environmental protection.
As used in this Agreement, "Hazardous Materials" means any "hazardous waste" as
defined in either the United States Resource Conservation and Recovery Act or
regulations adopted pursuant to said act, any "hazardous substance" or
"pollutant or contaminant" as defined in the United States Comprehensive
Environmental Response, Compensation and Liability Act and, to the extent not
included in the foregoing, any medical waste, petroleum or oil or fractions
thereof. There is no administrative or judicial enforcement or cost recovery
proceeding pending, or to the best knowledge of the Company threatened, against
the Company or any Company Subsidiary under any Environmental Law. Neither the
Company nor any Company Subsidiary or, to the best knowledge of the Company, any
legal predecessor of the Company or any Company Subsidiary, has received any
written notice that it is potentially responsible under any Environmental Law
for any costs of response or for damages to natural resources, as those terms
are defined under the Environmental Laws, at any location and neither the
Company nor any Company Subsidiary has transported or disposed of, or allowed or
arranged for any third party to transport or dispose of, any waste containing
Hazardous Materials at any location included on the National Priorities List, as
defined under the Comprehensive Environmental Response, Compensation, and
Liability Act, or any location proposed for inclusion on that list or at any
location on any analogous state list. Except for any release that, either
individually or in the aggregate, would not reasonably be expected to have a
Company Material Adverse Effect, there has been no release on the real property
owned or leased by the Company or any Company Subsidiary, or, to the Company's
knowledge, on the real property owned or leased by any predecessor entity, which
real property currently is owned or leased by the Company or any Company
Subsidiary, of Hazardous Materials, or, with respect to any real property
located outside of the United States, any hazardous or toxic material or
substance regulated under any foreign Environmental Law, in a manner that could
result in an order to perform a response action or in material liability under
the Environmental Laws and, except as set forth in Section 5.14 of the Company
Disclosure Schedule, there is no hazardous waste treatment, storage or disposal
facility, underground storage tank, landfill, surface impoundment, underground
injection well, or, to the Company's knowledge, friable asbestos or PCB's, as
those terms are defined under the Environmental Laws, located at any of the real
property owned or leased by the Company or any Company Subsidiary or, to the
Company's knowledge, any predecessor entity, or at any facilities utilized by
the Company or the Company Subsidiaries. The Company has disclosed and made
available to MergerCo all studies, analyses and test results in the possession,
custody or control of the Company or any Company Subsidiary relating to the
environmental conditions on or under any of the properties or assets owned,
leased or operated by the Company or any Company Subsidiary. Except as set forth
in Section 5.14 of the Company Disclosure Schedule, the Company and the Company
Subsidiaries hold all permits, licenses or authorizations required under
applicable Environmental Laws ("Environmental Permits" ) or have submitted on a
timely basis complete applications for the renewal of any Environmental Permit
which has expired but has not yet been renewed.
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5.15 Employee Benefit Plans.
(a) Section 5.15 of the Company Disclosure Schedule sets forth a list of
every Company Benefit Plan (as hereinafter defined) that is maintained by the
Company or an Affiliate (as hereinafter defined) on the date hereof.
(b) Each Company Benefit Plan which has been intended to qualify under
Section 401(a) of the Code has received a favorable determination or approval
letter from the Internal Revenue Service (the "IRS") regarding its qualification
under such section and neither the Company nor any Affiliate knows that any such
Company Benefit Plan has been maintained in a manner that would preclude
qualified status.
(c) Except as set forth in Section 5.15 of the Company Disclosure Schedule,
neither the Company nor any Affiliate knows of any failure of any party to
comply with any laws applicable with respect to the Company Benefit Plans. With
respect to any Company Benefit Plan, there has been no (i) "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Code Section 4975, for which an
exemption is not available or (ii) material failure to comply with any provision
of ERISA, other applicable law, or any agreement, which, in either case, would
subject the Company or any Affiliate to liability (including, without
limitation, through any obligation of indemnification or contribution) for any
damages, penalties, or taxes, or any other material loss or expense. No
litigation or governmental administrative proceeding (or investigation) or other
proceeding (other than those relating to routine claims for benefits) is pending
or, to the Company's knowledge, threatened with respect to any such Company
Benefit Plan.
(d) Neither the Company nor any Affiliate has incurred any liability under
title IV of ERISA which has not been paid in full as of the date of this
Agreement. There has been no "accumulated funding deficiency" (whether or not
waived) with respect to any employee pension benefit plan ever maintained by the
Company or any Affiliate and subject to Code Section 412 or ERISA Section 302.
With respect to any Company Benefit Plan maintained by the Company or any
Affiliate and subject to Title IV of ERISA, there has been no (nor will there be
any as a result of the Transactions) (i) "reportable event," within the meaning
of ERISA Section 4043 or the regulations thereunder, for which the notice
requirement is not waived by the regulations thereunder, and (ii) event or
condition which presents a material risk of a plan termination or any other
event that may cause the Company or any Affiliate to incur liability or have a
lien imposed on its assets under Title IV of ERISA. Neither the Company nor any
Affiliate has ever maintained a Multiemployer Plan (as hereinafter defined).
(e) With respect to each Company Benefit Plan, complete and correct copies
of the following documents (if applicable to such Company Benefit Plan) have
previously been delivered to MergerCo or its representatives: (i) all documents
embodying or governing such Company Benefit Plan, and any funding medium for
such Company Benefit Plan (including, without limitation, trust agreements) as
they may have been amended to the date hereof; (ii) the most recent IRS
determination or approval letter with respect to such Company Benefit Plan under
Code Section 401(a), and any applications for determination or approval
subsequently filed with the IRS; (iii) the three most recently filed IRS Forms
5500, with all applicable schedules and accountants' opinions attached thereto;
(iv) the current summary plan description for such Company Benefit Plan (or
other descriptions of such Company Benefit Plan provided to employees) and all
modifications thereto; and (v) any insurance policy (including any fiduciary
liability insurance policy or fidelity bond) related to such Company Benefit
Plan.
(f) With respect to each group health plan benefitting any current or
former employee of the Company or any Affiliate that is subject to Section 4980B
of the Code, or was subject to Section 162(k) of the Code, the Company and each
Affiliate have complied in all material respects with (i) the continuation
coverage requirements of Section 4980B of the Code and Section 162(k) of the
Code, as applicable, and Part 6 of Subtitle B of Title I of ERISA and (ii) the
Health Insurance Portability and Accountability Act of 1996, as amended.
(g) With respect to any insurance policy providing funding for benefits
under any Company Benefit Plan, (i) there is no liability of the Company or any
Affiliate in the nature of a retroactive rate adjustment,
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loss sharing arrangement, or other actual or contingent liability, nor would
there be any such liability if such insurance policy was terminated on the date
hereof, and (ii) to the knowledge of the Company, no insurance company issuing
any such policy is in receivership, conservatorship, liquidation or similar
proceeding and no such proceedings with respect to any insurer are imminent.
(h) Except as set forth in Section 5.15 of the Company Disclosure Schedule,
no Company Benefit Plan provides benefits, including, without limitation, death
or medical benefits, beyond termination of service or retirement other than (i)
coverage mandated by law, (ii) death or retirement benefits under any qualified
Company Benefit Plan, or (iii) deferred compensation benefits reflected on the
books of the Company or an Affiliate.
(i) Except as set forth in Section 5.15 of the Company Disclosure Schedule,
the execution and performance of this Agreement will not (i) constitute a stated
triggering event under any Company Benefit Plan that will result in any payment
(whether of severance pay or otherwise) becoming due from the Company or any
Affiliate to any officer, employee, or former employee (or dependents of such
employee), or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due to any employee, officer or director of the Company
or any Affiliate.
(j) Except as set forth in Section 5.15 of the Company Disclosure Schedule,
(i) any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the Company or any Affiliate
who is a "disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Company Benefit Plan currently in
effect would not be characterized as an "excess parachute payment" (as such term
is defined in Section 280G(b)(1) of the Code), and (ii) the disallowance of a
deduction under Section 162(m) of the Code for employee remuneration will not
apply to any amount paid or payable by the Company or any Affiliate under any
contract, Company Benefit Plan, program, arrangement or understanding currently
in effect.
(k) For purposes of this Section:
(i) "Company Benefit Plan" means (A) all employee benefit plans within
the meaning of ERISA Section 3(3) maintained by the Company or any
Affiliate, including, but not limited to, multiple employer welfare
arrangements (within the meaning of ERISA Section 3(40)), plans to which
more than one unaffiliated employer contributes and employee benefit plans
(such as foreign or excess benefit plans) which are not subject to ERISA;
(B) all stock option plans, stock purchase plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation
agreements, supplemental income arrangements, vacation plans, and all other
employee benefit plans, agreements, and arrangements not described in (A)
above maintained by the Company or any Affiliate, including without
limitation, any arrangement intended to comply with Code Section 120, 125,
127, 129 or 137; and (C) all plans or arrangements providing compensation
to employee and non-employee directors maintained by the Company or any
Affiliate. In the case of a Company Benefit Plan funded through a trust
described in Code Section 401(a), or any other funding vehicle, each
reference to such Company Benefit Plan shall include a reference to such
trust, organization or other vehicle;
(ii) An entity "maintains" a Company Benefit Plan if such entity
sponsors, contributes to, or provides benefits under or through such
Company Benefit Plan, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under or through such
Company Benefit Plan, or if such Company Benefit Plan provides benefits to
or otherwise covers employees of such entity (or their spouses, dependents,
or beneficiaries);
(iii) An entity is an "Affiliate" of the Company for purposes of this
Section 5.15 if it would have ever been considered a single employer with
the Company under ERISA Section 4001(b) or part of the same "controlled
group" as the Company for purposes of ERISA Section 302(d)(8)(C); and
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(iv) "Multiemployer Plan" means an employee pension or welfare benefit
plan to which more than one unaffiliated employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
5.16 Labor Matters. Except as set forth in Section 5.16 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary is a party
to, or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor union organization. There
is no unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of the Company, threatened against the Company or any of the Company
Subsidiaries relating to their business, except for any such proceeding which
would not reasonably be expected to have a Company Material Adverse Effect. To
the Company's knowledge there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of the Company or any of the Company Subsidiaries.
5.17 No Brokers. Neither the Company nor any of the Company Subsidiaries
has entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or MergerCo to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the Transactions, except that the Company has retained The Beacon Group Capital
Services, L.L.C. ("Beacon Group") as its financial advisor in connection with
the Transactions, a true copy of any and all agreements between the Company and
Beacon Group, including the engagement letter entered into between the Company
and Beacon Group, have been delivered to MergerCo. Other than the foregoing
arrangements, the Company is not aware of any claim for payment of any finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or consummation of the Transactions.
5.18 Opinion of Financial Advisors. The Company has received the opinion of
Beacon Group to the effect that, as of the date hereof, the Merger Consideration
is fair to the holders of the Common Stock from a financial point of view.
5.19 Year 2000. There is no impediment to the Company being year 2000
compliant by December 31, 1999 (i.e., that products, hardware, software and
other date-sensitive equipment manufactured, sold, owned, licensed or used by
the Company will be capable of correctly processing date data (including, but
not limited to, calculating, comparing and sequencing) accurately prior to,
during and after the calendar year 2000 when used, assuming that all third party
products, hardware, software and other date-sensitive equipment used in
combination therewith are capable of properly exchanging date data), except to
the extent that any such impediment would not have a Company Material Adverse
Effect.
5.20 Insurance. The Company and the Company Subsidiaries are covered by
insurance in scope and amount customary and reasonable for the businesses in
which they are engaged. Except as disclosed in Section 5.20 of the Disclosure
Schedule, each insurance policy to which the Company or any of the Company
Subsidiaries is a party is in full force and effect and will not require any
consent as a result of the consummation of the Transactions. Neither the Company
nor any of the Company Subsidiaries is in material breach or default (including
with respect to the payment of premiums or the giving of notices) under any
insurance policy to which it is a party, and no event has occurred which, with
notice or the lapse of time, would constitute such a material breach or default
by the Company or any of the Company Subsidiaries or would permit termination,
modification or acceleration, under such policies; and the Company has not
received any notice from the insurer disclaiming coverage or reserving rights
with respect to any material claim or any such policy in general.
5.21 Contracts. Neither the Company nor any of the Company Subsidiaries is
in breach, nor has the Company or any Company Subsidiary received in writing any
claim that it has breached, any of the terms or conditions of any material
agreement, contract or commitment (excluding leases) to which it is a party or
by which any of its assets and properties are bound (collectively, "Material
Contracts") in such a manner as would permit any other party to cancel or
terminate the same prior to its stated term or would permit any other party to
collect material damages from the Company under any such Material Contract.
Neither the Company nor any of the Company Subsidiaries is in breach, nor has
the Company or any Company
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Subsidiary received in writing any claim that it has breached, any of the terms
or conditions of any lease to which it is a party and which is material to the
business of the Company and the Company Subsidiaries taken as a whole
(collectively, "Material Leases"), in such a manner as would permit any other
party to cancel or terminate the same prior to its stated term or would permit
any other party to collect material damages from the Company under any such
Material Lease. Each Material Contract and Material Lease is in full force and
effect and to the Company's knowledge is not subject to any material default
thereunder by any party obligated to the Company or any of the Company
Subsidiaries thereunder. The Company is not a party to any "poison pill,"
shareholder rights plan, rights agreement or similar agreement, instrument, plan
or arrangement.
5.22 Takeover Laws. No "fair price," "moratorium," "control share
acquisition" or other similar anti-takeover statute or regulation enacted under
state or federal laws in the United States including, without limitation,
Chapter 110F of the MGL, applicable to the Company or any of the Company
Subsidiaries is applicable to the execution, delivery and performance of this
Agreement or the consummation of the Merger or the other Transactions.
5.23 Vote Required. The affirmative vote of the holders of two-thirds of
the outstanding shares of Common Stock entitled to vote thereon is the only vote
of any class of capital stock of the Company required by the MBCL, the Articles
of Organization or the Bylaws to adopt this Agreement and approve the
Transactions.
5.24 Definition of the Company's Knowledge. As used in this Agreement, the
phrase "to the knowledge of the Company" or any similar phrase means the actual
(and not the constructive or imputed) knowledge (following a reasonable inquiry)
of those individuals identified in Section 5.24 of the Company Disclosure
Schedule.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 Conduct of Business by the Company. During the period from the date of
this Agreement to the Effective Time, except as otherwise contemplated by this
Agreement, the Company shall, and shall cause each of the Company Subsidiaries
to, carry on their respective businesses in the usual, regular and ordinary
course, consistent with past practice, and use their best efforts to preserve
intact their present business organizations, keep available the services of
their present advisors, managers, officers and employees and preserve their
relationships with customers, suppliers, licensors and others having business
dealings with them and continue existing contracts as in effect on the date
hereof (for the term provided in such contracts). Without limiting the
generality of the foregoing, neither the Company nor any of the Company
Subsidiaries will (except as expressly permitted by this Agreement or as
contemplated by the Transactions or to the extent that Parent or MergerCo shall
otherwise consent in writing):
(a) (i) declare, set aside or pay any dividend or other distribution
(whether in cash, stock, property or any combination thereof) in respect of
any of its capital stock, (ii) split, combine or reclassify any of its
capital stock or (iii) repurchase, redeem or otherwise acquire any of its
securities, except, in the case of clause (iii), for (X) the acquisition of
shares of Common Stock from holders of Options in full or partial payment
of the exercise price payable by such holders upon exercise of Options
outstanding on the date of this Agreement and (Y) the acquisition of shares
of Common Stock from the stockholders of the Company set forth in Section
6.1(a) of the Company Disclosure Schedule (collectively, the "Rollover
Stockholders") upon the exchange of such shares for shares of Series B
Stock in connection with the Transactions;
(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 (including
indebtedness having the right to vote) or equity equivalents (including,
without limitation, stock appreciation rights), other than (X) the issuance
of shares of Common Stock upon the exercise of Options outstanding on the
date of this
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Agreement in accordance with their present terms and (Y) the issuance of
the Series B Stock to the Rollover Stockholders in exchange for shares of
Common Stock in connection with the Transactions;
(c) acquire, sell, lease, encumber, transfer or dispose of any assets
outside the ordinary course of business (whether by asset acquisition,
stock acquisition or otherwise), except as set forth in Section 6.1(c) of
the Company Disclosure Schedule;
(d) make any loans, advances or capital contributions other than in
the ordinary course of business consistent with prior practice;
(e) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than any payment, discharge or satisfaction (i) in the ordinary course of
business consistent with past practice, or (ii) in connection with the
Transactions;
(f) change any of the accounting principles or practices used by it
(except as required by generally accepted accounting principles, in which
case written notice shall be provided to MergerCo prior to any such
change);
(g) except as required by law, (i) enter into, adopt, amend or
terminate any Company Benefit Plan, (ii) enter into, adopt, amend or
terminate any agreement, arrangement, plan or policy between the Company or
any of the Company Subsidiaries (other than terminations of agreements,
arrangements, plans or policies in accordance with the terms thereof
existing on the date of this Agreement) and one or more of their directors
or officers, or (iii) increase in any manner the compensation or fringe
benefits of any director of the Company or the compensation or fringe
benefits of any officer of the Company or any Company Subsidiary set forth
in Section 6.1(g) of the Company Disclosure Schedule, or, except for normal
increases in the ordinary course of business consistent with past practice,
any employee of the Company or any Company Subsidiary, or pay any benefit
not required by any Company Benefit Plan or arrangement as in effect as of
the date hereof;
(h) adopt any amendments to the Articles of Organization or Bylaws,
other than (X) to authorize the shares of Series B Stock to be issued to
the Rollover Stockholders and to establish the rights, preferences and
designations thereof (such rights, preferences and designations of such
Series B Stock shall be as set forth in Section 6.1(h) of the Company
Disclosure Schedule) and (Y) as otherwise expressly provided by the terms
of this Agreement;
(i) except as set forth in Section 5.1 of the Company Disclosure
Schedule, adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(j) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement);
(k) waive, release or amend its rights under any confidentiality,
"standstill" or similar agreement that the Company entered into in
connection with its consideration of a potential strategic transaction;
provided, however, that the Company may waive, release or amend its rights
under any such confidentiality, "standstill" or similar agreement if the
Company Board determines based on the advice of independent legal counsel
that failure to do so would be reasonably likely to constitute a breach of
its fiduciary duties to the Company's stockholders under applicable law; or
(l) enter into an agreement to take any of the foregoing actions.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Stockholders Meeting.
(a) The Company, acting through the Company 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 execution of this Agreement for the purpose of considering and taking
action upon this Agreement and the Transactions (it being understood that
the date of the Special Meeting shall be reasonably acceptable to Parent);
(ii) as promptly as practicable (but in no event later than
twenty-five (25) days following the date of this Agreement) prepare and
file with the SEC a preliminary proxy statement relating to this Agreement
and the Transactions;
(iii) use its reasonable efforts to (A) obtain and furnish the
information required to be included by the SEC in a definitive proxy
statement (the "Proxy Statement") and, after consultation with MergerCo, to
respond promptly to any comments made by the SEC with respect to the
preliminary proxy statement and cause the Proxy Statement to be mailed to
its stockholders not later than five (5) business days following clearance
from the SEC, and (B) obtain the necessary approval of this Agreement and
the Transactions by its stockholders; and
(iv) subject to the fiduciary duties of the Company Board as provided
in Section 7.5, include in the Proxy Statement the recommendation of the
Company Board that stockholders of the Company vote in favor of the
approval of this Agreement and the Transactions.
(b) Each of the Company, on the one hand, and Parent and MergerCo, on the
other hand, agree promptly to correct any information provided by either of them
for use in the Proxy Statement if and to the extent that such information shall
have become false or misleading, and the Company further agrees to take all
necessary steps to cause the Proxy Statement as so corrected to be filed with
the SEC and to be disseminated to the stockholders of the Company, in each case,
as to the extent required by applicable federal securities laws.
(c) As soon as practicable following the date of this Agreement, the
Company and MergerCo shall together prepare and file with the SEC a Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"). The Company and
MergerCo shall use all reasonable best efforts to have the Schedule 13E-3
cleared by the SEC as soon as practicable following such filing. Each of the
Company, Parent and MergerCo shall furnish all information about itself, its
business and operations and its owners and all financial information to Parent
and MergerCo as may be reasonably necessary in connection with the preparation
of the Schedule 13E-3. Each of the Company, Parent and MergerCo agrees promptly
to correct any information provided by it for use in the Schedule 13E-3 if and
to the extent that such information shall have become false or misleading in any
material respect. Each of the Company and MergerCo shall notify the other of the
receipt of any comments of the SEC with respect to the Schedule 13E-3. Each of
the Company and MergerCo shall give the other and its counsel the opportunity to
review Schedule 13E-3 prior to its being filed with the SEC and shall give the
other and its counsel the opportunity to review all amendments and supplements
to the Schedule 13E-3 and all responses to requests for additional information
and replies to comments prior to their being filed with, or sent to, the SEC.
(d) None of the information supplied by the Company specifically for
inclusion or incorporation by reference in (i) the Proxy Statement, (ii) the
Schedule 13E-3 or (iii) the Other Filings (as hereinafter defined), will, at the
respective times filed with the SEC or other Governmental Entity and, in
addition, in the case of the Proxy Statement and the Schedule 13E-3, as of the
date it or any amendment or supplement thereto is mailed to stockholders and at
the time of any meeting of stockholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement and the Schedule 13E-3, insofar as they relate
to the
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Company or other information supplied by the Company for inclusion therein, will
comply as to form in all material respects with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder. The Company makes no
representation, warranty or covenant with respect to information concerning
Parent or MergerCo included in the Proxy Statement or the Schedule 13E-3 or
information supplied by Parent or MergerCo for inclusion in the Proxy Statement
or the Schedule 13E-3.
(e) None of the information supplied by Parent or MergerCo specifically for
inclusion or incorporation by reference in (i) the Proxy Statement, (ii) the
Schedule 13E-3 or (iii) the Other Filings, will, at the respective times filed
with the SEC or other Governmental Entity and, in addition, in the case of the
Proxy Statement and the Schedule 13E-3, as of the date it or any amendment or
supplement thereto is mailed to stockholders and at the time of any meeting of
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
and the Schedule 13E-3, insofar as they relate to Parent or MergerCo or other
information supplied by Parent or MergerCo for inclusion therein, will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations promulgated thereunder.
7.2 Other Filings. As promptly as practicable (but in no event later than
thirty (30) days following the date of this Agreement in the case of any filing
under the HSR Act), the Company, Parent and MergerCo each shall properly prepare
and file any other filings required under the Exchange Act or any other federal,
state or foreign law relating to the Merger and the Transactions (including
filings, if any, required under the HSR Act) (collectively, the "Other
Filings"). Each of the Company, MergerCo and Parent shall promptly notify the
other of the receipt of any comments on, or any request for amendments or
supplements to, any of the Other Filings by the SEC or any other Governmental
Entity or official, and each of the Company, Parent and MergerCo shall supply
the other with copies of all correspondence between it and each of its
Subsidiaries and representatives, on the one hand, and the SEC or the members of
its staff or any other appropriate governmental official, on the other hand,
with respect to any of the Other Filings. The Company, Parent and MergerCo each
shall use its respective reasonable best efforts to obtain and furnish the
information required to be included in any of the Other Filings. Parent and
MergerCo hereby covenant and agree to use their respective reasonable best
efforts to secure termination of any waiting periods under the HSR Act and
obtain the approval of the Federal Trade Commission (the "FTC") or any other
Governmental Entity for the Transactions, including without limitation, promptly
entering into a consent decree or other arrangement with the FTC or other
Governmental Entity as may be necessary to secure termination of such waiting
periods or obtain such other approval. Parent and MergerCo shall make any
undertakings (including undertakings to make divestitures) required in order to
comply with the antitrust requirements or laws of any Governmental Entity,
including the HSR Act, in connection with the Transactions.
7.3 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the Transactions and to cooperate with each other in
connection with the foregoing, including the taking of such actions as are
necessary to obtain any necessary consents, approvals, orders, exemptions and
authorizations by or from any public or private third party, including without
limitation any that are required to be obtained under any federal, state or
local law or regulation or any contract, agreement or instrument to which the
Company or any Company Subsidiary is a party or by which any of their respective
properties or assets are bound, to defend all lawsuits or other legal
proceedings challenging this Agreement or the consummation of the Transactions,
to cause to be lifted or rescinded any injunction or restraining order or other
order adversely affecting the ability of the parties to consummate the
Transactions, and to effect all necessary registrations and Other Filings,
including, but not limited to, filings under the HSR Act, if any, and
submissions of information requested by governmental authorities. For purposes
of the foregoing sentence, the obligation of the Company, Parent and MergerCo to
use their "reasonable best efforts" to obtain waivers, consents and approvals to
loan agreements, leases and other contracts shall not include any obligation to
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agree to an adverse modification of the terms of such documents or to prepay or
incur additional obligations to such other parties.
7.4 Fees and Expenses. Except as set forth in Section 9.2 hereof, whether
or not the Merger is consummated, all fees, costs and expenses incurred in
connection with this Agreement and the Transactions shall be paid by the party
incurring such costs or expenses.
7.5 No Solicitations.
(a) The Company represents and warrants that it has terminated any
discussions or negotiations relating to, or that may be reasonably be expected
to lead to, any Acquisition Proposal (as hereinafter defined) and will promptly
request the return of all confidential information regarding the Company
provided to any third party prior to the date of this Agreement pursuant to the
terms of any confidentiality agreements. Except as permitted by this Agreement,
the Company shall not, and shall not authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it to, directly or indirectly,
(i) solicit, initiate or encourage (including by way of furnishing non-public
information), or take any other action to facilitate, any inquiries or the
making of any proposal that constitutes an Acquisition Proposal, or (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal; provided, however, that, at any time prior to the approval of this
Agreement by the stockholders of the Company, if the Company receives an
Acquisition Proposal that was unsolicited or that did not otherwise result from
a breach of this Section 7.5(a), the Company may furnish non-public information
with respect to the Company and the Company Subsidiaries to the person who made
such Acquisition Proposal (a "Third Party") and may participate in negotiations
regarding such Acquisition Proposal if (A) the Company Board determines based on
the advice of independent legal counsel that failure to do so would be
reasonably likely to constitute a breach of its fiduciary duties to the
Company's stockholders under applicable law, and (B) the Company Board
determines that such Acquisition Proposal is reasonably likely to lead to a
Superior Proposal (as hereinafter defined). Notwithstanding the foregoing, the
Company shall, prior to furnishing non-public information with respect to the
Company and the Company Subsidiaries to such Third Party, enter into a
confidentiality agreement with such Third Party with terms no less favorable to
the Company than those contained in the Confidentiality Agreement, provided that
such confidentiality agreement need not include the same standstill provisions
as those contained in the Confidentiality Agreement, it being understood that if
there are no standstill provisions in such confidentiality agreement or if such
provisions are more favorable to such Third Party than those in the
Confidentiality Agreement, the Confidentiality Agreement shall be deemed amended
to exclude the existing standstill provision or include such more favorable
provisions, as the case may be. The Company shall promptly notify (but in any
event within two (2) calendar days) MergerCo of the Company's first receipt of a
written Acquisition Proposal by such Third Party and of the material terms and
conditions thereof. Notwithstanding anything to the contrary in this Agreement,
the Company shall not be required to disclose to Parent or MergerCo the identity
of the Third Party making any such Acquisition Proposal and, except as provided
in Section 9.1(c)(i), shall have no duty to notify or update Parent or MergerCo
on the status of discussions or negotiations (including the status of such
Acquisition Proposal or any amendments or proposed amendments thereto) between
the Company and such Third Party.
(b) Subject to Section 9.1(d)(ii) hereof, at any time prior to the approval
of this Agreement by the stockholders of the Company, the Company Board may (i)
withdraw or modify in a manner material and adverse to Parent or MergerCo its
approval or recommendation of this Agreement or the Merger, (ii) approve or
recommend an Acquisition Proposal to its stockholders or (iii) cause the Company
to enter into any definitive acquisition agreement with respect to an
Acquisition Proposal, in each such case if (A) the Company Board determines
based on the advice of independent legal counsel that failure to take such
action would be reasonably likely to constitute a breach of its fiduciary duties
to the Company's stockholders under applicable law, and (B) the Company Board
determines based on the advice of its financial advisors that such Acquisition
Proposal constitutes a Superior Proposal. Any such withdrawal, modification or
change of the recommendation of the Company Board of this Agreement shall not
change the approval of the Company Board of this Agreement for purposes of
causing any state takeover statute or other state law to be inapplicable to the
Transactions, including the Merger.
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(c) Nothing contained in this Section 7.5 shall prohibit the Company from
at any time taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2 promulgated under the Exchange Act or making any
disclosure required by Rule 14a-9 promulgated under the Exchange Act.
(d) As used in this Agreement, the term "Acquisition Proposal" shall mean
any proposed or actual (i) merger, consolidation or similar transaction
involving the Company, (ii) sale, lease or other disposition, directly or
indirectly, by merger, consolidation, share exchange or otherwise, of any assets
of the Company or the Company Subsidiaries representing 15% or more of the
consolidated assets of the Company and the Company Subsidiaries, (iii) issue,
sale or other disposition by the Company of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into, such
securities) representing 15% or more of the votes associated with the
outstanding securities of the Company, (iv) tender offer or exchange offer in
which any person shall acquire beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act), or the right to acquire beneficial
ownership, or any "group" (as such term is defined under the Exchange Act) shall
have been formed which beneficially owns or has the right to acquire beneficial
ownership of, 15% or more of the outstanding shares of Common Stock, (v)
recapitalization, restructuring, liquidation, dissolution, or other similar type
of transaction with respect to the Company or (vi) transaction which is similar
in form, substance or purpose to any of the foregoing transactions; provided,
however, that the term "Acquisition Proposal" shall not include the Merger and
the Transactions.
(e) As used in this Agreement, the term "Superior Proposal" means an
Acquisition Proposal that the Company Board determines based on the advice of
its financial advisors is more favorable to the stockholders of the Company from
a financial point of view than the Transactions (taking into account all of the
terms and conditions of such Acquisition Proposal, including any conditions to
consummation and the likelihood of such Acquisition Proposal being consummated).
7.6 Officers' and Directors' Indemnification.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date hereof, or who becomes prior to the Effective Time, a director,
officer, employee, fiduciary or agent of the Company or any of the Company
Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director, officer, employee,
fiduciary or agent of the Company or any of the Company Subsidiaries, or is or
was serving at the request of the Company or any of the Company Subsidiaries as
a director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (ii) the negotiation,
execution or performance of this Agreement or any of the Transactions, whether
in any case asserted or arising before or after the Effective Time, the parties
hereto agree to cooperate and use their reasonable best efforts to defend
against and respond thereto. It is understood and agreed that the Company shall
indemnify and hold harmless, and after the Effective Time the Surviving
Corporation shall indemnify and hold harmless, as and to the full extent
permitted by applicable law, each Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorneys' fees and
expenses), judgments, fines and amounts paid in settlement in connection with
any such threatened or actual claim, action, suit, proceeding or investigation,
and in the event of any such threatened or actual claim, action, suit,
proceeding or investigation (whether asserted or arising before or after the
Effective Time), (A) the Company, and the Surviving Corporation after the
Effective Time, shall promptly pay expenses in advance of the final disposition
of any claim, suit, proceeding or investigation to each Indemnified Party to the
full extent permitted by law, (B) the Indemnified Parties may retain counsel
satisfactory to them, and the Company and the Surviving Corporation, shall pay
all fees and expenses of such counsel for the Indemnified Parties within thirty
days after statements therefor are received, and (C) the Company and the
Surviving Corporation will use their respective reasonable best efforts to
assist in the vigorous defense of any such matter; provided, however, that
neither the Company nor the Surviving Corporation shall be liable for any
settlement effected without its prior written consent (which consent shall not
be unreasonably withheld); and provided further, however, that the Surviving
Corporation shall have no obligation hereunder to any Indemnified Party when
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and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that indemnification
of such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim indemnification under
this Section 7.6, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Company and, after the Effective Time, the
Surviving Corporation, thereof, provided that the failure to so notify shall not
affect the obligations of the Company and the Surviving Corporation except to
the extent such failure to notify materially prejudices such party.
(b) Parent and MergerCo agree that all rights to indemnification existing in
favor of, and all limitations on the personal liability of, the directors,
officers, employees and agents of the Company and the Company Subsidiaries
provided for in the Articles of Organization or Bylaws as in effect as of the
date hereof with respect to matters occurring prior to the Effective Time, and
including the Merger and the Transactions, shall continue in full force and
effect for a period of six (6) years from the Effective Time; provided, however,
that all rights to indemnification in respect of any claims (each a "Claim")
asserted or made within such period shall continue until the disposition of such
Claim. Prior to the Effective Time, the Company shall purchase an extended
reporting period endorsement ("Reporting Tail Coverage") under the Company's
existing directors' and officers' liability insurance coverage for the Company's
directors and officers in a form acceptable to the Company which shall provide
such directors and officers with coverage for six (6) years following the
Effective Time of not less than the existing coverage under, and have other
terms not materially less favorable to, the insured persons than the directors'
and officers' liability insurance coverage presently maintained by the Company;
provided, however, than in any event the total aggregate cost of such Reporting
Tail Coverage shall not exceed $175,000 (the "Maximum Amount"); and provided,
further, that if such coverage cannot be obtained for such cost, the Company
will maintain, for such six-year period, the maximum amount of comparable
coverage as shall be available for the Maximum Amount on such terms.
(c) This Section 7.6 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties and shall be binding on all
successors and assigns of Parent, MergerCo, the Company and the Surviving
Corporation. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 7.6.
(d) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any person or entity, then, and in each such case,
proper provision shall be made so that the successors and assigns of the
Surviving Corporation assume the obligations set forth in this Section 7.6.
7.7 Access to Information; Confidentiality. From the date hereof until the
Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries and each of the Company's and Company Subsidiaries' officers,
employees, customers, suppliers, lenders and agents to, afford to MergerCo and
to the officers, employees and agents of MergerCo complete access at all
reasonable times to such officers, employees, agents, properties, books, records
and contracts, and shall furnish MergerCo such financial, operating and other
data and information as MergerCo may reasonably request. Prior to the Effective
Time, Parent and MergerCo shall hold in confidence all such information on the
terms and subject to the conditions contained in that certain confidentiality
agreement between Parent and the Company dated October 30, 1998 (the
"Confidentiality Agreement"). The Company hereby waives the provisions of the
Confidentiality Agreement as and to the extent necessary to permit the making
and consummation of the Transactions. At the Effective Time, such
Confidentiality Agreement shall terminate. Each party shall give prompt written
notice to the other of any fact, event or circumstance known to it that would be
reasonably likely to cause or constitute a material breach of any of its
representations or warranties contained herein or a Company Material Adverse
Effect or Parent Material Adverse Effect, as applicable.
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7.8 Financial and Other Statements. Notwithstanding anything contained in
Section 7.7, during the term of this Agreement, the Company shall also provide
to MergerCo or its representatives the following documents and information:
(a) As soon as reasonably available after filing with the SEC, the
Company will deliver to MergerCo or its representatives the Company's
Quarterly Report on Form 10-Q as filed under the Exchange Act for each
fiscal quarter ending after the date of this Agreement. As soon as
reasonably available after filing with the SEC, the Company will deliver to
MergerCo or its representatives the Company's Annual Report on Form 10-K,
as filed under the Exchange Act for each fiscal year ending after the date
of this Agreement. The Company will also deliver to MergerCo or its
representatives, contemporaneously with its being filed with the SEC, a
copy of each Current Report on Form 8-K. As soon as reasonably available,
the Company will deliver to MergerCo or its representatives copies of
financial reports for each calendar month ending after the date of this
Agreement prepared by the Company's management in the ordinary course of
business.
(b) Promptly upon receipt thereof, the Company will furnish to
MergerCo or its representatives copies of all internal control reports
submitted to the Company or any Company Subsidiary by independent
accountants in connection with each annual, interim or special audit of the
books of the Company or any such Company Subsidiary made by such
accountants.
(c) As soon as practicable, the Company will furnish to MergerCo or
its representatives copies of all such financial statements and reports as
the Company or any Company Subsidiary shall send to its stockholders, the
SEC or any other regulatory authority, to the extent any such reports
furnished to any such regulatory authority are not confidential and except
as legally prohibited thereby.
7.9 Public Announcements. The Company and MergerCo shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or any of the Transactions and shall not issue
any such press release or make any such public statement without the prior
consent of the other party, which consent shall not be unreasonably withheld;
provided, however, that a party may, without the prior consent of the other
party, issue such press release or make such public statement as may be required
by law or the applicable rules of any stock exchange if it has used its best
efforts to consult with the other party and to obtain such party's consent but
has been unable to do so in a timely manner. In this regard, the parties shall
make a joint public announcement of the Transactions contemplated thereby no
later than (i) the close of trading on the American Stock Exchange on the day
this Agreement is signed, if such signing occurs during a business day or (ii)
the opening of trading on the American Stock Exchange on the business day
following the date on which this Agreement is signed, if such signing does not
occur during a business day.
7.10 Employee Benefit Arrangements. Section 7.10 of the Company Disclosure
Schedule sets forth each employment or severance agreement to which the Company
or any Company Subsidiary is presently a party. MergerCo agrees that the Company
will honor, and from and after the Effective Time, the Surviving Corporation
will honor, all obligations under such employment and severance agreements.
7.11 Required Financing. Each of Parent and MergerCo hereby agrees to use
its reasonable best efforts to arrange the financing in respect of the
Transactions and to satisfy the conditions set forth in the Financing Letters.
Parent and MergerCo shall keep the Company informed of the status of their
financing arrangements for the Transactions, including providing written
notification to the Company as promptly as possible (but in any event within
forty-eight (48) hours) with respect to (i) any indication that either of the
Lenders may be unable to provide the financing as contemplated by the Financing
Letters, including without limitation, any indication from either of the Lenders
that there has occurred a material disruption or material adverse change in the
banking, financial or capital markets generally or in the market for senior
credit facilities or for new issuances of high yield securities which has caused
or could cause such Lender to withdraw its commitment to provide financing as
contemplated by the Financing Letters, (ii) the ability of Parent or MergerCo to
satisfy any of the conditions set forth in the Financing Letters, and (iii) any
adverse developments relating to the financing contemplated by the Financing
Letters. Parent shall provide written notice to the Company within twenty-four
(24) hours if either of the Lenders has indicated to Parent or MergerCo that
such Lender
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will be unable to provide the financing contemplated by the applicable Financing
Letter (a "Parent Financing Notice"). In the event Parent and MergerCo are
unable to arrange any portion of such financing in the manner or from the
sources contemplated by the Financing Letters, Parent and MergerCo shall arrange
(or, in the event that such inability to arrange financing arises under the
circumstances contemplated by Section 8.2(f) hereof, use its reasonable best
efforts to arrange) any such portion from alternative sources on substantially
the same terms and with substantially the same conditions as the portion of the
financing that Parent and MergerCo were unable to arrange. The Company shall use
its reasonable best efforts to assist Parent and MergerCo in obtaining their
financing; provided, however, that the obligation of the Company to use its
reasonable best efforts in connection with the foregoing shall only apply to
reasonable and customary activities in this regard and shall not include any
obligation to obtain any extraordinary waivers, consents or approvals to loan
agreements, leases or other contracts or to agree to an adverse modification of
the terms of any of such documents, to prepay or incur additional obligations to
any other parties or to incur or become liable for any other costs or expenses.
7.12 Recapitalization Accounting Treatment. Each of the Company, Parent and
MergerCo shall use its reasonable best efforts to cause the Transactions,
including the Merger, to be accounted for as a recapitalization and such
accounting treatment to be accepted by their respective accountants and by the
SEC, and each of the Company, Parent and MergerCo agrees that it shall not take
or omit to take any action that would cause such accounting treatment not to be
obtained.
7.13 Delisting. Each of the parties hereto agrees to cooperate with each
other in taking, or causing to be taken, all actions necessary to delist the
Common Stock from the American Stock Exchange, provided that such delisting
shall not be effective until after the Effective Time of the Merger.
7.14 Exchange of Common Stock. Not later than the Effective Time, the
Company shall (i) designate 75,000 shares of Preferred Stock of the Company as
the Series B Stock and (ii) take all such actions as may be necessary to
exchange each share of Common Stock held by the Rollover Stockholders that is
set forth opposite their respective names in Section 6.1(a) of the Company
Disclosure Schedule for 0.2 shares of Series B Stock and complete such exchange,
in each case, pursuant to documentation reasonably acceptable in form and
substance to MergerCo. In effecting such exchange, all fractional shares of
Series B Stock otherwise issuable in connection therewith shall not be issued
but shall be rounded to the nearest number of whole shares of Series B Stock.
7.15 Solvency Letters. Parent or MergerCo shall engage an appraisal firm,
reasonably satisfactory to the Company, to deliver a letter (the "Solvency
Letter") addressed to the Company, the Company Board, MergerCo and the MergerCo
Board (and on which the Company Board and the MergerCo Board shall be entitled
to rely), which Solvency Letter shall be reasonably satisfactory to the Company
and the Company Board, indicating that immediately after the Effective Time, and
after giving effect to the Merger, the financings contemplated by this Agreement
and any other of the Transactions, the Surviving Corporation will not (i) be
insolvent or (ii) have unreasonably small capital with which to engage in its
business. Notwithstanding anything to the contrary in this Agreement, Parent
and/or MergerCo shall pay all fees, costs and expenses of such appraisal firm in
connection with the preparation and delivery of the Solvency Letter.
7.16 Purchase of Company Shares. The Company acknowledges that MergerCo may
acquire up to 9.9% of the outstanding shares of Common Stock prior to the
Effective Time in one or more privately negotiated transactions. In connection
with the foregoing, Parent and MergerCo hereby represent and warrant that they
are (a) aware that the United States securities laws prohibit any person who has
material, non-public information concerning a company from purchasing or selling
securities of such company or from communicating such information to any other
person under circumstances in which it is reasonably foreseeable that such
person is likely to purchase or sell such securities, and (b) familiar with the
Exchange Act and that they will not purchase or sell any shares of Common Stock
in contravention of the Exchange Act, including, without limitation, Rule 10b-5
thereunder. Each of Parent and MergerCo agrees that it shall indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
against any losses, claims, damages, liabilities, costs, expenses (including
reasonable attorneys' fees and expenses), judgments, fines and amounts paid in
settlement in connection with any threatened or actual claim, action,
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suit, proceeding or investigation, whether civil, criminal or administrative,
arising out of or relating to any transactions in the Common Stock contemplated
by the first sentence of this Section 7.16.
ARTICLE VIII
CONDITIONS TO THE MERGER
8.1 Conditions to the Obligations of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver, where permissible, at or prior to the Closing Date,
of each of the following conditions:
(a) Stockholder Approval. This Agreement and the Transactions,
including the Merger, shall have been approved and adopted by the
affirmative vote of the stockholders of the Company as required by the MBCL
and the Articles of Organization.
(b) Hart-Scott-Rodino Act. Any waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
(c) Other Regulatory Approvals. All necessary approvals,
authorizations and consents of any governmental or regulatory entity
required to consummate the Merger shall have been obtained and remain in
full force and effect, and all waiting periods relating to such approvals,
authorizations and consents shall have expired or been terminated.
(d) No Injunctions, Orders or Restraints; Illegality. No preliminary
or permanent injunction or other order, decree or ruling issued by a court
of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission (an "Injunction") nor any statute,
rule, regulation or executive order promulgated or enacted by any
governmental authority shall be in effect which would (i) make the
consummation of the Merger illegal, or (ii) otherwise restrict, prevent or
prohibit the consummation of any of the Transactions, including the Merger.
(e) Solvency Letter. Each of the Company Board and the MergerCo Board
shall have received the Solvency Letter.
8.2 Conditions to Obligations of MergerCo. The obligations of MergerCo to
effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. Those representations and
warranties of the Company set forth in this Agreement which are qualified
by materiality or a Company Material Adverse Effect or words of similar
effect shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to
the extent such representations and warranties expressly relate to a
specific date, in which case such representations and warranties shall be
true and correct as of such date), and those representations and warranties
of the Company set forth in this Agreement which are not so qualified shall
be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
expressly relate to a specific date, in which case such representations and
warranties shall be true and correct in all material respects as of such
date). Notwithstanding the foregoing, the representations and warranties of
the Company set forth in Section 5.3 shall be true and correct on the date
of this Agreement and as of the Closing Date as though made on and as of
the Closing Date (except to the extent such representations and warranties
expressly relate to a specific date, in which case such representations and
warranties shall be true and correct as of such date).
(b) Performance and Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement, including, without limitation, the covenants
contained in Articles 6 and 7 hereof.
(c) Consents, etc. Any consent, authorization, order or approval of
(or filing or registration with) any third party (i) identified on Section
8.2(c) of the Company Disclosure Schedule, or (ii) otherwise
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identified by MergerCo after the date of this Agreement shall have been
obtained or made, except, in the case of clause (ii) hereof, where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration, would not reasonably be expected to have
a Company Material Adverse Effect.
(d) No Injunction. There shall not have been entered any order in any
action or proceeding by any state or federal government or governmental
authority or by any United States or state court of competent jurisdiction
(a "Governmental Entity") which prohibits or limits the ownership or
operation by the Company (or any of the Company Subsidiaries) of any
portion of the Company's or the Company Subsidiaries' business, properties
or assets which is material to the Company and the Company Subsidiaries as
a whole, or compels the Company (or any Company Subsidiary) to dispose of
or hold separate any portion of the Company's or the Company Subsidiaries'
business, properties or assets which is material to the Company and the
Company Subsidiaries as a whole.
(e) No Company Material Adverse Change. There shall not have occurred
any material adverse change in the business, assets, condition (financial
or otherwise) or results of operations of the Company and the Company
Subsidiaries taken as a whole nor any event or other circumstance which
would, individually or in the aggregate, reasonably be expected to result
in any such material adverse change.
(f) No Financing Material Adverse Change. There shall not have
occurred any material disruption or material adverse change in the banking,
financial or capital markets generally or in the market for senior credit
facilities or for new issuances of high yield securities which has caused
either of the Lenders to withdraw its commitment to provide financing as
contemplated by the Financing Letters.
(g) Dissenting Shares. As of immediately prior to the Effective Time,
no more than 5% of the outstanding shares of Common Stock shall have taken
actions to assert dissenter's rights under Chapter 156B of the MBCL.
(h) Accounting Treatment. The Proxy Statement shall contain a
statement to the effect that the Merger shall be treated as a
recapitalization for accounting purposes and the SEC shall not have
disapproved such statement in the Proxy Statement.
(i) Governmental Litigation. There shall not be pending any action,
claim, proceeding or investigation instituted by any Governmental Entity
challenging or prohibiting the consummation of the Merger and the
Transactions.
(j) Exchange Complete. The exchange contemplated by Section 7.14
hereof shall have been completed to the reasonable satisfaction of
MergerCo.
(k) Indebtedness. On the Closing Date the Company shall have no more
than $13,000,000 of Net Indebtedness as reflected in a certificate signed
by the Chief Financial Officer of the Company in form and substance
reasonably satisfactory to MergerCo. For purposes of this Section 8.2(k),
"Net Indebtedness" shall mean all obligations of the Company and the
Company Subsidiaries for borrowed money (including the current portion
thereof) or evidenced by a bond, note, debenture or similar instrument,
including without limitation, all obligations arising under the credit
facility identified in Section 5.6 of the Company Disclosure Schedule,
minus all cash and cash equivalents of the Company and the Company
Subsidiaries. Furthermore, for purposes of determining the Company's Net
Indebtedness under this Section 8.2(k), (i) all checks deposited by the
Company on or prior to the Closing Date, even if such checks have not
"cleared" the bank or financial institution into which such checks were
deposited, shall be deemed to be an increase in "cash", and (ii) all checks
issued by the Company on or prior to the Closing Date, even if such checks
have not been "cashed" by the recipients thereof on or prior to the Closing
Date, shall be deemed to be a decrease in "cash." Notwithstanding the
foregoing, the term "Net Indebtedness" shall not include any obligations of
the Company or any Company Subsidiary under any letters of credit.
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(l) Officer's Certificate. The Company shall have furnished MergerCo
with a certificate dated as of the Closing Date signed on its behalf by an
executive officer to the effect that the conditions set forth in Sections
8.1 and 8.2 have been satisfied.
8.3 Conditions to Obligations of the Company. The obligation of the Company
to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. Those representations and
warranties of Parent and MergerCo set forth in this Agreement which are
qualified by materiality or a Parent Material Adverse Effect or words of
similar effect shall be true and correct as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date
(except to the extent such representations and warranties expressly relate
to a specific date, in which case such representations shall be true and
correct as of such date), and those representations and warranties of
Parent and MergerCo set forth in this Agreement which are not so qualified
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on the Closing Date
(except to the extent such representations and warranties expressly relate
to a specific date, in which case such representations and warranties shall
be true and correct in all material respects as of such date).
(b) Performance of Obligations of Parent and MergerCo. Each of Parent
and MergerCo shall have performed all obligations required to be performed
by it under this Agreement, including, without limitation, the covenants
contained in Articles 6 and 7 hereof, except where any failure to perform
would, individually or in the aggregate, not materially impair or
significantly delay the ability of the Company to consummate the Merger.
(c) MergerCo Officer's Certificate. MergerCo shall have furnished the
Company with a certificate dated as of the Closing Date signed on its
behalf by an executive officer to the effect that the conditions to be
satisfied by MergerCo set forth in Sections 8.1 and 8.3 have been
satisfied.
(d) Parent Officer's Certificate. Parent shall have furnished the
Company with a certificate dated as of the Closing Date signed on its
behalf by an executive officer to the effect that the conditions to be
satisfied by Parent set forth in Sections 8.1 and 8.3 have been satisfied.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after stockholder approval thereof:
(a) by the mutual written consent of MergerCo and the Company.
(b) by either of the Company or MergerCo:
(i) if the stockholders of the Company shall have failed to give
the required approval at the Special Meeting (including any adjournment
or postponement thereof); or
(ii) if any Governmental Entity shall have issued an Injunction or
taken any other action (which Injunction or other action the parties
hereto shall use their reasonable best efforts to lift), which
permanently restrains, enjoins or otherwise prohibits the Merger, and
such Injunction shall have become final and non-appealable; or
(iii) if, without any material breach by the terminating party of
its obligations under this Agreement, the Merger shall not have occurred
on or before November 30, 1999.
(c) by the Company:
(i) in connection with entering into a definitive agreement to
effect a Superior Proposal in accordance with Section 7.5; provided,
however, that prior to terminating this Agreement pursuant to this
Section 9.1(c)(i), (A) the Company shall have paid the Liquidated
Amount, as set forth in
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Section 9.2(b), and (B) the Company shall have provided MergerCo with
forty-eight (48) hours' prior written notice of the Company's decision
to so terminate. Such notice shall indicate in reasonable detail the
terms and conditions of such Superior Proposal, including, without
limitation, the amount and form of the proposed consideration and
whether such Superior Proposal is subject to any material conditions.
Notwithstanding the foregoing, the Company is not required to disclose
to Parent or MergerCo the identity of the person making such Superior
Proposal; or
(ii) if Parent or MergerCo shall have breached in any material
respect any of their respective representations, warranties, covenants
or other agreements contained in this Agreement, which breach cannot be
or has not been cured within fifteen (15) days after the giving of
written notice to Parent or MergerCo except, in any case, for such
breaches which are not reasonably likely to affect adversely Parent's or
MergerCo's ability to consummate the Merger; or
(iii) after sixty (60) days following receipt by the Company of a
Parent Financing Notice.
(d) by MergerCo:
(i) if the Company shall have breached in any respect any of its
representations, warranties or covenants contained in this Agreement,
which breach cannot be or has not been cured within fifteen (15) days
after the giving of written notice to the Company except, in any case,
for breaches of such representations and warranties which are not
reasonably likely to result in a Company Material Adverse Effect;
(ii) if the Company Board shall (A) fail to include a
recommendation in the Proxy Statement of this Agreement and the
Transactions, including the Merger, (B) withdraw or modify or change, or
propose or announce any intention to withdraw or modify or change, in a
manner material and adverse to MergerCo, the approval or recommendation
by the Company Board of this Agreement or the Transactions, including
the Merger, (C) approve or recommend or propose to announce any
intention to approve or recommend any Acquisition Proposal, or (D)
propose or announce any intention to enter into any agreement (other
than a confidentiality agreement contemplated by Section 7.5 hereof)
with respect to an Acquisition Proposal; or
(iii) after sixty (60) days following delivery by Parent or
MergerCo to the Company of a Parent Financing Notice.
9.2 Effect of Termination.
(a) Subject to Sections 9.2(b) and (d) hereof, in the event of the
termination of this Agreement pursuant to Section 9.1 hereof, this Agreement
shall forthwith become null and void and have no effect, without any liability
on the part of any party hereto or its affiliates, trustees, directors, officers
or stockholders and all rights and obligations of any party hereto shall cease
except for the agreements contained in Section 7.4, the third sentence of
Section 7.16 and Articles 9 and 10; provided, however, that nothing contained in
this Section 9.2(a) shall relieve any party from liability for any fraud or
willful breach of this Agreement.
(b) The Company shall pay to MergerCo an amount in cash equal to (A)
$5,000,000 (the "Liquidated Amount"), plus (B) the Parent/MergerCo Expenses (as
hereinafter defined) if (W) MergerCo terminates this Agreement under Section
9.1(d)(i) as a result of the Company having wilfully breached its obligations
under Section 7.1(a)(i) or Section 7.1(a)(iii), or (X) the Company terminates
this Agreement pursuant to Section 9.1(c)(i) or (Y) MergerCo terminates this
Agreement pursuant to Section 9.1(d)(ii) or (Z) either the Company or MergerCo
terminates this Agreement pursuant to Section 9.1(b)(i), if, prior to the
Special Meeting, (i) an Acquisition Proposal shall have been made directly to
the Company's stockholders generally or any person shall have publicly announced
an Acquisition Proposal or solicited proxies or consents in opposition to the
Merger and (ii) within nine (9) months immediately following the date of such
termination the Company and the party who shall have made such Acquisition
Proposal or any affiliate thereof enter into a definitive agreement with respect
thereto. Notwithstanding the foregoing, in no event shall the Company be
obligated to pay the Liquidated Amount or the Parent/MergerCo Expenses more than
once. For purposes of this Section 9.2, "Parent/MergerCo Expenses" shall be an
amount equal to the reasonable out-of-pocket costs
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and expenses incurred by Parent and MergerCo in connection with this Agreement
and the Transactions, including without limitation, fees and disbursements of
its outside legal counsel, investment bankers, accountants and other consultants
retained by or on behalf of Parent and MergerCo together with the other
out-of-pocket costs and expenses incurred by Parent and MergerCo in connection
with analyzing and structuring the Transactions, negotiating the terms and
conditions of this Agreement and any other agreements or other documents
relating to the Transactions, arranging financing, conducting due diligence and
other activities related to this Agreement and the Transactions (collectively,
the "Parent/MergerCo Expenses"); provided, however, that the aggregate amount of
all Parent/MergerCo Expenses to be reimbursed by the Company shall not exceed
$1,000,000.
(c) Any payment of the Liquidated Amount required by Section 9.2(b) hereof
shall be payable by the Company to MergerCo by wire transfer of immediately
available funds (i) in the case of clause (W) or (Y) thereof, within three (3)
business days after the date of termination, (ii) in the case of clause (Z)
thereof, within three (3) business days after the date of entering into such
definitive agreement, and (iii) in the case of clause (X) thereof, prior to
terminating this Agreement pursuant to Section 9.1(c)(i) hereof, in any such
case to an account designated by MergerCo. Any payment of the Parent/MergerCo
Expenses required by Section 9.2(b) hereof shall be payable by the Company to
MergerCo by wire transfer of immediately available funds promptly following
receipt by the Company of reasonable documentation of all Parent/ MergerCo
Expenses.
(d) Notwithstanding anything to the contrary in this Agreement, Parent and
MergerCo hereto expressly acknowledge and agree that, with respect to any
termination of this Agreement pursuant to Section 9.1(c)(i) or Section
9.1(d)(ii) hereof, or Section 9.1(b)(i) or Section 9.1(d)(i) hereof in
circumstances where the Liquidated Amount and the Parent/MergerCo Expenses are
payable in accordance with Section 9.2(b) hereof, the payment of the Liquidated
Amount and the Parent/MergerCo Expenses shall constitute liquidated damages with
respect to any claim for damages or any other claim which Parent or MergerCo
would otherwise be entitled to assert against the Company or any of the Company
Subsidiaries or any of their respective assets, or against any of their
respective directors, officers, employees, partners, managers, members or
shareholders, with respect to this Agreement and the Transactions and shall
constitute the sole and exclusive remedy available to Parent and MergerCo. The
parties hereto expressly acknowledge and agree that, in light of the difficulty
of accurately determining actual damages with respect to the foregoing upon any
termination of this Agreement pursuant to Section 9.1(c)(i) or Section
9.1(d)(ii) hereof, or Section 9.1(b)(i) or Section 9.1(d)(i) hereof in
circumstances where the Liquidated Amount and the Parent/MergerCo Expenses are
payable in accordance with Section 9.2(b) hereof, the rights to payment under
Section 9.2(b): (i) constitute a reasonable estimate of the damages that will be
suffered by reason of any such proposed or actual termination of this Agreement
pursuant to Section 9.1(c)(i) or Section 9.1(d)(ii) hereof, or Section 9.1(b)(i)
or Section 9.1(d)(i) hereof in circumstances where the Liquidated Amount and the
Parent/MergerCo Expenses are payable in accordance with Section 9.2(b) hereof,
and (ii) shall be in full and complete satisfaction of any and all damages
arising as a result of the foregoing. Except for nonpayment of the amounts set
forth in Section 9.2(b), Parent and MergerCo hereby agree that, upon any
termination of this Agreement pursuant to Section 9.1(c)(i) or Section
9.1(d)(ii) hereof, or Section 9.1(b)(i) or Section 9.1(d)(i) hereof in
circumstances where the Liquidated Amount and the Parent/MergerCo Expenses are
payable in accordance with Section 9.2(b) hereof, in no event shall Parent or
MergerCo (A) seek to obtain any recovery or judgment against the Company or any
of the Company Subsidiaries or any of their respective assets, or against any of
their respective directors, officers, employees, partners, managers, members or
shareholders, and (B) be entitled to seek or obtain any other damages of any
kind, including, without limitation, consequential, indirect or punitive
damages.
9.3 Amendment. This Agreement may be amended by the parties hereto by an
instrument in writing signed on behalf of each of the parties hereto at any time
before or after any approval hereof by the stockholders of the Company and
MergerCo, but in any event following authorization by the MergerCo Board and the
Company Board; provided, however, that after any such stockholder approval, no
amendment shall be made which by law requires further approval by stockholders
without obtaining such approval.
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9.4 Extension; Waiver. At any time prior to the Closing, the parties hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or sent if delivered personally or sent by facsimile or
sent by prepaid overnight carrier to the parties at the following addresses (or
at such other addresses as shall be specified by the parties by like notice):
(a) if to Parent or MergerCo:
Kirtland Capital Partners
2550 SOM Center Road
Suite 105
Willoughby Hills, OH 44904
Attn: Raymond A. Lancaster
Facsimile: (440) 585-9699
with a copy to:
Jones, Day, Reavis & Pogue
901 Lakeside Avenue
Cleveland, OH 44114
Attn: Charles W. Hardin, Esq.
Facsimile: (216) 579-0212
(b) if to the Company:
Instron Corporation
100 Royall Street
Canton, MA 02021
Attn: James M. McConnell
Facsimile: (781) 575-5765
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attn: Stuart M. Cable, P.C.
Joseph L. Johnson III, P.C.
Facsimile: (617) 570-8150
10.2 Interpretation. When a reference is made in this Agreement to a
subsidiary or subsidiaries of Parent, MergerCo or the Company, the word
"Subsidiary" means any corporation more than 50% of whose outstanding voting
securities, or any partnership, joint venture or other entity more than 50% of
whose total equity interest, is directly or indirectly owned by Parent, MergerCo
or the Company, as the case may be. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.3 Non-Survival of Representations, Warranties, Covenants and
Agreements. Except for Sections 7.6, 7.16 and 10.7 none of the representations,
warranties, covenants and agreements contained in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, and thereafter
A-31
<PAGE> 122
there shall be no liability on the part of either Parent, MergerCo or the
Company or any of their respective officers, directors or stockholders in
respect thereof. Except as expressly set forth in this Agreement, there are no
representations or warranties of any party hereto, express or implied.
10.4 Miscellaneous. This Agreement (i) constitutes, together with the
Confidentiality Agreement, the Company Disclosure Letter and the Parent and
MergerCo Disclosure Schedule, the entire agreement and supersedes all of the
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof, (ii) shall be binding
upon and inure to the benefits of the parties hereto and their respective
successors and assigns and is not intended to confer upon any other person
(except as set forth below) any rights or remedies hereunder and (iii) may be
executed in two or more counterparts which together shall constitute a single
agreement. Section 7.6 is intended to be for the benefit of those persons
described therein and the covenants contained therein may be enforced by such
persons. The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in the Massachusetts Courts (as hereinafter
defined), this being in addition to any other remedy to which they are entitled
at law or in equity.
10.5 Assignment. Except as expressly permitted by the terms hereof, 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.
10.6 Severability. If any provision of this Agreement, or the application
thereof to any person or circumstance is held invalid or unenforceable, the
remainder of this Agreement, and the application of such provision to other
persons or circumstances, shall not be affected thereby, and to such end, the
provisions of this Agreement are agreed to be severable.
10.7 Choice of Law/Consent to Jurisdiction. All disputes, claims or
controversies arising out of or relating to this Agreement, or the negotiation,
validity or performance of this Agreement, or the Transactions shall be governed
by and construed in accordance with the laws of the Commonwealth of
Massachusetts without regard to its rules of conflict of laws. Each of the
Company, Parent and MergerCo hereby irrevocably and unconditionally consents to
submit to the sole and exclusive jurisdiction of the courts of the Commonwealth
of Massachusetts and of the United States District Court for the District of
Massachusetts (the "Massachusetts Courts") for any litigation arising out of or
relating to this Agreement, or the negotiation, validity or performance of this
Agreement, or the Transactions (and agrees not to commence any litigation
relating thereto except in such courts), waives any objection to the laying of
venue of any such litigation in the Massachusetts Courts and agrees not to plead
or claim in any Massachusetts Court that such litigation brought therein has
been brought in any inconvenient forum. Each of the parties hereto agrees, (a)
to the extent such party is not otherwise subject to service of process in the
Commonwealth of Massachusetts, to appoint and maintain an agent in the
Commonwealth of Massachusetts as such party's agent for acceptance of legal
process, and (b) that service of process may also be made on such party by
prepaid certified mail with a proof of mailing receipt validated by the United
States Postal Service constituting evidence of valid service. Service made
pursuant to (a) or (b) above shall have the same legal force and effect as if
served upon such party personally within the Commonwealth of Massachusetts. For
purposes of implementing the parties' agreement to appoint and maintain an agent
for service of process in the Commonwealth of Massachusetts, each of Parent and
MergerCo does hereby appoint CT Corporation, 2 Oliver Street, Boston,
Massachusetts 02109, as such agent.
10.8 No Agreement Until Executed. Irrespective of negotiations among the
parties or the exchanging of drafts of this Agreement, this Agreement shall not
constitute or be deemed to evidence a contract, agreement, arrangement or
understanding among the parties hereto unless and until (i) the Board of
Directors of the Company has approved, for purposes of Chapter 110F of the MGL
and any applicable provision of the Articles of Organization, the terms of this
Agreement, and (ii) this Agreement is executed by the parties hereto.
A-32
<PAGE> 123
IN WITNESS WHEREOF, Parent, MergerCo and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
KIRTLAND CAPITAL PARTNERS III L.P.
By: Kirtland Partners Ltd.,
its General Partner
By: /s/ Raymond A. Lancaster
-----------------------------------
Name: Raymond A. Lancaster
Title: Executive Vice President
ISN ACQUISITION CORPORATION
By: /s/ Raymond A. Lancaster
-----------------------------------
Name: Raymond A. Lancaster
Title: President
By: /s/ Thomas N. Littman
-----------------------------------
Name: Thomas N. Littman
Title: Treasurer
INSTRON CORPORATION
By: /s/ James M. McConnell
-----------------------------------
Name: James M. McConnell
Title: President
By: /s/ John R. Barrett
-----------------------------------
Name: John R. Barrett
Title: Treasurer
A-33
<PAGE> 124
APPENDIX B
CONFIDENTIAL
May 6, 1999
Board of Directors
Instron Corporation
100 Royall Street
Canton, MA 02021-1089
Gentlemen:
Instron Corporation (the "Company") has requested that The Beacon Group
Capital Services, LLC ("Beacon") deliver to the Company's Board of Directors
Beacon's opinion concerning the fairness from a financial point of view to the
holders of outstanding shares of the Company's Common Stock, par value $1.00 per
share, (the "Shares") other than holders of Excepted Shares, as hereinafter
defined, of the consideration to be received by those holders in the merger
transaction (the "Merger") provided for by an Agreement and Plan of Merger,
dated as of May 6, 1999, (the "Agreement") by and among the Company, Kirtland
Capital Partners III L.P. ("Parent") and ISN Acquisition Corp. ("MergerCo"), a
corporation formed by, and a wholly-owned subsidiary of, Parent.
The Agreement provides, among other things, that (i) MergerCo will be
merged with and into the Company, (ii) the Company will be the surviving
corporation (the "Surviving Corporation"), and (iii) each outstanding Share,
other than (a) Shares held by the Company as treasury stock, by any wholly owned
subsidiary of the Company or by MergerCo, (b) Shares exchanged for Series B
Preferred Stock, par value $1.00 per share, of the Company prior to the Merger
and (c) Dissenting Shares, as defined in the Agreement (collectively, the
"Excepted Shares"), will be converted into the right to receive $22 in cash,
without interest. The Merger is expected to be considered by the stockholders of
the Company at a special stockholders meeting to be held as soon as practicable
and, if approved by the stockholders at that meeting, consummated on or shortly
after that meeting.
As part of its strategic advisory business, Beacon engages in the valuation
of businesses and their securities in connection with mergers and acquisitions,
financings, private placements, principal investments and other purposes. In
this regard, Beacon has been serving as a financial advisor to the Company and
participated in certain of the negotiations relating to the Agreement and the
Merger. Beacon is also familiar with Parent and two Beacon Managing Directors
are limited partner investors in Parent.
In connection with its opinion, Beacon reviewed, among other things, the
Agreement, Annual Reports to stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1998, certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of the Company, certain other
communications from the Company to stockholders, certain internal financial
analyses and forecasts for the Company prepared by its management and the
potential pro forma impact of the Merger on the Surviving Corporation. Beacon
also held discussions with members of senior management of the Company regarding
the past and current business, operations and financial condition and the future
prospects of the Company, reviewed the reported price and trading activity of
the Shares, compared certain financial and stock market information concerning
the Company with similar information concerning certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in industries and markets Beacon deemed relevant
and performed other studies and analyses that Beacon considered appropriate.
For purposes of its opinion, Beacon assumed and relied without independent
verification on the accuracy and completeness of the financial and other
information reviewed by it. Beacon did not make an independent evaluation or
appraisal of the assets and liabilities of the Company or any of its
subsidiaries and was not furnished with any such evaluation or appraisal.
B-1
<PAGE> 125
Beacon's opinion is provided for the information of the Board of Directors
of the Company in connection with its consideration of the Agreement and the
Merger and does not constitute a recommendation to any stockholder of the
Company as to how that stockholder should vote in connection with the Agreement
and the Merger. Beacon's opinion is necessarily based on economic, market,
financial and other conditions as they exist on, and could be evaluated as of,
the date hereof.
Based on and subject to the foregoing and other matters Beacon considers
relevant, it is Beacon's opinion that, as of the date hereof, the consideration
to be received by holders of Shares, other than Excepted Shares, is fair from a
financial point of view to such holders.
Very truly yours,
/s/ THE BEACON GROUP CAPITAL SERVICES, LLC
The Beacon Group Capital Services, LLC
B-2
<PAGE> 126
APPENDIX C
MASSACHUSETTS BUSINESS CORPORATION LAW
CHAPTER 156B
85. A stockholder in any corporation organized under the laws of
Massachusetts which shall have duly voted to consolidate or merge with another
corporation or corporations under the provisions of sections seventy-eight or
seventy-nine who objects to such consolidation or merger may demand payment for
his stock from the resulting or surviving corporation and an appraisal in
accordance with the provisions of sections eighty-six to ninety-eight,
inclusive, and such stockholder and the resulting or surviving corporation shall
have the rights and duties and follow the procedure set forth in those sections.
This section shall not apply to the holders of any shares of stock of a
constituent corporation surviving a merger if, as permitted by subsection (c) of
section seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
86. If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
87. The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of notice
shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in
writing from the corporation (or, in the case of a consolidation or merger,
the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and
an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of
the General Laws of Massachusetts."
88. The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
89. If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight any stockholder to whom the corporation was required to
give such notice shall demand in writing from the corporation taking such
action, or in the
C-1
<PAGE> 127
case of a consolidation or merger from the resulting or surviving corporation,
payment for his stock, the corporation upon which such demand is made shall pay
to him the fair value of his stock within thirty days after the expiration of
the period during which such demand may be made.
90. If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or any
such stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
91. If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
92. After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
93. The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
94. On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
95. The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
96. Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall
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<PAGE> 128
not be entitled to the payment of dividends or other distribution on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the date of the vote approving the proposed corporate
action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation, or
in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to
and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97. The shares of the corporation paid for by the corporation pursuant to
the provisions of this chapter shall have the status of treasury stock or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
98. The enforcement by a stockholder of his right to receive payment for
his shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
C-3
<PAGE> 129
APPENDIX D
PURCHASES OF INSTRON COMMON STOCK BY CERTAIN PERSONS
The following table sets forth certain information concerning transactions
involving Instron Common Stock since January 1, 1997 effected by Instron and
members of the Investor Group.
<TABLE>
<CAPTION>
PRICE PER SHARE OR
NUMBER OF SHARES RANGE WHERE AND HOW
NAME DATE PURCHASED OF PRICES PAID TRANSACTION EFFECTED
---- ---- ---------------- ------------------ --------------------
<S> <C> <C> <C> <C>
James M. McConnell.... 5/14/97 25,000 $0.00 Restricted Stock Grant
4/10/98 193,422 $9.50 Option Exercise
1/1/97 - 12/31/98 412 $10.75 - $19.1875 401(k) Purchases
1/1/98 - 12/31/98 318 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 288 $15.00 - $20.6875 401(k) Purchases
Joseph E. Amaral...... 5/14/97 25,000 $0.00 Restricted Stock Grant
8/12/97 3,181 $10.375 Option Exercise
2/24/99 819 $10.375 Option Exercise
1/1/97 - 12/31/98 415 $10.75 - $19.1875 401(k) Purchases
1/1/98 - 12/31/98 288 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 229 $15.00 - $20.6875 401(k) Purchases
Kenneth L. Andersen... 5/14/97 25,000 $0.00 Restricted Stock Grant
1/1/97 - 12/31/98 (1,390) $10.75 - $19.1875 401(k) Purchases and Sales
1/1/98 - 12/31/98 42 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 218 $15.00 - $20.625 401(k) Purchases
John R. Barrett....... 5/14/97 25,000 $0.00 Restricted Stock Grant
5/8/98 10,500 $10.75 Option Exercise
1/1/97 - 12/31/98 348 $10.75 - $19.1875 401(k) Purchases
1/1/98 - 12/31/98 313 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 201 $15.00 - $20.6875 401(k) Purchases
Jonathan L. Burr...... 5/14/97 25,000 $0.00 Restricted Stock Grant
12/9/97 1,000 N/A Gift
12/1/98 1,300 N/A Gift
2/26/99 3,000 $10.375 Option Exercise
1/1/97 - 12/31/98 21 $10.75 - $19.1875 401(k) Purchases
1/1/98 - 12/31/98 198 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 222 $15.00 - $20.6875 401(k) Purchases
Yahya Gharagozlou..... 5/14/97 25,000 $0.00 Restricted Stock Grant
1/1/97 - 12/31/98 343 $10.75 - $19.1875 401(k) Purchases
1/1/98 - 12/31/98 292 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 224 $15.00 - $20.6875 401(k) Purchases
Arthur D. Hindman..... 5/14/97 25,000 $0.00 Restricted Stock Grant
3/11/98 12,000 $10.75 Option Exercise
2/17/99 250 N/A Gift
2/26/99 3,000 $10.375 Option Exercise
1/1/97 - 12/31/98 1,076 $10.75 - $19.1875 401(k) Purchases
1/1/98 - 12/31/98 647 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 454 $15.00 - $20.6875 401(k) Purchases
William J. Milliken... 10/29/97 20,500 $0.00 Restricted Stock Grant
1/1/98 - 12/31/98 49 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 242 $15.00 - $20.6875 401(k) Purchases
Linton A. Moulding.... 5/14/97 25,000 $0.00 Restricted Stock Grant
8/3/98 4,250 $10.00 Option Exercise
1/1/97 - 12/31/98 577 $10.75 - $19.1875 401(k) Purchases
1/1/98 - 12/31/98 400 $11.50 - $20.625 401(k) Purchases
1/1/99 - 7/3/99 398 $15.00 - $20.6875 401(k) Purchases
Norman L. Smith....... 5/14/97 25,000 $0.00 Restricted Stock Grant
5/6/98 2,500 $10.50 Option Exercise
4/7/99 3,720 $10.50 Option Exercise
</TABLE>
D-1
<PAGE> 1
[0411 - INSTRON CORPORATION] [FILE NAME: INS02B.ELX] [VERSION - 3] [6/25/99]
INS02B DETACH HERE
- --------------------------------------------------------------------------------
PROXY
INSTRON CORPORATION
100 ROYALL STREET
CANTON, MASSACHUSETTS 02021
P
The undersigned stockholder of Instron Corporation ("Instron") hereby
R appoints James M. McConnell, Linton A. Moulding and John R. Barrett, and
each of them, as Proxies, each with the power of substitution and
resubstitution for and in the name of the undersigned, to vote all of the
O shares of Instron Common Stock, par value $1.00 per share, held of record
by the undersigned as of July 12, 1999 at Instron's Special Meeting of
Stockholders (the "Special Meeting") to be held on August 20, 1999, at the
X Hilton Dedham Place, 25 Allied Drive, Dedham, Massachusetts 02026
commencing at 10:00 A.M. (local time), and at all adjournments or
postponements thereof, with all powers the undersigned would possess if
Y then and there personally present. Without limiting the general
authorization and power hereby given, the undersigned directs said Proxies
to cast the undersigned's vote as specified on the reverse side hereof. IF
NO DIRECTION IS GIVEN, THE UNDERSIGNED'S VOTE WILL BE CAST "FOR" THE
PROPOSALS IN PARAGRAPHS 1 AND 2 ON THE REVERSE SIDE HEREOF. IN THEIR
DISCRETION, THE PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND ANY
ADJOURNMENT OR POSTPONEMENT THEREOF. Stockholders who plan to attend the
Special Meeting may revoke their proxy by casting their vote at the meeting
in person.
- ---------------- ----------------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ---------------- ----------------
<PAGE> 2
DETACH HERE
- -------------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
FOR AGAINST ABSTAIN
1. To approve the Agreement and Plan [ ] [ ] [ ]
of Merger dated as of May 6, 1999
by and among Instron Corporation,
ISN Acquisition Corporation and
Kirtland Capital Partners III
L.P.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. If a motion to adjourn the
Special Meeting is properly
brought, to vote upon the
adjournment of the Special Meeting.
3. To vote at the discretion of the Proxies upon such other matters as may
properly come before the Special Meeting or any adjournment or postponement
thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INSTRON
CORPORATION.
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
(You may attend the Special Meeting even if you
fail to return this Proxy or fail to mark the
above box)
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE DATE, SIGN AND MAIL THIS PROXY TODAY IN THE
ENCLOSED ENVELOPE.
For joint accounts, each owner should sign.
Executors, administrators, trustees, corporate
officers and other acting in a representative
capacity should give full title or authority.
Signature: Date: Signature: Date:
--------------- --------- ---------------- -------
<PAGE> 1
[0411 - INSTRON CORPORATION] [FILE NAME: INS02B.ELX] [VERSION - 3] [6/25/99]
INS02B DETACH HERE
- --------------------------------------------------------------------------------
PROXY
INSTRON CORPORATION
100 ROYALL STREET
CANTON, MASSACHUSETTS 02021
P
The undersigned hereby instructs the VANGUARD FIDUCIARY TRUST COMPANY, as
R Trustee under the Instron Corporation Savings and Security Plan Trust (the
"Plan"), to vote all of the shares of Common Stock, par value $1.00 per
share, of Instron Corporation ("Instron") for which the undersigned has
O voting rights under the Plan as of July 12, 1999 (the "Shares") at
Instron's Special Meeting of Stockholders (the "Special Meeting") to be
held on August 20, 1999, at the Hilton Dedham Place, 25 Allied Drive,
X Dedham, Massachusetts 02026 commencing at 10:00 A.M. (local time), and at
all adjournments or postponements thereof. WHEN THIS CARD IS PROPERLY
EXECUTED, THE SHARES WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
Y UNDERSIGNED PARTICIPANT. IF THIS VOTING INSTRUCTION CARD IS PROPERLY
EXECUTED AND NO DIRECTION IS GIVEN, THE UNDERSIGNED'S VOTE WILL BE CAST
"FOR" THE PROPOSALS IN PARAGRAPHS 1 AND 2 ON THE REVERSE SIDE HEREOF. IN
ITS DISCRETION, THE TRUSTEE IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
- ---------------- ----------------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ---------------- ----------------
<PAGE> 2
DETACH HERE
- -------------------------------------------------------------------------------
[X] Please mark
votes as in
this example.
FOR AGAINST ABSTAIN
1. To approve the Agreement and Plan [ ] [ ] [ ]
of Merger dated as of May 6, 1999
by and among Instron Corporation,
ISN Acquisition Corporation and
Kirtland Capital Partners III
L.P.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. If a motion to adjourn the
Special Meeting is properly
brought, to vote upon the
adjournment of the Special Meeting.
3. To vote at the discretion of the Trustee upon such other matters as may
properly come before the Special Meeting or any adjournment or postponement
thereof.
THIS VOTING INSTRUCTION CARD IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
INSTRON CORPORATION.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE DATE, SIGN AND MAIL THIS VOTING INSTRUCTION
CARD TODAY IN THE ENCLOSED ENVELOPE.
Signature: Date: Signature: Date:
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