<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:
[ ] Preliminary Proxy Statement [ ] Confidential, for use of the
Commission Only
(as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
AEROQUIP-VICKERS, INC.
(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):
<TABLE>
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[ ] No Fee required.
[X] 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 $5.00 PER SHARE.
------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
27,600,987, BASED ON SHARES OF COMMON STOCK OUTSTANDING AT
FEBRUARY 9, 1999.
------------------------------------------------------------
(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): $58 PER SHARE CASH PRICE PLUS
$69,243,822, THE AGGREGATE CONSIDERATION TO BE PAID FOR
OPTIONS AND RESTRICTED STOCK AWARDS.
------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$1,670,101,068 BASED ON INFORMATION CONTAINED IN ITEMS 2 AND
3 ABOVE.
------------------------------------------------------------
(5) Total fee paid: $334,020
------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
------------------------------------------------------------
[X] 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: $334,020
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Schedule 14A
------------------------------------------------------------
(3) Filing Party: Aeroquip-Vickers, Inc.
------------------------------------------------------------
(4) Date Filed: February 12, 1999
------------------------------------------------------------
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AEROQUIP-VICKERS, INC.
3000 STRAYER
MAUMEE, OHIO 43537-0050
TELEPHONE: (419) 867-2200
March 8, 1999
Dear Aeroquip-Vickers Shareholder:
I cordially invite you to attend a special meeting of the shareholders of
Aeroquip-Vickers, Inc. to be held on April 8, 1999, at 10:00 a.m., Eastern time,
at Aeroquip-Vickers' world headquarters, 3000 Strayer, Maumee, Ohio.
At this meeting, shareholders will vote upon a proposal to adopt an
Agreement and Plan of Merger, dated as of January 31, 1999, by and among Eaton
Corporation, Eaton Industries Inc., and Aeroquip-Vickers, pursuant to which
Eaton Industries will be merged with and into Aeroquip-Vickers, with
Aeroquip-Vickers continuing as the surviving corporation and becoming a wholly
owned subsidiary of Eaton Corporation. Pursuant to the merger agreement, each
common share of Aeroquip-Vickers issued and outstanding at the effective time of
the merger (other than shares held by Aeroquip-Vickers, Eaton and shareholders,
if any, who properly exercise their dissenters' rights under Ohio law) will be
converted into the right to receive $58.00 per share in cash, without interest.
Consummation of the merger is subject to certain conditions, including adoption
of the merger agreement by the affirmative vote of the holders of a majority of
the outstanding common shares of Aeroquip-Vickers. The merger agreement and the
merger are more fully described in the accompanying proxy statement.
Your Board of Directors has diligently reviewed and considered the terms
and conditions of the merger agreement, has determined that the merger agreement
is in the best interests of Aeroquip-Vickers and its shareholders and has
approved the merger agreement. In addition, Aeroquip-Vickers' financial advisor,
Morgan Stanley & Co. Incorporated, has rendered its opinion stating that the $58
per share price is fair from a financial point of view.
THE AEROQUIP-VICKERS' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
Please read the enclosed information carefully before completing and
returning your proxy card. Returning your proxy card as soon as possible will
ensure your vote is counted at the meeting, whether or not you plan to attend.
If you do attend the special meeting, you may withdraw your proxy and vote in
person if you wish. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES
YOU OWN.
Sincerely,
/s/ Darryl F. Allen
Darryl F. Allen
Chairman, President and Chief
Executive Officer
<PAGE> 3
AEROQUIP-VICKERS, INC.
3000 STRAYER
MAUMEE, OHIO 43537-0050
TELEPHONE: (419) 867-2200
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 8, 1999
To Our Shareholders:
Notice is hereby given that a special meeting of shareholders of
Aeroquip-Vickers, Inc., an Ohio corporation, will be held on April 8, 1999, at
10:00 a.m., Eastern time, at Aeroquip-Vickers' world headquarters, 3000 Strayer,
Maumee, Ohio for the following purposes:
1. To consider and vote upon a proposal to adopt an Agreement and Plan of
Merger, dated as of January 31, 1999, by and among Eaton Corporation, an
Ohio corporation, Eaton Industries Inc., an Ohio corporation and a
wholly owned subsidiary of Eaton, and Aeroquip-Vickers, pursuant to
which (a) Eaton Industries will be merged with and into
Aeroquip-Vickers, with Aeroquip-Vickers continuing as the surviving
corporation and becoming a wholly owned subsidiary of Eaton and (b) each
common share of Aeroquip-Vickers issued and outstanding at the effective
time of the merger, other than shares held by Aeroquip-Vickers, Eaton
and shareholders, if any, who properly exercise their dissenters' rights
under Ohio law, will be converted into the right to receive $58.00 per
share in cash, without interest.
2. To transact such other business as may be properly brought before the
special meeting or any adjournment or postponement thereof.
A committee of the Board of Directors has fixed the close of business on
March 5, 1999 as the record date for the determination of shareholders entitled
to receive notice of and to vote at the special meeting and any adjournments or
postponements thereof. Accordingly, only shareholders of record on that date are
entitled to receive notice of, and to vote at, the special meeting or any
adjournments or postponements thereof.
Holders of Aeroquip-Vickers common shares who do not vote in favor of
adopting the merger agreement and who otherwise comply with the applicable
statutory procedures of Section 1701.85 of the General Corporation Law of the
State of Ohio will be entitled to dissenters' rights under Section 1701.85. A
summary of the provisions of Section 1701.85, including a summary of the
requirements with which holders must comply in order to assert dissenters'
rights, is set forth in the accompanying proxy statement under the heading "The
Merger -- Dissenters' Rights." The entire text of Section 1701.85 is attached as
Annex C to the proxy statement.
The accompanying proxy statement describes the merger agreement, the
proposed merger and certain actions to be taken in connection with the merger.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING, WHETHER
OR NOT YOU PLAN TO ATTEND IN PERSON. ACCORDINGLY, PLEASE COMPLETE, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR PROXY IN THE MANNER
DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE THE PROXY HAS
BEEN VOTED AT THE SPECIAL MEETING. Executed proxies with no instructions
indicated thereon will be voted "FOR" adoption of the merger agreement.
YOUR VOTE IS IMPORTANT. To vote your shares, please mark, date, sign and
return the enclosed proxy card as soon as possible in the enclosed
postage-prepaid envelope, whether or not you plan to attend the special meeting.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.
By Order of the Board of Directors,
/s/ James M. Oathout
James M. Oathout
Secretary
Maumee, Ohio
March 8, 1999
<PAGE> 4
AEROQUIP-VICKERS, INC.
3000 STRAYER
MAUMEE, OHIO 43537
------------------------
PROXY STATEMENT
------------------------
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 8, 1999
We are furnishing this proxy statement to the shareholders of
Aeroquip-Vickers, Inc., an Ohio corporation, in connection with the solicitation
of proxies by and on behalf of the Board of Directors of Aeroquip-Vickers for
use at a special meeting of shareholders to be held at 10:00 a.m., Eastern time,
on April 8, 1999, at 3000 Strayer, Maumee, Ohio, and at any adjournments or
postponements thereof.
This proxy statement and the accompanying notice, proxy card and letter to
the Aeroquip-Vickers shareholders are first being mailed on or about March 8,
1999, to holders of Aeroquip-Vickers common shares entitled to receive notice
of, and to vote at, the special meeting.
At the special meeting, holders of Aeroquip-Vickers common shares will be
asked to consider and vote upon a proposal to adopt an Agreement and Plan of
Merger, dated as of January 31, 1999, by and among Eaton Corporation, Eaton
Industries Inc., a wholly owned subsidiary of Eaton, and Aeroquip-Vickers,
pursuant to which (a) Eaton Industries will be merged with and into
Aeroquip-Vickers, with Aeroquip-Vickers continuing as the surviving corporation
and becoming a wholly owned subsidiary of Eaton and (b) each common share of
Aeroquip-Vickers issued and outstanding at the effective time of the merger,
other than shares held by Aeroquip-Vickers, Eaton and shareholders, if any, who
properly exercise their dissenters' rights under Ohio law, will be converted
into the right to receive $58.00 per share in cash, without interest.
Holders of Aeroquip-Vickers common shares who do not vote in favor of
adopting the merger agreement and who otherwise comply with the applicable
statutory procedures of Section 1701.85 of the General Corporation Law of the
State of Ohio will be entitled to dissenters' rights under Section 1701.85. See
"The Merger -- Dissenters' Rights."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
ADOPTION OF THE MERGER AGREEMENT.
All information contained in this proxy statement concerning Eaton and
Eaton Industries has been supplied by them and has not been independently
verified by Aeroquip-Vickers. Except as otherwise indicated, all other
information contained in this proxy statement (or, as permitted by applicable
rules and regulations of the Securities and Exchange Commission, incorporated by
reference herein) has been supplied or prepared by Aeroquip-Vickers.
The date of this proxy statement is March 8, 1999.
<PAGE> 5
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS..................................
1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION.................
2
SUMMARY.....................................................
4
The Companies.............................................
4
Recommendation to Shareholders............................
4
Opinion of Financial Advisor..............................
4
Our Reasons for the Merger................................
4
Effects of the Merger; Merger Consideration...............
4
The Special Meeting.......................................
4
Voting Rights; Votes Required for Approval................
4
Dissenters' Rights........................................
5
Share Ownership of Management and Certain Shareholders....
5
Interests of Officers and Directors in the Transaction....
5
Conditions to the Transaction.............................
5
Regulatory Matters........................................
6
Termination of the Merger Agreement.......................
6
Payment of Fees...........................................
6
Material Federal Income Tax Consequences..................
6
SUMMARY SELECTED FINANCIAL DATA.............................
7
THE SPECIAL MEETING.........................................
8
General...................................................
8
Matters to be Considered at the Special Meeting...........
8
Record Date; Voting at the Special Meeting................
8
Proxies, Revocation of Proxies............................
9
Solicitation of Proxies...................................
9
THE MERGER..................................................
10
Background of the Merger..................................
10
Aeroquip-Vickers' Reasons for the Merger; Recommendation
of the Board of Directors..............................
12
Effects of the Merger; Merger Consideration...............
13
Opinion of Aeroquip-Vickers' Financial Advisor............
14
Interests of Certain Persons in the Merger................
17
Accounting Treatment......................................
20
Regulatory Matters........................................
21
Certain Federal Income Tax Consequences...................
22
Dissenters' Rights........................................
23
CERTAIN PROJECTIONS.........................................
24
CERTAIN PROVISIONS OF THE MERGER AGREEMENT..................
25
General...................................................
25
Merger Consideration......................................
25
Treatment of Equity Plans.................................
25
Representations and Warranties............................
26
Covenants.................................................
27
Additional Agreements.....................................
29
Conditions Precedent......................................
31
Termination, Fees, Amendment and Waiver...................
32
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THE COMPANIES...............................................
34
Aeroquip-Vickers, Inc.....................................
34
Eaton Corporation.........................................
34
Eaton Industries Inc......................................
34
MARKET PRICES OF COMMON STOCK...............................
35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................
36
INDEPENDENT ACCOUNTANTS.....................................
38
SHAREHOLDER PROPOSALS.......................................
38
WHERE YOU CAN FIND MORE INFORMATION.........................
38
AGREEMENT AND PLAN OF MERGER.............................. ANNEX A
OPINION OF MORGAN STANLEY & CO. INCORPORATED.............. ANNEX B
SECTION 1701.85........................................... ANNEX C
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ii
<PAGE> 7
FORWARD-LOOKING STATEMENTS
The statements contained in this proxy statement and in the documents that
have been incorporated herein by reference include forward-looking statements
about Aeroquip-Vickers that are subject to risks and uncertainties.
Forward-looking statements include information concerning future results of
operations of Aeroquip-Vickers and the combined company after the effective time
of the merger, set forth, among other places, under "Questions and Answers About
the Transaction," "Summary," "The Merger -- Background of the Merger," "The
Merger -- Aeroquip-Vickers' Reasons for the Merger; Recommendation of the Board
of Directors," "The Merger -- Opinion of Aeroquip-Vickers' Financial Advisor,"
"Certain Projections" and those statements preceded by, followed by or that
otherwise include the words "believes," "expects," "anticipates," "intends,"
"estimates" or similar expressions. For those statements, Aeroquip-Vickers
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
In addition to the other factors and matters discussed elsewhere in this
document and in the documents that have been incorporated herein by reference,
factors that, in the view of Aeroquip-Vickers, could cause actual results to
differ materially from those discussed in the forward-looking statements
include, among others, (a) changes in global economic and financial conditions,
including the industrial, aerospace and automotive industries in which
Aeroquip-Vickers does business, (b) the success of Aeroquip-Vickers' strategic
plans and contemplated capital investments, (c) Aeroquip-Vickers' ability to
continually improve margins by achieving anticipated cost reductions in
manufacturing processes in all of its businesses, to consistently win new
business in each of its industries by delivering quality products and
maintaining competitive pricing, and to successfully implement Aeroquip-Vickers'
growth strategies, (d) loss of existing business, and (e) development of
competing products.
1
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
Q: Why are Aeroquip-Vickers and Eaton proposing the merger?
A: For Aeroquip-Vickers, the merger presents an opportunity for its shareholders
to realize a significant premium over recent market prices for their shares.
In addition, the merger allows Aeroquip-Vickers, which is currently too small
to realize the full advantages of its strengths, to better compete in the
hydraulics market.
For Eaton, the merger presents an opportunity to build upon and extend its
mobile hydraulics product line. Vickers, Incorporated's business is
complementary to Eaton's and fundamentally repositions that business among
the world leaders. Aeroquip Corporation's business expands upon those
strengths in hydraulics with its position in hose and couplings, serving
mobile and industrial, aerospace and automotive customers.
Q: What do I need to do now?
A: Complete, sign and mail your signed proxy card in the enclosed return
envelope as soon as possible, so that your shares may be represented at the
special meeting.
Q: What do I do if I want to change my vote?
A: Send in a later-dated, signed proxy card to Aeroquip-Vickers' Secretary
before the special meeting or attend the special meeting in person and vote.
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 only if you provide instructions on how to
vote. Your broker will contact you regarding the procedures necessary for him
or her to vote your shares. Please tell your broker how you would like him or
her to vote your shares. If you do not tell your broker how to vote, your
shares will not be voted by your broker, which will have the effect of a vote
against the transaction.
Q: When and where is the special meeting?
A: The special meeting will be held on April 8, 1999 at 10:00 a.m., Eastern
time, at Aeroquip-Vickers' world headquarters, 3000 Strayer, Maumee, Ohio.
Q: What is the effect if I do not vote?
A: If you do not submit a proxy card or vote in person at the special meeting or
if you abstain from voting, it will have the effect of a vote against the
merger agreement.
Q: Who can vote at the special meeting?
A: Holders of Aeroquip-Vickers common shares at the close of business on March
5, 1999 may vote at the special meeting.
Q: Please explain what I will receive in the merger.
A: If the merger is completed, you will receive $58.00 in cash, without
interest, for each Aeroquip-Vickers common share you own.
Q: What vote is required?
A: The merger must be approved by holders of a majority of the Aeroquip-Vickers
common shares outstanding on March 5, 1999, the record date.
Q: Do I have dissenters' rights?
A: Under Ohio law, you are entitled to dissenters' rights. If you do not vote in
favor of the merger and you properly elect to exercise your dissenters'
rights as described under "The Merger -- Dissenters' Rights" and in Annex C,
you may receive in the merger the court determined "fair cash value" of your
Aeroquip-Vickers common shares. The fair cash value could be equal to, less
than or more than $58 per share.
Q: What effect does the merger have on Aeroquip-Vickers' dividend policy?
A: The merger agreement allows Aeroquip-Vickers to pay in March the $0.22 per
share dividend declared in January 1999, but does not allow Aeroquip-Vickers
to pay any more dividends thereafter without the written consent of Eaton.
Q: When do you expect the merger to be completed?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger in mid-April 1999.
Q: How do I get paid for my Aeroquip-Vickers common shares?
A: If the merger is approved and consummated, you will be mailed instructions,
which will explain how to exchange your share certificates for the merger
consideration.
Q: What are the tax consequences to shareholders of the merger?
A: The merger will be taxable to you and you will recognize a gain or loss in an
amount equal to the difference between the adjusted tax basis of your shares
and the amount of cash you receive in the merger.
2
<PAGE> 9
WHO CAN HELP ANSWER YOUR QUESTIONS?
If you have additional questions about the merger or would like additional
copies of this proxy statement or proxy card, you should contact:
AEROQUIP-VICKERS, INC.
3000 Strayer
Maumee, Ohio 43537
Telephone: (419) 867-2292
Attention: Richard Rump
Director of Corporate Communications
Banks and Brokerage Firms please call: D. F. King & Co., Inc.
1-800-290-6432
3
<PAGE> 10
SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all of the information that is important to you. To understand
the proposal fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document, including the documents
we have referred to you and the Annexes. We have included page references
parenthetically to direct you to a more complete description of each topic
presented in this summary. The merger agreement is attached as Annex A to this
proxy statement. We encourage you to read the merger agreement as it is the
legal document that governs the transaction.
THE COMPANIES (PAGE 34)
Aeroquip-Vickers consists of two companies, Aeroquip Corporation and
Vickers, Incorporated, world leaders in the design, manufacture and distribution
of engineered components and systems to industrial, aerospace and automotive
industries. Headquartered in Maumee, Ohio, the company has approximately 15,000
employees and approximately 50 manufacturing and/or assembly sites in 15
countries around the world. Sales for 1998 were approximately $2.15 billion.
Eaton Corporation is a global manufacturer of highly engineered products
that serve industrial, vehicle, construction, commercial and semiconductor
industries. Principal products include electrical power distribution and control
equipment, truck drivetrain systems, engine components, hydraulic products, ion
implanters and a wide variety of controls. Eaton has approximately 49,500
employees, and maintains manufacturing facilities at approximately 155
manufacturing sites in 25 countries. In 1998, Eaton's sales were approximately
$6.6 billion.
RECOMMENDATION TO SHAREHOLDERS (PAGE 12)
The Board of Directors has unanimously approved the merger, believes that
the merger is in your best interest as a shareholder and unanimously recommends
that you vote "FOR" adoption of the merger agreement.
OPINION OF FINANCIAL ADVISOR (PAGE 14)
In deciding to approve the transaction, the Board of Directors, among the
numerous factors discussed below in "The Merger -- Aeroquip-Vickers' Reasons for
the Merger; Recommendation of the Board of Directors," considered the oral
opinions of Aeroquip-Vickers' financial advisor, Morgan Stanley & Co.
Incorporated, that, as of January 28 and January 30, 1999, $58 per
Aeroquip-Vickers common share is fair from a financial point of view to the
shareholders of Aeroquip-Vickers. That oral opinion was confirmed in writing by
Morgan Stanley as of January 31, 1998 and is attached as Annex B to this proxy
statement. We encourage you to read this opinion in its entirety.
OUR REASONS FOR THE MERGER (PAGE 12)
The merger presents an opportunity for Aeroquip-Vickers shareholders to
realize a significant premium over recent market prices for their shares. In
addition, the merger allows Aeroquip-Vickers, which is currently too small to
realize the full advantages of its strengths, to better compete in the
hydraulics market.
EFFECTS OF THE MERGER; MERGER CONSIDERATION (PAGE 13)
Upon consummation of the merger,
- Eaton Industries will be merged with and into Aeroquip-Vickers, with
Aeroquip-Vickers continuing as the surviving corporation and becoming a
wholly owned subsidiary of Eaton; and
- each Aeroquip-Vickers common share issued and outstanding at the date and
time the merger becomes effective, other than shares held by
Aeroquip-Vickers, Eaton and shareholders, if any, who properly exercise
their dissenters' rights under Ohio law, will be converted into the right
to receive $58.00 in cash, without interest.
THE SPECIAL MEETING (PAGE 8)
The special meeting will be held at 10:00 a.m., Eastern time, on April 8,
1999, at Aeroquip-Vickers' world headquarters, 3000 Strayer, Maumee, Ohio. At
the special meeting, shareholders will be asked to adopt the merger agreement
providing for the merger of Eaton Industries into Aeroquip-Vickers, after which
Aeroquip-Vickers would become a wholly owned subsidiary of Eaton.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL (PAGE 8)
You are entitled to vote at the special meeting if you owned
Aeroquip-Vickers shares as of the close of business on the record date of March
5, 1999. On the record date, there were 27,638,225 Aeroquip-Vickers common
shares entitled to vote at the special meet-
4
<PAGE> 11
ing. Shareholders will have one vote at the special meeting for each
Aeroquip-Vickers common share they owned on the record date.
The affirmative vote of at least a majority of the outstanding
Aeroquip-Vickers common shares is required to adopt the merger agreement.
DISSENTERS' RIGHTS (PAGE 23)
Aeroquip-Vickers is organized under Ohio law. Under Ohio law, any
Aeroquip-Vickers shareholder who does not vote in favor of the adoption of the
merger agreement and who properly exercises his or her dissenters' rights will
be entitled to receive the court determined "fair cash value" of his or her
Aeroquip-Vickers shares. In order to receive the fair cash value for their
shares, dissenting Aeroquip-Vickers shareholders must deliver a written demand
for a cash payment not later than ten days after approval of the merger at the
special meeting and in the manner provided under Section 1701.85 of the Ohio
Revised Code, a copy of which is attached as Annex C to this proxy statement.
Any Aeroquip-Vickers shareholder who wishes to submit a demand for payment of
the fair cash value of his or her Aeroquip-Vickers shares should deliver a
written demand to Aeroquip-Vickers, Inc., 3000 Strayer, Maumee, Ohio 43537,
Attention: Secretary.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS (PAGE 18)
On the record date, directors and executive officers owned and were
entitled to vote 230,037 (approximately 1%) outstanding Aeroquip-Vickers common
shares. These directors and officers have expressed an intention to vote in
favor of the merger agreement.
INTERESTS OF OFFICERS AND DIRECTORS IN THE TRANSACTION (PAGE 17)
A number of directors and executive officers of Aeroquip-Vickers have
interests in the transaction as employees or directors that are different from,
or in addition to, your interests as shareholders. Upon the initial filing of
this proxy statement on February 12, 1999, executive officers of
Aeroquip-Vickers, if terminated or, in the case of certain executives, became
entitled to receive if they resign in designated circumstances, certain benefits
and other compensation under their existing compensation arrangements. Mr.
Darryl F. Allen, Aeroquip-Vickers' Chairman and CEO, and Eaton have entered into
an agreement providing for Mr. Allen's employment for a one-year period followed
by a four-year consulting period, and for the grant of a fair market value stock
option to purchase 50,000 shares of Eaton common stock upon the effective time
of the merger. In addition, Aeroquip-Vickers and Mr. Allen have amended Mr.
Allen's change in control agreement to provide for a lump sum payment and
certain other benefits to Mr. Allen upon consummation of the merger. Mr. Howard
M. Selland, Aeroquip-Vickers' Executive Vice President and Aeroquip
Corporation's President, and Eaton are currently in discussions with respect to
Mr. Selland serving as an officer of Eaton with the status of Senior Vice
President following the merger. In addition, certain indemnification and
insurance arrangements for existing directors and officers of Aeroquip-Vickers
will be continued.
CONDITIONS TO THE TRANSACTION (PAGE 31)
The transaction will be completed if a number of conditions are met (or,
where permitted, waived), including the following:
- the shareholders of Aeroquip-Vickers adopt the merger agreement;
- no law, injunction or order prohibits the transaction;
- all necessary governmental approvals are obtained;
- the relevant waiting period imposed under the antitrust laws expires;
- the representations and warranties of each party are true and correct in
all material respects as of the date of the merger agreement and as of
the closing date of the merger, including the representation that there
has not been a material adverse change in Aeroquip-Vickers' business
since September 30, 1998; and
- each party performs in all material respects all obligations required to
be performed by it under the merger agreement at or prior to the closing
date of the merger.
In addition, Eaton has the right not to consummate the merger if the
following conditions are not met:
- all material contractual consents required in connection with the merger
are obtained;
- no governmental entity institutes an action or other proceeding
challenging or seeking to restrain or prohibit the transaction; and
- holders of no more than 10% of the outstanding Aeroquip-Vickers common
shares take action to assert dissenters' rights under Section 1701.85 of
Ohio law.
5
<PAGE> 12
In some instances, a condition to completion of the transaction can be
waived, but only if the party entitled to assert that condition agrees to waive
it.
REGULATORY MATTERS (PAGE 21)
Eaton and Aeroquip-Vickers have made filings and taken other actions, and
will continue to take actions, necessary to obtain approvals from the United
States and foreign governmental authorities in connection with the proposed
transactions, including the United States and foreign antitrust authorities. We
expect to obtain all material and required governmental approvals on or about
April 8, 1999. We cannot be certain, however, that Eaton and Aeroquip-Vickers
will obtain all required governmental approvals, or that we will obtain these
approvals without conditions that would be detrimental to Eaton or Aeroquip-
Vickers.
TERMINATION OF THE MERGER AGREEMENT (PAGE 32)
Eaton and Aeroquip-Vickers may agree to terminate the merger agreement at
any time. In addition, either party may terminate the merger agreement if:
- The parties do not complete the merger by July 31, 1999;
- Aeroquip-Vickers shareholders do not adopt the merger agreement;
- A law or regulation makes the transaction illegal or any order or
injunction permanently prohibits the transaction; or
- The other party breaches its representations, warranties or obligations
under the merger agreement in any material respect and does not or cannot
cure the breach.
In addition, Eaton may terminate the merger agreement if:
- Aeroquip-Vickers' Board of Directors changes, in a manner adverse to
Eaton, its recommendation that you vote in favor of the merger agreement;
- Aeroquip-Vickers' Board of Directors recommends another transaction to
you;
- a third party acquires 30% of Aeroquip-Vickers common shares;
- Aeroquip-Vickers' Board of Directors announces an intention to enter into
an agreement with another person; or
- Aeroquip-Vickers willfully breaches the no solicitation or shareholder
recommendation provisions of the merger agreement.
PAYMENT OF FEES (PAGE 30)
Aeroquip-Vickers must pay Eaton a fee equal to $2 multiplied by the number
of Aeroquip-Vickers common shares outstanding on a fully diluted basis if:
- Eaton terminates the merger agreement because (a) Aeroquip-Vickers' Board
of Directors changes, in a manner adverse to Eaton, its recommendation
that you vote in favor of the merger agreement, (b) Aeroquip-Vickers'
Board of Directors recommends another transaction to you, (c) a third
party acquires 30% of Aeroquip-Vickers' shares, (d) Aeroquip-Vickers'
Board of Directors announces an intention to enter into an agreement with
another person, or (e) Aeroquip-Vickers willfully breaches the no
solicitation or shareholder recommendation provisions of the merger
agreement; or
- before the special meeting a competing transaction is proposed, the
shareholders of Aeroquip-Vickers do not adopt the merger agreement and
Eaton or Aeroquip-Vickers terminates the merger agreement.
Aeroquip-Vickers does not have the right to terminate the merger agreement
or enter into an agreement with respect to a competing transaction before the
special meeting. Aeroquip-Vickers, however, may furnish information to and
negotiate with a third party after receiving from that party a written,
unsolicited proposal for a business combination that the Board of Directors
determines in good faith to be more favorable to you than the transaction with
Eaton.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 22)
The receipt of cash by a shareholder of Aeroquip-Vickers pursuant to the
merger will be a taxable transaction for federal income tax purposes and may
also be taxable under applicable state, local and foreign income and other tax
laws. A shareholder will recognize a gain or loss in an amount equal to the
difference between the adjusted tax basis of his or her Aeroquip-Vickers common
shares and the amount of cash received in exchange therefor in the merger. Such
gain or loss will be a capital gain or loss if the Aeroquip-Vickers common
shares are a capital asset in the hands of the shareholder and will be a
long-term capital gain or loss if the holding period exceeds one year. See "The
Merger -- Certain Federal Income Tax Consequences."
6
<PAGE> 13
SUMMARY SELECTED FINANCIAL DATA
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
The following table sets forth selected consolidated financial data for
Aeroquip-Vickers as of the dates and for the periods indicated, and has been
prepared in accordance with United States generally accepted accounting
principles. The financial data for each of the five years ended December 31 are
derived from Aeroquip-Vickers' audited financial statements. The financial data
for the nine months ended September 30, 1998 and 1997 are derived from unaudited
consolidated financial statements of Aeroquip-Vickers, which, in the opinion of
Aeroquip-Vickers' management, include all adjustments (consisting only of normal
recurring adjustments except as otherwise noted) necessary for a fair
presentation thereof. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results to be expected
for any other interim period or for the full year. The data set forth below in
this table is qualified in its entirety by, and should be read in conjunction
with, the consolidated financial statements of Aeroquip-Vickers and the related
notes thereto included in Aeroquip-Vickers' Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and Aeroquip-Vickers' Form 10-Q for the
quarter ended September 30, 1998. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- ----------------------
1997 1996 1995 1994 1993 1998 1997
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 2,112.3 $ 2,032.9 $ 1,884.0 $ 1,794.7 $ 1,643.8 $ 1,630.3 $ 1,589.5
Income before cumulative effect
of accounting change.......... 100.9(a) 102.7(b) 94.9 65.9 10.5(c) 92.9 69.4(a)
Net income (loss)............... 100.9 102.7 94.9 65.9 (59.7) 92.9 69.4
Income (Loss) per share:
Basic:
Before cumulative effect of
accounting change......... 3.60 3.62 3.29 2.29 0.37 3.30 2.48
Net income (loss)........... 3.60 3.62 3.29 2.29 (2.11) 3.30 2.48
Diluted:
Before cumulative effect of
accounting change......... 3.51(a) 3.51(b) 3.20 2.26 0.37(c) 3.28 2.41(a)
Net income (loss)........... 3.51 3.51 3.20 2.26 (2.11) 3.28 2.41
Total assets............ 1,376.6 1,289.5 1,224.2 1,001.0 972.2 1,478.7 1,365.3
Long-term debt.................. 256.7 257.7 302.4 234.9 246.2 264.0 257.6
Cash dividends per common
share......................... 0.80 0.80 0.72 0.68 0.68 0.66 0.60
Book value per share............ 18.18 15.99 13.91 11.11 8.91 20.68 17.40
</TABLE>
- ---------------
(a) Includes a special charge of $30.0 million ($18.5 million net, or diluted
net income per share of $.63) to exit Aeroquip-Vickers' automotive interior
plastics business.
(b) Includes a combined net gain from sale of unconsolidated affiliates of $5.0
million (diluted net income per share of $.16) and a credit for settlement
of claims for prior years' research and development tax credits of $4.0
million (diluted net income per share of $.13).
(c) Includes a special charge for severance and other personnel-related costs
amounting to $26.0 million ($18.2 million net, or diluted net income per
share of $.64) and a provision for unsuccessfully contested prior years'
value-added taxes in Brazil amounting to $7.0 million ($4.7 million net, or
diluted net income per share of $.17).
7
<PAGE> 14
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to holders of Aeroquip-Vickers
common shares in connection with the solicitation of proxies by and on behalf of
the Board of Directors for use at the special meeting to be held at 10:00 a.m.,
Eastern time, on April 8, 1999, at 3000 Strayer, Maumee, Ohio, and at any
adjournments or postponements thereof. This proxy statement, the accompanying
notice, proxy card and letter to the Aeroquip-Vickers shareholders are first
being mailed on or about March 8, 1999, to holders of Aeroquip-Vickers common
shares entitled to notice of, and to vote at, the special meeting.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, shareholders will be asked to consider and vote
upon a proposal to adopt the merger agreement. The Board of Directors has
unanimously determined that the merger agreement and the merger are fair to and
in the best interests of Aeroquip-Vickers and its shareholders and has approved
the merger agreement. ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. See "The
Merger -- Background of the Merger" and "The Merger -- Aeroquip-Vickers' Reasons
for the Merger; Recommendation of the Board of Directors."
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD PROMPTLY TO AEROQUIP-VICKERS IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO
VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE
MERGER AGREEMENT.
RECORD DATE; VOTING AT THE SPECIAL MEETING
March 5, 1999, has been fixed as the record date for the determination of
the holders of Aeroquip-Vickers common shares entitled to receive notice of, and
to vote at, the special meeting. Only shareholders of record at the close of
business on that date will be entitled to receive notice of, and to vote at, the
special meeting. At the close of business on March 5, 1999, the most recent
practicable date prior to the date of this proxy statement, there were
27,638,225 Aeroquip-Vickers common shares outstanding, held by approximately
8,305 shareholders of record.
Shareholders of record on the record date are entitled to one vote per
share, exercisable in person or by properly executed proxy, upon each matter
properly submitted for the vote of shareholders at the special meeting. The
presence, in person or by properly executed proxy, of the holders of the
outstanding Aeroquip-Vickers common shares entitling them to exercise a majority
of the voting power is necessary to constitute a quorum at the special meeting.
Abstentions and broker non-votes will be counted as present for the purpose of
determining the presence of a quorum at the special meeting. Under New York
Stock Exchange rules, brokers who hold shares in street name for customers have
the authority to vote on certain "routine" proposals when they have not received
instructions from beneficial owners. Under New York Stock Exchange rules, such
brokers are precluded from exercising their voting discretion with respect to
the approval and adoption of non-routine matters such as the merger, and thus,
absent specific instructions from the beneficial owner of such shares, brokers
are not empowered to vote such shares with respect to the adoption of the
merger, resulting in what is known as a "broker non-vote."
The affirmative vote of the holders of a majority of the outstanding
Aeroquip-Vickers common shares is required to adopt the merger agreement. The
required vote of the shareholders on the merger agreement is based on the total
number of Aeroquip-Vickers common shares outstanding as of the record date. THE
FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE SPECIAL MEETING, THE
ABSTENTION FROM VOTING BY A SHAREHOLDER AND BROKER NON-VOTES, THEREFORE, WILL
HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE ADOPTION OF THE MERGER AGREEMENT.
Holders of Aeroquip-Vickers common shares on the record date who do not
vote in favor of adopting the merger agreement and who otherwise comply with the
applicable statutory procedures of Section 1701.85 of Ohio law will be entitled
to dissenters' rights under Ohio law in connection with the merger. Shareholders
of Aeroquip-Vickers who vote in favor of adopting the merger agreement, however,
will thereby waive their dissenters' rights. See "The Merger -- Dissenters'
Rights."
8
<PAGE> 15
The Board of Directors is not aware of any matters other than the adoption
of the merger agreement set forth in the notice of special meeting of
shareholders transmitted with this proxy statement that may be brought before
the special meeting. IF ANY OTHER MATTERS PROPERLY COME BEFORE THE SPECIAL
MEETING, THE PERSONS NAMED IN THE ACCOMPANYING PROXY CARD WILL VOTE THE SHARES
REPRESENTED BY ALL PROPERLY EXECUTED PROXIES ON SUCH MATTERS IN SUCH MANNER AS
IS DETERMINED BY THE PROXY COMMITTEE. Members of the Proxy Committee are Messrs.
Darryl F. Allen, Purdy Crawford and William R. Timken, Jr. of the Board of
Directors.
PROXIES, REVOCATION OF PROXIES
Because many of Aeroquip-Vickers' shareholders are unable to attend
shareholders' meetings, the Board of Directors solicits proxies to give each
shareholder an opportunity to vote on the proposal to adopt the merger
agreement, which is set forth in this proxy statement. You are urged to read
carefully the material in this proxy statement; specify your choice on the
proposal by marking the appropriate box on the enclosed proxy card; and sign,
date and return the card in the enclosed postage-paid envelope. If you do not
specify a choice and the card is properly executed and returned, the shares will
be voted by the Proxy Committee for the proposal to adopt the merger agreement.
All Aeroquip-Vickers common shares that are represented at the special meeting
by properly executed proxies received and not duly and timely revoked will be
voted at the special meeting in accordance with the instructions contained in
them; in the absence of any instructions, such shares will be voted "FOR" the
adoption of the merger agreement.
A proxy may be revoked prior to its being voted by: (a) delivering to the
Secretary of Aeroquip-Vickers, at or before the special meeting, a written
instrument bearing a later date than the proxy, which instrument, by its terms,
revokes the proxy, (b) duly executing a subsequent proxy relating to the same
shares and delivering it to the Secretary of Aeroquip-Vickers at or before the
special meeting or (c) attending the special meeting and giving notice of
revocation to the Secretary of Aeroquip-Vickers or in open meeting prior to the
proxy being voted. Attendance at the special meeting without taking other
affirmative action as aforementioned will not constitute a revocation of a
proxy. Any written instrument revoking a proxy should be sent to:
Aeroquip-Vickers, Inc., 3000 Strayer, Maumee, Ohio 43537, Attention: Secretary.
If a quorum is not obtained, or if fewer Aeroquip-Vickers common shares
than the number required are voted in favor of adopting the merger agreement, it
is expected that the special meeting will be postponed or adjourned in order to
permit additional time for soliciting and obtaining additional proxies or votes.
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 special meeting, except for any proxies that have been revoked
or withdrawn. In the absence of a quorum, the special meeting may be adjourned
from time to time by the holders of a majority of the shares represented at the
special meeting in person or by proxy. Unless otherwise agreed to by Eaton and
Aeroquip-Vickers, however, the special meeting may not be postponed beyond July
15, 1999.
The obligations of Aeroquip-Vickers and Eaton to consummate the merger are
subject to, among other things, the condition that the shareholders of
Aeroquip-Vickers, by a majority vote, adopt the merger agreement. See "Certain
Provisions of the Merger Agreement -- Conditions Precedent."
YOU SHOULD NOT FORWARD ANY CERTIFICATES REPRESENTING COMMON SHARES WITH
YOUR PROXY CARD. IF THE MERGER IS CONSUMMATED, CERTIFICATES SHOULD BE DELIVERED
IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL, WHICH WILL
BE SENT TO YOU PROMPTLY AFTER THE EFFECTIVE TIME OF THE MERGER.
SOLICITATION OF PROXIES
Aeroquip-Vickers will pay all costs of soliciting proxies in the
accompanying form from shareholders. In addition to soliciting proxies by mail,
directors, officers and employees of Aeroquip-Vickers may solicit proxies by
telephone, by telegram, or in person, but will not receive additional
compensation for doing so. In addition, Aeroquip-Vickers has retained D. F. King
& Co., Inc., 77 Water Street, New York, New York 10005, to assist
Aeroquip-Vickers in the solicitation of proxies from brokerage firms and other
custodians, nominees and fiduciaries. D. F. King & Co., Inc. will be paid a fee
estimated at $10,000, plus reimbursement of expenses. Arrangements will be made
with brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of Aeroquip-Vickers common
shares held of record by such persons, and Aeroquip-Vickers will reimburse such
brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
9
<PAGE> 16
THE MERGER
The discussion in this proxy statement of the merger and the principal
terms of the merger agreement is subject to, and qualified in its entirety by
reference to, the merger agreement, a copy of which is attached to this proxy
statement as Annex A, and is incorporated herein by reference.
BACKGROUND OF THE MERGER
During the third quarter of 1998, the Industrial & Mobile business of
Vickers, Incorporated ("Vickers I & M") began to experience a significant
reduction in demand for its products in certain industries as well as an
unfavorable sales mix in the products it did sell. These developments were
described in a press release issued by Aeroquip-Vickers on September 16, 1998.
Aeroquip-Vickers' senior management thereafter initiated a detailed review of
Vickers I & M in an effort to better understand the industry dynamics affecting
Vickers I & M. Following this review, Aeroquip-Vickers' senior management
concluded that Vickers I & M faced a number of operational challenges (including
certain management issues) that would require substantial time and resources to
properly address. As a consequence of this review, Aeroquip-Vickers' senior
management began to consider various alternatives with respect to Vickers I & M,
including a restructuring, a sale or other disposition of Vickers I & M.
On October 22, 1998, a regularly scheduled meeting of the Board of
Directors of Aeroquip-Vickers was held. At this meeting, the Board of Directors
received a report from management concerning the challenges confronting Vickers
I & M and certain of the alternatives available to Aeroquip-Vickers to address
these challenges.
On October 28, 1998 and in keeping with this strategy for Vickers I & M, a
representative of Aeroquip-Vickers contacted a representative of Eaton to
explore whether Eaton had any interest in the acquisition of, or a business
combination involving, Vickers I & M. This initial contact brought about a
dialogue between various representatives of Eaton and Aeroquip-Vickers. During
the course of these discussions, Eaton indicated a desire to explore the
acquisition of Vickers I & M as well as a desire to explore the acquisition of
Aeroquip-Vickers in its entirety. As part of these discussions,
Aeroquip-Vickers' representatives indicated that Aeroquip-Vickers was not for
sale.
These discussions culminated in a meeting between representatives of Eaton
and Aeroquip-Vickers, which occurred at Aeroquip-Vickers' world headquarters on
November 3, 1998. At this meeting, the representatives of Eaton and
Aeroquip-Vickers discussed at length the acquisition of Vickers I & M by Eaton
and the synergies that might result from such an acquisition. At the conclusion
of this meeting, it was determined that Eaton would be permitted to conduct a
due diligence investigation of Vickers I & M subject to Eaton's entry into a
confidentiality and standstill agreement. Shortly thereafter, the respective
legal counsels for Eaton and Aeroquip-Vickers negotiated the terms of a
confidentiality and standstill agreement. That agreement was executed by Eaton
and Aeroquip-Vickers on November 6, 1998.
Over the course of the next month, Eaton performed a due diligence
investigation of Vickers I & M. This investigation included on-site visits by
Eaton representatives to a number of facilities operated by Vickers I & M. At
the conclusion of this process, Mr. Stephen Hardis, Eaton's Chairman and Chief
Executive Officer, telephoned Mr. Darryl Allen, Aeroquip-Vickers' Chairman and
Chief Executive Officer, to arrange a meeting to discuss the results of Eaton's
due diligence investigation of Vickers I & M.
On December 8, 1998, Mr. Hardis and Mr. Allen met at Aeroquip-Vickers'
world headquarters. At this meeting, Mr. Hardis indicated that, while Eaton
continued to have an interest in acquiring Vickers I & M, Eaton was more
interested in acquiring Aeroquip-Vickers as a whole. To that end, Mr. Hardis
presented Mr. Allen with a non-binding, confidential written indication of
interest providing for the acquisition of Aeroquip-Vickers by Eaton at a price
of $50 per share payable in cash subject to a satisfactory due diligence
investigation by Eaton. During this meeting, Mr. Hardis explained that Eaton was
unwilling to participate in an auction process. In response, Mr. Allen indicated
that, while Aeroquip-Vickers was not for sale, he would share Eaton's indication
of interest with Aeroquip-Vickers' Board of Directors at its previously
scheduled special meeting on December 10, 1998.
10
<PAGE> 17
On December 10, 1998, the Board of Directors of Aeroquip-Vickers held a
special meeting at which representatives of Aeroquip-Vickers' outside legal
counsel, and Morgan Stanley, Aeroquip-Vickers' financial advisor, attended. At
this meeting, Aeroquip-Vickers' Board of Directors discussed the Eaton
indication of interest at great length. At the conclusion of this discussion,
the Board of Directors determined not to take any action at that time. Instead,
the Board of Directors instructed Morgan Stanley to evaluate the Eaton
indication of interest and called a special meeting to be held on December 18,
1998 to further consider the matter.
On December 16, 1998, Mr. Allen met with the Chief Executive Officer of
another company who had, on previous occasions, expressed an interest in
pursuing a business combination with Aeroquip-Vickers. During this meeting, this
Chief Executive Officer expressed an interest in pursuing a stock-for-stock
merger between his company and Aeroquip-Vickers in a transaction in which
shareholders of Aeroquip-Vickers would receive stock in the combined entity
valued in the range of $40 per share.
On December 18, 1998, Aeroquip-Vickers' Board of Directors held a special
meeting to further discuss the Eaton indication of interest. This meeting was
attended by representatives of Aeroquip-Vickers' outside legal counsel and
Morgan Stanley and included presentations by legal counsel concerning the
fiduciary duties of the Directors in considering the Eaton indication of
interest and by Morgan Stanley regarding the merits of that indication from a
financial point of view. Following these presentations, the Board of Directors
engaged in an extensive discussion with respect to the Eaton indication of
interest and the other strategic alternatives available to Aeroquip-Vickers,
including pursuing the opportunity described in the immediately preceding
paragraph. At the conclusion of this discussion, the Board of Directors
instructed Mr. Allen to inform Eaton that, while Aeroquip-Vickers was not for
sale and would continue to explore strategic alternatives for Vickers I & M,
Aeroquip-Vickers would allow Eaton to conduct due diligence on the entire
company. The Board of Directors further instructed Mr. Allen to inform Eaton
that Aeroquip-Vickers would continue a dialogue with Eaton with respect to the
possible acquisition of Aeroquip-Vickers by Eaton, but the Board of Directors
believed that Eaton's proposed price was inadequate and would not entertain any
proposal from Eaton unless Eaton raised its price significantly. Following the
conclusion of this meeting, Mr. Allen telephoned Mr. Hardis to inform him of the
Board of Directors' instructions.
On December 22, 1998, Morgan Stanley was formally engaged by
Aeroquip-Vickers to act as its exclusive financial advisor in connection with
the Eaton indication of interest or a potential business combination with a
third party.
Over the course of the next month, representatives of Eaton expanded its
due diligence investigation to Aeroquip-Vickers in its entirety. This
investigation included on-site visits by Eaton representatives to a number of
additional facilities operated by Aeroquip-Vickers.
On January 18, 1999, representatives of Morgan Stanley met with a
representative of Eaton in Cleveland, Ohio to discuss the Eaton indication of
interest and the synergies that could result from Eaton's acquisition of
Aeroquip-Vickers.
On January 22, 1999, a meeting was held in Cleveland, Ohio between Mr.
Hardis, Mr. Allen, certain other senior managers from Eaton and Aeroquip-Vickers
and a representative of Morgan Stanley. At this meeting, Mr. Hardis and Mr.
Allen engaged in negotiations regarding the price that Eaton would be willing to
pay for Aeroquip-Vickers. At the conclusion of this meeting, Mr. Hardis and Mr.
Allen indicated that they would each recommend to their respective Board of
Directors that Eaton acquire Aeroquip-Vickers at a price per share of $58
payable in cash subject to the preparation, negotiation and finalization of a
definitive merger agreement.
During the week that followed, Aeroquip-Vickers and its outside counsel, on
the one hand, and Eaton and its outside counsel, on the other hand, negotiated
the terms of a merger agreement.
On January 27, 1999, the Board of Directors of Eaton held a regularly
scheduled meeting. At this meeting, Eaton's Board of Directors considered the
proposal to acquire Aeroquip-Vickers for a price of $58 per share payable in
cash. At the conclusion of this meeting, Eaton's Board of Directors unanimously
approved this proposal subject to the further negotiation and finalization of
the draft merger agreement.
11
<PAGE> 18
On January 28, 1999, the Board of Directors of Aeroquip-Vickers held a
regularly scheduled meeting. At this meeting, Mr. Allen updated the Directors on
the status of negotiations with Eaton. Morgan Stanley representatives made a
presentation to the Directors regarding valuation, including a review of the
analyses employed by Morgan Stanley, and conveyed their preliminary oral opinion
that the transaction would be fair to Aeroquip-Vickers' shareholders from a
financial point of view. A representative of Aeroquip-Vickers' outside legal
counsel discussed the Directors' fiduciary duties under Ohio law. Following
these presentations, Aeroquip-Vickers' Board of Directors once again engaged in
a lengthy discussion with respect to the Eaton proposal. At the conclusion of
this meeting, the Board of Directors determined to postpone a decision on the
Eaton proposal pending negotiation of, and its receipt and review of, the merger
agreement.
On January 30, 1999, a special telephonic meeting of the Board of Directors
of Aeroquip-Vickers was held, the Directors having previously received a draft
of the merger agreement. During this meeting, Mr. Allen reviewed the status of
the negotiations with Eaton, and Aeroquip-Vickers' outside legal counsel
reviewed the terms and conditions of the draft merger agreement (including, in
particular, the provisions relating to the (a) ability of the Directors to
consider other acquisition proposals should they arise and (b) the payment of a
"break-up" fee to Eaton in certain circumstances) and the legal duties and
responsibilities of the Directors in connection with the proposed transaction.
Morgan Stanley provided its oral opinion (subsequently confirmed in writing)
that, as of January 30, 1999, the merger consideration was fair, from a
financial point of view, to the shareholders of Aeroquip-Vickers. Following
further discussion, the Board of Directors unanimously approved the merger
agreement, subject to finalization, and authorized the officers of
Aeroquip-Vickers to execute it. On January 31, 1999, the merger agreement was
finalized and executed. On February 1, 1999, a press release announcing the
merger agreement was jointly issued by Eaton and Aeroquip-Vickers.
AEROQUIP-VICKERS' REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS
THE BOARD OF DIRECTORS BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO
AND IN THE BEST INTERESTS OF AEROQUIP-VICKERS AND ITS SHAREHOLDERS, HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
In reaching its decision to approve the merger agreement, the Board of
Directors consulted with its financial and legal advisors, and considered a
variety of factors, including the following:
- A review of the possible alternatives to a sale of Aeroquip-Vickers,
including the prospects of continuing to operate Aeroquip-Vickers as an
independent company, the value to shareholders of such alternatives and
the timing and likelihood of achieving additional value from these
alternatives, and the possibility that Aeroquip-Vickers' future
performance might not lead to a stock price having a higher present value
than the merger consideration.
- The opinion of Morgan Stanley & Co. Incorporated, Aeroquip-Vickers'
financial advisor, that the merger consideration is fair, from a
financial point of view, to the holders of Aeroquip-Vickers common shares
and the financial analyses conducted by Morgan Stanley in reaching its
opinion, as described under "The Merger -- Opinion of Aeroquip-Vickers'
Financial Advisor."
- The amount of consideration offered to Aeroquip-Vickers' shareholders,
which represents a premium of 82.5%, 86.4%, 82.1% and 74.4%, over the
average Aeroquip-Vickers closing prices for the 30-day period, the 45-day
period, the 60-day period and the 90-day period, respectively, preceding
January 29, 1999 (the last trading day preceding the announcement of the
merger), and a premium of approximately 22.7% over the average price at
which Aeroquip-Vickers common shares have traded in the year preceding
January 29, 1999.
- The current and prospective environment in which Aeroquip-Vickers
operates, including economic conditions and the competitive environment
for the industries in which Aeroquip-Vickers operates generally, which
led the Board of Directors to the view that a combined and larger company
could better compete in an industry experiencing consolidation.
- The Board of Directors' view that the terms of the merger agreement, as
reviewed by the Board of Directors with its legal and financial advisors,
are fair to Aeroquip-Vickers and its shareholders and give
12
<PAGE> 19
the Board of Directors the flexibility needed to comply with its
fiduciary duties under Ohio law. See "Certain Provisions of the Merger
Agreement -- Covenants -- No Solicitation" and "Certain Provisions of the
Merger Agreement -- Additional Agreements -- Fees and Expenses."
- The Board of Directors' knowledge of the business, operations,
properties, assets, financial condition and operating results of
Aeroquip-Vickers.
- The opportunities created by the combination of Eaton's existing
hydraulics business with Aeroquip-Vickers, allowing the combined company
to supply complete product lines and global platforms.
The Aeroquip-Vickers' Board of Directors also considered certain
countervailing factors in its deliberations concerning the merger, including:
- The potential disruption of Aeroquip-Vickers' business that might result
from the announcement of the merger.
- The possible difficulties of integrating the two companies' managements.
- The uncertainty regarding shareholders', customers' and employees'
perceptions of the merger.
- The possibility that the merger may not be consummated.
- The requirement under the merger agreement that Aeroquip-Vickers
shareholders have an opportunity to vote on the merger agreement at the
special meeting even if other proposals are received, and the required
payment by Aeroquip-Vickers in certain circumstances of a termination fee
under the merger agreement. See "Certain Provisions of the Merger
Agreement -- Termination, Fees, Amendment and Waiver."
The foregoing discussion of the information and factors discussed by the
Board of Directors is not meant to be exhaustive but is believed to include all
material factors considered by the Board of Directors. The Board of Directors
did not quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the merger agreement and the
merger are fair to and in the best interests of Aeroquip-Vickers and its
shareholders. Rather, the Board of Directors viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it. As a result of its consideration of the foregoing and
other relevant considerations, the Board of Directors unanimously determined
that the merger agreement and the merger are advisable to and in the best
interests of Aeroquip-Vickers and its shareholders and approved the merger
agreement. Accordingly, the Board of Directors unanimously recommends that
shareholders vote "FOR" adoption of the merger agreement.
EFFECTS OF THE MERGER; MERGER CONSIDERATION
The merger agreement provides, on the terms and subject to the conditions
set forth therein, (a) for the merger of Eaton Industries into Aeroquip-Vickers
with Aeroquip-Vickers surviving the merger as a wholly owned subsidiary of
Eaton, and (b) that each Aeroquip-Vickers common share outstanding immediately
prior to the effective time of the merger, other than shares owned by Eaton,
Aeroquip-Vickers or shareholders, if any, who properly exercise their
dissenters' rights under Ohio law, will be converted into the right to receive
$58.00 in cash, without interest. The effective time of the merger will be at
the time a certificate of merger is filed with the Ohio Secretary of State (or
at such later time as specified in the certificate of merger), which is expected
to occur within two business days (or, at Eaton's election, eleven calendar
days) after the last of the conditions precedent to the merger set forth in the
merger agreement has been satisfied or waived. See "Certain Provisions of the
Merger Agreement -- Conditions Precedent."
The merger will have the effects set forth under Ohio law. Specifically, at
the effective time of the merger, all of the property, rights, privileges,
powers and franchises of Aeroquip-Vickers and Eaton Industries will be vested in
the surviving corporation, and all of the debts, liabilities and duties of
Aeroquip-Vickers and Eaton Industries will become the debts, liabilities and
duties of the surviving corporation.
The directors of Eaton Industries immediately prior to the effective time
of the merger will be the directors of the surviving corporation, until the
earlier of their death, resignation or removal or until their respective
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<PAGE> 20
successors are duly elected and qualified, as the case may be. The officers of
Aeroquip-Vickers immediately prior to the effective time of the merger will be
the officers of the surviving corporation, until the earlier of their death,
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
OPINION OF AEROQUIP-VICKERS' FINANCIAL ADVISOR
Morgan Stanley Opinion
In a letter agreement dated December 22, 1998, Aeroquip-Vickers engaged
Morgan Stanley as its exclusive financial advisor in connection with the merger.
Morgan Stanley was selected by Aeroquip-Vickers based on Morgan Stanley's
qualifications, expertise and reputation. On January 28 and January 30, 1999,
Morgan Stanley delivered to Aeroquip-Vickers' Board of Directors an oral opinion
that, on and as of the date of such opinion, and based on assumptions made,
procedures followed, matters considered, and limits of review, as set forth in
the written confirmation of the opinion, the consideration to be received by the
holders of Aeroquip-Vickers common shares pursuant to the merger agreement was
fair from a financial point of view to such holders. This opinion was
subsequently confirmed in a written opinion dated January 31, 1999.
The full text of Morgan Stanley's opinion, dated January 31, 1999, which
sets forth, among other things, assumptions made, procedures followed, matters
considered and limitations on the review undertaken by Morgan Stanley in
rendering its opinion, is attached as Appendix B to this proxy statement and
incorporated herein by reference. Aeroquip-Vickers shareholders are urged to,
and should, read Morgan Stanley's opinion carefully and in its entirety. Morgan
Stanley's opinion is directed to the Board of Directors, addresses only the
fairness of the consideration to be received by the holders of Aeroquip-Vickers
common shares pursuant to the merger agreement from a financial point of view to
the holders and does not address any other aspect of the merger or constitute a
recommendation to any holder of Aeroquip-Vickers common shares as to how to vote
at the special meeting. The following summary of Morgan Stanley's opinion is
qualified in its entirety by reference to the full text of the opinion, attached
as Appendix B to this proxy statement.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information of Aeroquip-Vickers;
- reviewed certain internal financial statements and other financial and
operating data concerning Aeroquip-Vickers prepared by the management of
Aeroquip-Vickers;
- analyzed certain financial projections prepared by the management of
Aeroquip-Vickers;
- discussed the past and current operations and financial condition and the
prospects of Aeroquip-Vickers with senior executives of Aeroquip-Vickers;
- reviewed the reported prices and trading activity for Aeroquip-Vickers
common shares;
- compared the financial performance of Aeroquip-Vickers and the prices and
trading activity of Aeroquip-Vickers common shares with that of certain
other comparable publicly traded companies and their securities;
- reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
- reviewed the pro forma impact of the merger on Eaton's financial
position;
- participated in discussions and negotiations among representatives of
Aeroquip-Vickers and Eaton;
- reviewed the merger agreement; and
- performed such other analyses and considered such other factors as Morgan
Stanley has deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of rendering its opinion. With respect to the
financial projections, Morgan Stanley assumed that they were reasonably prepared
on bases
14
<PAGE> 21
reflecting the best currently available estimates and judgments of the future
financial performance of Aeroquip-Vickers. In addition, Morgan Stanley has
assumed that the merger will be consummated in accordance with the terms set
forth in the merger agreement. Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities of Aeroquip-Vickers, nor was
it furnished with any such appraisals. Morgan Stanley's opinion was necessarily
based on financial, economic, market and other conditions as in effect on, and
the information made available to Morgan Stanley as of, the date thereof.
The following is a brief summary of the material analyses performed by
Morgan Stanley in preparation of its opinion. Certain of these summaries of
financial analyses include information presented in tabular format. In order to
fully understand the financial analyses used by Morgan Stanley, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Historical Stock Price Performance. Morgan Stanley noted that $58 per share
represented a 64.5% premium to the $35.25 closing price of Aeroquip-Vickers
common shares on January 29, 1999, which was the last full trading day prior to
the announcement of the merger agreement.
Morgan Stanley reviewed the historical performance of Aeroquip-Vickers
common shares based on a historical analysis of closing prices and trading
volumes from the first trading day in January 1998 through January 25, 1999.
Morgan Stanley also reviewed the historical trading performance as compared to
its estimated earnings for the next year for the period January 25, 1998 through
January 25, 1999. Earnings estimates were based on the Institutional Brokerage
Estimate Service median. Morgan Stanley noted that the ten-year average price to
forward earnings ratio was 12.3 times and the five-year average price to forward
earnings ratio was 10.6 times.
Morgan Stanley also reviewed the distribution of the closing prices of
Aeroquip-Vickers common shares from January 1, 1993 through December 31, 1998.
Morgan Stanley noted that 90.7% of the trading volume of Aeroquip-Vickers common
shares during this period occurred at or below the merger consideration of $58
per share payable in cash.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES TRADED AT OR BELOW
SPECIFIED PRICE FROM
PRICE JANUARY 1, 1993 - DECEMBER 31, 1998
----- ---------------------------------------
<S> <C>
$75 100.0%
$70 99.6%
$65 97.1%
$60 93.5%
$58 90.7%
$55 84.0%
$50 72.5%
$45 63.7%
$40 58.9%
$35 42.6%
$30 18.4%
$25 1.6%
$20 0.0%
</TABLE>
Discounted Cash Flow Analysis. Morgan Stanley analyzed certain financial
projections prepared by the management of Aeroquip-Vickers for the fiscal years
1998 through 2004 and performed a discounted cash flow analysis of
Aeroquip-Vickers based on these projections. Morgan Stanley discounted the
unlevered free cash flows of Aeroquip-Vickers at a range of discount rates of
10.0% to 11.0%, representing an estimated weighted average cost of capital range
for Aeroquip-Vickers, and terminal values based on a range of multiples of 5.0
- --7.0 times estimated 2008 earnings before interest, taxes, depreciation and
amortization, or EBITDA, to arrive at a range of present values for
Aeroquip-Vickers. Such present values were then adjusted for Aeroquip-Vickers'
debt (net of cash) and proceeds from the exercise of outstanding options to
arrive at an equity value per share.
15
<PAGE> 22
Based on this analysis, Morgan Stanley calculated values representing an equity
value per Aeroquip-Vickers common share ranging from approximately $50 to $61.
Morgan Stanley also analyzed certain financial projections prepared by a
Morgan Stanley Dean Witter research analyst for the fiscal year 1999 and
performed a discounted cash flow analysis of Aeroquip-Vickers based on those
estimates. Morgan Stanley discounted the unlevered free cash flows of
Aeroquip-Vickers at a range of discount rates of 10.0% to 11.0%, representing an
estimated weighted average cost of capital range for Aeroquip-Vickers, and
terminal values based on a range of multiples of 5.0 -- 7.0 times estimated 2008
EBITDA to arrive at a range of present values for Aeroquip-Vickers. Such present
values were then adjusted for Aeroquip-Vickers' debt (net of cash) and proceeds
from the exercise of outstanding options. Based on this analysis, Morgan Stanley
calculated values representing equity value per Aeroquip-Vickers common share
ranging from approximately $39 to $51.
Comparable Company Analysis. Morgan Stanley reviewed the current valuation
of publicly traded companies in the industrial and aerospace sectors considered
to be comparable to Aeroquip-Vickers. Morgan Stanley reviewed measures of
valuation including historical and projected price to earnings ratios,
historical and projected price to cash flow ratios and historical and projected
aggregate value to EBITDA ratios. Morgan Stanley observed price to the 1999
estimated earnings multiple mean of 12.5 times for comparable industrial
publicly traded companies and 11.1 times for comparable aerospace publicly
traded companies. Based on the forecast of 1999 earnings in management's
projections, Morgan Stanley selected a multiple range of 11.0-12.5 times 1999
estimated earnings, which implied a range of equity value per share of
Aeroquip-Vickers common stock between $42 and $48.
No company utilized in the publicly traded comparable company analysis is
identical to Aeroquip-Vickers. Morgan Stanley made judgments and assumptions
with regard to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
either Aeroquip-Vickers or Eaton. Mathematical analysis (such as determining the
mean or median) is not itself a meaningful method of using publicly traded
comparable company data.
Selected Precedent Acquisitions Analysis. Using publicly available
information, Morgan Stanley reviewed recent precedent transactions that were
considered to be comparable to the merger. Morgan Stanley reviewed publicly
available financial information including the aggregate value to the latest
twelve-month EBITDA. Morgan Stanley observed an aggregate value to latest
twelve-month value EBITDA range of approximately 6.7-9.5 times and a mean of 8.0
times for the precedent transactions. Based on management's projections for
1998, and using a multiple range of 7.0-8.0 times 1998 EBITDA, a range of
implied equity values per Aeroquip-Vickers common share was between $54 and $63.
Leveraged Buyout Analysis. Morgan Stanley analyzed a scenario, using both
management's projections and the research estimates, whereby Aeroquip-Vickers
common shares would be purchased by a financial buyer at a price resulting in a
five-year rate of return of approximately 30% and a five-year EBITDA exit
multiple of 5.0-7.0 times. This analysis implied an equity price of $40 to $45
per share.
Discounted Future Stock Price. Morgan Stanley evaluated the implied current
share price by estimating the share price in 2000 based on a multiple of 2001
earnings of 9.0-10.0 times. It used 2001 earnings estimates based on both the
research estimates and management's projections. The implied share price in 2000
was then discounted to a current price at an equity discount rate of 12%. This
analysis implied a valuation of $30 to $48 per share.
In connection with the review of the merger by the Board of Directors,
Morgan Stanley performed a variety of financial and comparative analyses for
purposes of delivering its opinion. While the foregoing summary describes the
analyses and factors reviewed by Morgan Stanley in connection with its opinion,
it does not purport to be a complete description of all the analyses performed
by Morgan Stanley in arriving at its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all its analyses as a
whole and did not attribute particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create
16
<PAGE> 23
an incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses or factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Aeroquip-Vickers. In rendering the Morgan
Stanley opinion, Morgan Stanley was not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction involving Aeroquip-Vickers, nor
did it negotiate with any parties other than Eaton.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Aeroquip-Vickers and
Eaton. Any estimates contained herein are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable than
those suggested by such estimates. The analyses performed were prepared solely
as part of Morgan Stanley's analysis of the fairness of the consideration to be
received by holders of Aeroquip-Vickers common shares pursuant to the merger
agreement from a financial point of view to such holders and were conducted in
connection with the delivery of Morgan Stanley's opinion. The analyses do not
purport to be appraisals or to reflect the prices at which Aeroquip-Vickers
might actually be sold. Morgan Stanley did not recommend the consideration to be
received by Aeroquip-Vickers shareholders, or that any consideration to be
received by Aeroquip-Vickers shareholders constituted the only appropriate
consideration for the merger.
In addition, Morgan Stanley's opinion and presentation to the Board of
Directors was one of the many factors taken into consideration by the Board of
Directors in making its determination to recommend approval of the merger. The
Morgan Stanley analyses described above consequently should not be viewed as
determinative of the opinion of the Board of Directors with respect to the
consideration paid in connection with the merger or of whether the Board of
Directors would have been willing to agree to a different consideration. The
consideration to be paid by Eaton pursuant to the merger agreement was
determined through arm's-length negotiations between Aeroquip-Vickers and Eaton
and was approved by the Board of Directors.
Aeroquip-Vickers engaged Morgan Stanley to advise it on strategic
alternatives and to provide Morgan Stanley's opinion because of its experience
and expertise. Morgan Stanley is an internationally recognized investment
banking and advisory firm. Morgan Stanley, as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the course of its market-making and other trading activities,
Morgan Stanley and its affiliates may, from time to time, have a long or short
position in, and buy and sell, securities of Aeroquip-Vickers or Eaton. As
reflected on the most recently filed report as of February 28, 1999 pursuant to
Section 13(g) of the Securities Exchange Act of 1934, affiliates of Morgan
Stanley owned, 3,856,424 Aeroquip-Vickers common shares. See "Security Ownership
of Certain Beneficial Owners and Management." In the past, Morgan Stanley has
performed financial advisory and financing services for both Eaton and
Aeroquip-Vickers and has received customary fees for the provision of such
services.
Pursuant to the engagement letter between Morgan Stanley and
Aeroquip-Vickers, upon the consummation of the merger, Morgan Stanley will
receive a transaction fee for its services of $7.4 million. In addition, Morgan
Stanley will be reimbursed for its expenses incurred in connection with the
merger. Finally, Aeroquip-Vickers has agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley, or any of its affiliates against
certain liabilities and expenses, including liabilities under federal securities
laws, related to or arising out of Morgan Stanley's engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect to
the merger, shareholders of Aeroquip-Vickers should be aware that the directors
and executive officers of Aeroquip-Vickers have certain interests in the merger
that may be different from, or in addition to, shareholders of Aeroquip-Vickers.
The Board of Directors was aware of these interests as they existed on January
30, 1999, and considered them, among other factors, in approving the merger
agreement. These interests are summarized below.
17
<PAGE> 24
Interest in Common Shares, Options and Other Equity Interests. As of
February 28, 1999, the executive officers and directors of Aeroquip-Vickers
owned an aggregate of 230,037 Aeroquip-Vickers common shares. The aggregate
consideration that would be received in the merger by the executive officers and
directors of Aeroquip-Vickers in respect of such shares would be $13,342,146. As
of February 28, 1999, the executive officers and directors of Aeroquip-Vickers
also owned an aggregate of 628,233 stock options to purchase Aeroquip-Vickers
common shares. By resolutions of the Board of Directors adopted in January 1998
and January 1999, upon the initial filing of this proxy statement on February
12, 1999, all unvested outstanding stock options granted by Aeroquip-Vickers
vested and the restrictions on all shares of restricted stock granted by
Aeroquip-Vickers lapsed. Further, upon the consummation of the merger all
holders of stock units granted by Aeroquip-Vickers will be entitled to receive
an amount in cash equal to the merger consideration in exchange for each stock
unit. The aggregate consideration that would be received in the merger by the
executive officers and directors of Aeroquip-Vickers in respect of such stock
units, options (net of the aggregate exercise price) and restricted stock would
be $12,195,163. The aggregate consideration that would be received in the merger
by all of the executive officers of Aeroquip-Vickers following the vesting of
their stock options (net of the aggregate exercise price) would be as follows:
<TABLE>
<S> <C> <C> <C>
- Darryl F. Allen -- $4,846,250
- William R. Ammann -- $1,674,875
- Lawrence R. Deininger -- $ 300,344
- Grant T. Hollett, Jr. -- $ 243,969
- James E. Kline -- $ 428,534
- Edward J. Neiheisel -- $ 339,625
- James M. Oathout -- $ 398,688
- Gregory R. Papp -- $ 209,531
- David M. Risley -- $1,071,125
- Howard M. Selland -- $1,447,188
- Philip G. Simonds -- $ 247,844
</TABLE>
The aggregate consideration that would be received in the merger by each of
the following non-employee directors following the vesting of restricted stock
awards and stock options (including the cashing out of stock units) would be as
follows:
<TABLE>
<S> <C> <C> <C>
- Virgis W. Colbert -- $ 11,794
- Purdy Crawford -- $153,442
- Joseph C. Farrell -- $ 90,597
- David R. Goode -- $258,142
- Paul A. Ormond -- $ 68,267
- John P. Reilly -- $134,913
- W.R. Timken, Jr -- $270,038
</TABLE>
Change in Control Agreements. The initial filing of the proxy statement on
February 12, 1999 constituted a change in control of Aeroquip-Vickers under
compensation agreements and arrangements between Aeroquip-Vickers and all of its
executive officers.
- Aeroquip-Vickers has entered into change in control agreements with
Darryl F. Allen, William R. Ammann, James E. Kline, David M. Risley,
Howard M. Selland and each of its other executive officers. These
agreements are designed primarily to aid in ensuring continued management
in the event of an actual or threatened change in control (as defined in
the agreements) of Aeroquip-Vickers. The agreements provide that in the
event an executive officer is terminated by Aeroquip-Vickers other than
upon his death, disability or for cause (as defined in the agreements)
within three years after a change in control or if he resigns within a
period between six months and two years following a change in control for
the constructive termination reasons set forth in such agreements
relating to changed circumstances, he would be entitled to: (a) a lump
sum payment equal to two years' (or, in the case of Mr. Allen, three
years') salary and incentive compensation under the Aeroquip-Vickers
Annual Executive Incentive Compensation Plan (based on an average of his
highest compensation in two of the previous five years), (b) a
contribution by Aeroquip-Vickers to the executive's retirement savings
plans account in an amount equal to two times (or, in the case of Mr.
Allen, three times) Aeroquip-Vickers' average aggregate contribution to
the executive's account in the savings plans for the previous three
years, and (c) continued participation in Aeroquip-Vickers'
welfare-benefit plans for two years (or, in the case of Mr. Allen, three
years). In June 1998, each of these agreements was amended to provide for
a one-year non-competition period. In connection with the execution of
the merger agreement, one executive officer's agreement was amended to
provide for payment of his change in control benefits described in the
previous paragraph under specified circumstances in the event of his
death. Certain other executive officers'
18
<PAGE> 25
agreements were amended to provide that if they are terminated or resign
after a change in control, then (a) between the date of termination or
resignation and the date on which they reach the age of 55, they would be
eligible for continued health care coverage from Aeroquip-Vickers as if
they were active employees and (b) upon attaining age 55, they would be
entitled to retiree health care coverage from Aeroquip-Vickers.
- In connection with the execution of the merger agreement,
Aeroquip-Vickers has amended the change in control agreements, with
Messrs. Ammann, Kline and Risley, pursuant to which each executive will
continue to be employed through December 31, 1999 unless earlier
terminated for cause. During 1999, each executive will be compensated
with an annual salary not less than his salary in effect at the effective
time of the merger, as well as receive a minimum bonus of $200,000 for
1999 and will receive a profit sharing contribution for 1999 under the
Aeroquip-Vickers savings plans calculated at 15% of his 1999 annual base
and incentive compensation, excluding any imputed income. Each executive
will also receive (a) an automobile allowance of $15,000 per calendar
year through December 31, 2001, and (b) through age 65, coverage under
health, dental and prescription drug plans, life insurance at twice each
executive's 1999 salary, disability insurance and annual investment, tax
and estate planning counseling (not to exceed $20,000). In addition, each
executive will receive a lump sum cash payment equal to certain of his
unused vacation pay and, upon resignation or termination, will be
reimbursed for outplacement services to assist him in obtaining
employment or, at the executive's option, receive $40,000 in lieu of this
reimbursement. Each executive may also obtain retiree health benefits
from Aeroquip-Vickers for himself and his spouse upon attaining age 65
and has the option to defer bonus and certain other payments pursuant to
the Aeroquip-Vickers Voluntary Deferred Compensation Plan. If any of
these executives resigns voluntarily prior to January 1, 2000, they will
not receive the payments and benefits under the change in control
agreements. After January 1, 2000, the executives may resign for any or
no reason and will receive their change in control benefits and the
payments and benefits discussed above. In the event of the death of an
executive before resignation, his beneficiary will receive the change in
control payments and benefits discussed above.
- On March 5, 1999, pursuant to discussions which commenced prior to
execution of the merger agreement, Mr. Allen and Eaton entered into an
employment agreement that provides that Mr. Allen will become an employee
of Eaton for a one-year period effective upon consummation of the merger.
The one-year period may be extended by agreement of Mr. Allen and Eaton.
During his employment, Mr. Allen will be an officer of Eaton acting as a
special adviser to the Chairman of Eaton, and will receive an annualized
base salary of $500,000 and an annual bonus of $250,000. Following his
employment term, Mr. Allen will retire and become a consultant to Eaton
for four years with an annual consulting fee of $250,000. Upon the
effective time of the merger, Eaton shall grant to Mr. Allen a fair
market value stock option for 50,000 shares of Eaton common stock. Such
option will vest six months following the date of grant, and will remain
exercisable to the extent vested until ten years from the date of grant.
Mr. Allen has also agreed to not compete with Eaton during the five-year
period following the effective time of the consummation of the merger.
- On March 5, 1999, pursuant to discussions which commenced prior to
execution of the merger agreement, Aeroquip-Vickers and Mr. Allen amended
Mr. Allen's change in control agreement to provide for payment of
severance benefits upon consummation of the merger. Mr. Allen will
receive a lump sum payment of $4,342,050, which equals three years'
salary and incentive compensation under the Aeroquip-Vickers Annual
Executive Incentive Compensation Plan (based upon an average of his
highest compensation in two of the previous five years). In addition,
Aeroquip-Vickers will contribute $642,576 to Mr. Allen's account in the
retirement savings plans, which represents three times Aeroquip-Vickers'
average aggregate contribution to his account in the saving plans for the
previous three calendar years.
- Mr. Selland and Eaton are currently in discussions with respect to Mr.
Selland serving as an officer of Eaton with the status of Senior Vice
President following the merger. That position would include compensation
generally similar to that of an Eaton Senior Vice President in addition
to an incentive for Mr. Selland not to terminate his employment under the
terms of his change in control agreement.
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<PAGE> 26
Consulting Agreements. Aeroquip-Vickers has entered into consulting
agreements with Messrs. Ammann, Kline and Risley. These agreements are effective
on the later of January 1, 2000, or the date of each executive's resignation,
and retain these executives as consultants until December 31, 2004. During this
period, in exchange for up to 250 hours per year of consulting services, each
executive is entitled to a yearly lump sum payment of $50,000.
Voluntary Deferred Compensation Plan. Aeroquip-Vickers has amended and
restated, effective March 1, 1999, its Voluntary Deferred Compensation Plan to
provide that change in control payments may be deferred by executives into their
accounts in the Plan. The accounts will earn interest until distributed in a
lump sum or in installments at two percentage points in excess of the Moody's
Corporate Bond Yield Average, determined on the last day of each calendar
quarter.
Supplemental Benefit Plan. Aeroquip-Vickers has amended and restated,
effective March 1, 1999, its Supplemental Benefit Plan to provide that payments
under the Plan may be deferred by executives beyond his termination of
employment following a change in control. The executive's accounts will earn
interest until distributed in a lump sum or in installments at two percentage
points in excess of the Moody's Corporate Bond Yield Average, determined on the
last day of each calendar quarter. The accrued benefits under the Plan of
Messrs. Allen and Ammann are partially funded through the collateral assignment
of split-dollar life insurance policies owned by the executives. Pursuant to
split dollar assignment insurance agreements, as a result of the change in
control, Aeroquip-Vickers will release a portion of its interest in the policies
to the executives sufficient to provide life insurance coverage for each
executive's lifetime in an amount equal to such executive's benefit under the
Supplemental Benefit Plan. The release will be in the amount of $311,347 for Mr.
Allen and $299,759 for Mr. Ammann. In addition, Aeroquip-Vickers will pay
additional compensation in the amount of $254,738 to Mr. Allen and $245,257 to
Mr. Ammann to pay additional income taxes attributable to both the release and
the additional compensation. Aeroquip-Vickers and the executives will enter into
termination agreements pursuant to which each executive will own his insurance
policy free of any interest by Aeroquip-Vickers, and the executive's benefit
under the Supplemental Benefit Plan will be reduced by $872,866 in the case of
Mr. Allen and by $402,833 in the case of Mr. Ammann.
Director Charitable Plan. In connection with the merger, Aeroquip-Vickers'
Charitable Award Program was amended to eliminate the requirement that a
non-employee director serve for five years before charitable awards would be
granted to charities of his choice pursuant to the program.
Indemnification and Insurance. The merger agreement requires the surviving
corporation to continue to provide, for a period of six years after the merger,
indemnification to current and former directors and officers of Aeroquip-Vickers
and its subsidiaries for actions based on matters and events occurring prior to
the merger to the same extent as currently provided in the applicable charter
documents of Aeroquip-Vickers. Eaton has agreed to guarantee these
indemnification obligations of the surviving corporation. The merger agreement
requires Eaton to provide to the current and former officers and directors of
Aeroquip-Vickers, for a period of six years after the merger, director and
officer liability insurance (including through self insurance) substantially
similar to such insurance currently provided by Aeroquip-Vickers.
Charitable Foundation. For a period of two years after the effective time
of the merger, Eaton will, subject to applicable law, ensure that the current
trustees of the Aeroquip-Vickers Foundation, Messrs. Allen, Ammann, Kline and
Risley, will retain their positions as trustees and will retain those powers and
duties that are specified in the regulations of the foundation. Notwithstanding
the foregoing, during such period, the trustees will be permitted to use or
distribute only up to $1 million from the foundation. The trustees will
administer the foundation in the ordinary course consistent with its history of
grant making and will consult with Eaton in the event they wish to make grants
that are not so consistent.
ACCOUNTING TREATMENT
The merger will be accounted for by Eaton as a "purchase" in accordance
with generally accepted accounting principles. Consequently, the aggregate
consideration paid by Eaton in connection with the merger will be allocated to
Aeroquip-Vickers' assets and liabilities based upon their fair values, with any
excess being treated as goodwill.
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REGULATORY MATTERS
Eaton and Aeroquip-Vickers must comply with certain federal, state and
foreign regulatory requirements before the merger is consummated.
Aeroquip-Vickers and Eaton are not aware of any other material governmental
consents or approvals that are required prior to the parties' consummation of
the merger other than those described below. It is presently contemplated that
if such additional governmental consents and approvals are required, such
consents and approvals will be sought. There can be no assurance, however, that
any such additional consents or approvals will be obtained.
HSR Act. The consummation of the merger is subject to the requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and
regulations thereunder, which provide that certain acquisition transactions may
not be consummated until certain information has been furnished to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and until
certain waiting periods have been terminated or have expired. Eaton and
Aeroquip-Vickers were, therefore, required to file Notification and Report
Forms, which were filed with the Antitrust Division and the FTC on February 4,
1999 and February 3, 1999, respectively. The waiting period under the HSR Act
expired at 11:59 p.m. March 6, 1999.
The expiration or termination of the Hart-Scott-Rodino waiting period does
not preclude the Antitrust Division, the FTC or any state from challenging the
merger on antitrust grounds either before or after the waiting period has
expired or been terminated. Accordingly, at any time before or after the
effective time of the merger, the Antitrust Division, the FTC or any state could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, or certain other persons, including private parties, could
take action under the antitrust laws. Such action could include seeking to
enjoin the merger. Based on information available to them, Eaton and
Aeroquip-Vickers believe the merger can be effected in compliance with federal
and state antitrust laws. There can be no assurance, however, that a challenge
to the merger will not be made or that, if such a challenge is made, Eaton and
Aeroquip-Vickers will prevail.
Injunctions. The obligations of Eaton and Aeroquip-Vickers to consummate
the merger are subject to the condition that there be no preliminary or
permanent injunction or other order by any court or governmental or regulatory
authority of competent jurisdiction, including any state governmental or
regulatory authorities, prohibiting consummation of the merger or limiting the
ownership or operation by Eaton, Aeroquip-Vickers or any of their respective
subsidiaries of any material portion of the business or assets of Eaton or
Aeroquip-Vickers.
Foreign Regulatory Filings. Under Regulation (EEC) No. 4064/89 of the
Council of the European Union, the merger may not be consummated until the
Commission of the European Communities has granted its approval of the merger.
The requisite notification was filed with respect to the merger with the
Commission on March 1, 1999. The deadline for the Commission to end the first
phase of its review is April 8, 1999. If the Commission has serious doubts as to
the merger's compatibility with the common market, then it would initiate a
Phase II investigation. If it initiates a Phase II investigation, the Commission
must make a final decision as to whether or not the merger is compatible with
the common market no later than four months after the initiation of the Phase II
investigation. If no Phase II investigation is initiated, the Commission will
issue a decision that the merger is compatible with the common market prior to
April 8, 1999, and if no decision is issued within that time period, the merger
will be deemed to have been approved. Within three weeks from notification (by
March 22, 1999) one or more Member States of the EU may request that the
Commission refer all or part of the merger back to the Member State(s) concerned
for investigation under the antitrust laws of the requesting Member State(s), or
where the parties offer commitments to the Commission during its preliminary
investigation to remedy any antitrust concerns.
Eaton and Aeroquip-Vickers believe that the proposed merger is compatible
with the common market under EC Council Regulation 4064/89, as amended.
Nevertheless, there can be no assurance that either (i) a Phase II investigation
will not be initiated or, if initiated, what the outcome of such an
investigation would be, or (ii) a challenge to the proposed merger on the
grounds that the proposed merger is not compatible with the common market will
not be made or, if a challenge is made, what the result will be.
Eaton and Aeroquip-Vickers are not aware of any other foreign governmental
approvals or actions that may be required for consummation of the merger.
However, Eaton and Aeroquip-Vickers conduct operations in a
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number of foreign countries, some of which have voluntary and post-merger
notification systems. Eaton and Aeroquip-Vickers are currently in the process or
reviewing whether other approvals or actions may be required or desirable in
such other jurisdictions. Should any other approval or action be required, Eaton
and Aeroquip-Vickers currently contemplate that such approval or action would be
sought. The failure to make any such filings or to obtain any such approvals is
not anticipated to have a material effect on the merger or the combined company.
Other Consents. Notice of the merger will be given by Eaton and
Aeroquip-Vickers to the State Department, Office of Defense Trade Controls
pursuant to the International Traffic in Arms Regulations at least five days
before the consummation of the merger. In addition, upon the execution of the
merger agreement, Aeroquip-Vickers was required to make an initial filing known
as a General Information Notice to the New Jersey Department of Environmental
Protection pursuant to the Industrial Site Recovery Act. Aeroquip-Vickers will
obtain one of the following: (i) an approval by the New Jersey Department of
Environmental Protection of Aeroquip-Vickers' Negative Declaration Affidavit or
Expedited Review Application, (ii) the New Jersey Department of Environmental
Protection approval of Aeroquip-Vickers' Remedial Action Workplan, or (iii) a
Remediation Agreement from the New Jersey Department of Environmental Protection
authorizing the merger prior to Aeroquip-Vickers' completion of the steps
necessary to comply with the provisions of the Industrial Site Recovery Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes certain United States federal income tax
consequences relevant to the merger. The discussion is based on the Internal
Revenue Code of 1986, as amended, existing and proposed Treasury regulations
promulgated thereunder, rulings, administrative pronouncements and judicial
decisions, changes to which could materially affect the tax consequences
described herein and could be made on a retroactive basis.
The receipt of cash in exchange for Aeroquip-Vickers common shares pursuant
to the merger will be a taxable transaction for federal income tax purposes and
may also be a taxable transaction under applicable state, local and foreign
income and other tax laws. The tax consequences of such receipt may vary
depending upon, among other things, the particular circumstances of the
shareholder. In general, a shareholder will recognize a gain or a loss for
federal income tax purposes equal to the difference between the adjusted tax
basis of his or her Aeroquip-Vickers common shares and the amount of cash
received in exchange therefor in the merger. Such gain or loss generally will be
(a) calculated separately for each block of shares (i.e., shares acquired at the
same cost in a single transaction) sold or exchanged pursuant to the merger, (b)
a capital gain or loss if the Aeroquip-Vickers common shares are a capital asset
in the hands of the shareholder and (c) a long-term gain or loss if the holding
period for the Aeroquip-Vickers common shares is more than one year at the
effective time of the merger.
The receipt of cash by a shareholder of Aeroquip-Vickers pursuant to the
merger may be subject to backup withholding at the rate of 31% unless the
shareholder provides a certified taxpayer identification number on Form W-9 and
otherwise complies with the backup withholding rules or demonstrates that it is
exempt from backup withholding. Backup withholding is not an additional tax; any
amounts withheld may be credited against the federal income tax liability of the
shareholder subject to the withholding.
The foregoing discussion does not address all aspects of federal income
taxation that may be relevant to a shareholder and may not apply to shareholders
(a) who acquired their Aeroquip-Vickers common shares pursuant to the exercise
of employee stock options or other compensation arrangements with
Aeroquip-Vickers, (b) who are not citizens or residents of the United States,
(c) who perfect their dissenters' rights or (d) who are subject to special tax
treatment under the Internal Revenue Code (such as dealers in securities,
insurance companies, other financial institutions, regulated investment
companies, shareholders who hold their shares as part of a hedge, straddle, or
conversion transaction, and tax-exempt entities).
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, SHAREHOLDERS ARE URGED
TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX
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CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE,
LOCAL OR FOREIGN INCOME OR OTHER TAX LAWS OR FEDERAL TAX LAWS OTHER THAN THOSE
PERTAINING TO INCOME TAX.
DISSENTERS' RIGHTS
Holders of Aeroquip-Vickers common shares who so desire are entitled to
relief as dissenting shareholders under Ohio Revised Code Section 1701.85. An
Aeroquip-Vickers shareholder will be entitled to such relief, however, only if
such shareholder complies strictly with all of the procedural and other
requirements of Section 1701.85. The following summary is qualified in its
entirety by reference to Section 1701.85, a copy of which is attached hereto as
Annex C.
A holder of Aeroquip-Vickers common shares who wishes to perfect his or her
rights as a dissenting shareholder in the event the merger is approved:
- must have been a record holder on March 5, 1999 of the Aeroquip-Vickers
common shares as to which such shareholder seeks relief;
- must not have voted his or her Aeroquip-Vickers common shares in favor of
the adoption of the merger agreement; and
- must deliver to Aeroquip-Vickers, not later than ten days after approval
of the merger at the special meeting, a written demand for payment of the
fair cash value of the Aeroquip-Vickers common shares as to which such
shareholder seeks relief. Such written demand must state the
shareholder's name, address, number of Aeroquip-Vickers common shares as
to which such shareholder seeks relief and the amount claimed as the fair
cash value thereof.
A vote against the adoption of the merger agreement will not satisfy the
requirements of a written demand for payment. Any written demand for payment
should be mailed or delivered to Aeroquip-Vickers, Inc., 3000 Strayer, Maumee,
Ohio 43537, Attention: Secretary. Because the written demand must be delivered
to Aeroquip-Vickers within the ten-day period following approval of the merger
at the special meeting, it is recommended, although not required, that a
shareholder using the mail should use certified or registered mail, return
receipt requested, to confirm that such shareholder has made a timely delivery.
If Aeroquip-Vickers sends the dissenting shareholder, at the address
specified in his or her demand, a request for the certificate(s) representing
his or her shares, such dissenting shareholder must deliver the certificate(s)
to Aeroquip-Vickers within 15 days of its sending such request. Aeroquip-Vickers
may endorse the certificate(s) with a legend to the effect that the shareholder
has demanded the fair cash value of the shares represented by the
certificate(s). Failure to deliver the certificate(s) within 15 days of
Aeroquip-Vickers' request terminates the shareholder's rights as a dissenting
shareholder. Aeroquip-Vickers must notify the shareholder of its election to
terminate the shareholder's rights as a dissenting shareholder within 20 days
after the lapse of the 15 day period.
Unless the dissenting shareholder agrees on the fair cash value per
Aeroquip-Vickers common share, the shareholder may, within three months after
the service of the written demand by the shareholder, file a petition in the
Court of Common Pleas of Lucas County, Ohio. If the court finds that the
shareholder is entitled to be paid the fair cash value of any Aeroquip-Vickers
common shares, the court may appoint one or more appraisers to receive evidence
and to recommend a decision on the amount of the fair cash value.
Fair cash value: (a) will be determined as of the day prior to the
Aeroquip-Vickers special meeting, (b) will be the amount a willing seller and
willing buyer would accept or pay without being under compulsion to sell or buy,
(c) will not exceed the amount specified in the shareholder's written demand,
and (d) will exclude any appreciation or depreciation in market value resulting
from the merger. The court will make a finding as to the fair cash value of an
Aeroquip-Vickers common share and render judgment against Aeroquip-Vickers for
its payment with interest at such rate and from such date as the court considers
equitable. The costs of proceedings will be assessed or apportioned as the court
considers equitable.
The rights of any dissenting shareholder will terminate if (a) the
dissenting shareholder has not complied with Section 1701.85, unless
Aeroquip-Vickers, by its Board of Directors, waives such failure, (b)
Aeroquip-Vickers abandons or is finally enjoined or prevented from carrying out,
or the shareholders of Aeroquip-Vickers rescind their approval and adoption of,
the merger agreement, (c) the dissenting shareholder withdraws his or her
written demand, with the consent of Aeroquip-Vickers, by its Board of Directors,
or
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(d) Aeroquip-Vickers and the dissenting shareholder have not agreed upon the
fair cash value per Aeroquip-Vickers common share and neither has timely filed
or joined in a petition in an appropriate court for a determination of the fair
cash value of an Aeroquip-Vickers common share.
Because a proxy card returned to Aeroquip-Vickers that does not contain
voting instructions will be voted for adoption of the merger agreement, an
Aeroquip-Vickers shareholder who wishes to exercise dissenters' rights must
either not sign and return his or her proxy card or if he or she signs and
returns his or her proxy card, check the appropriate box on the proxy card to
either vote against or to abstain from voting on the adoption of the merger
agreement.
CERTAIN PROJECTIONS
During the course of discussions between Aeroquip-Vickers and Eaton, which
led to the execution of the merger agreement, Aeroquip-Vickers provided Eaton
and Morgan Stanley with certain non-public business and financial information
about Aeroquip-Vickers. The information included a profit and loss statement for
Aeroquip-Vickers that projected, for the fiscal year ended 1999, (a) sales of
approximately $2.313 billion, (b) operating income of approximately $227
million, (c) net income of approximately $120 million, and (d) earnings per
share of approximately $4.36.
Aeroquip-Vickers does not, as a matter of course, make public any
projections as to future performance or earnings, and the projections set forth
above are included in this Proxy Statement only because the information was
provided by Aeroquip-Vickers to Eaton and Morgan Stanley. These forecasts were
not prepared with a view to public disclosure or compliance with published
guidelines of the Securities and Exchange Commission or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections and are included herein only because they were provided to Eaton and
Morgan Stanley. Eaton and Morgan Stanley assume no responsibility for the
accuracy of these forecasts. While presented with numerical specificity, these
forecasts are based upon a variety of assumptions (not all of which were stated
therein and not all of which were provided to Eaton) relating to the businesses
of Aeroquip-Vickers which may not be realized and are subject to significant
financial, market, economic and competitive uncertainties and contingencies that
are difficult or impossible to predict accurately, many of which are beyond the
control of Aeroquip-Vickers and Eaton. There can be no assurance that the
forecasts will be realized, and actual results may vary materially from those
shown. The inclusion of the projections should not be regarded as a
representation by Eaton, Morgan Stanley, Aeroquip-Vickers or any of their
affiliates or representatives that the projected results will be achieved.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
This section of the proxy statement describes material provisions of the
merger agreement. The description of the merger agreement contained in this
proxy statement is qualified in its entirety by reference to the complete text
of the merger agreement, a copy of which is attached as Annex A to this proxy
statement and is incorporated herein by reference. You are urged to review the
merger agreement carefully and in its entirety.
GENERAL
Pursuant to the merger agreement, at the effective time of the merger,
Eaton Industries will merge into Aeroquip-Vickers, and Eaton Industries will
cease to exist. Following the effective time of the merger, Aeroquip-Vickers
will be the surviving corporation and a wholly owned subsidiary of Eaton.
MERGER CONSIDERATION
At the effective time of the merger, by virtue of the merger and without
any action on the part of any shareholder, each issued and outstanding
Aeroquip-Vickers common share held by Aeroquip-Vickers shareholders will be
converted into the right to receive $58.00 in cash, without interest, except for
shares canceled and shares as to which dissenters' rights are perfected by a
dissenting shareholder.
All Aeroquip-Vickers common shares held as treasury shares automatically
will be canceled and retired at the effective time of the merger and will cease
to exist. No consideration will be delivered in exchange for these shares. Each
Aeroquip-Vickers common share, if any, that is owned by a subsidiary of Eaton
(other than Eaton Industries) or a subsidiary of Aeroquip-Vickers will remain
outstanding.
As of the effective time of the merger, all Aeroquip-Vickers common shares
will no longer be outstanding, will automatically be canceled and retired and
will cease to exist. Each holder of Aeroquip-Vickers common shares will cease to
have any rights with respect to those shares, except the right to receive the
merger consideration in accordance with the terms of the merger agreement.
As of the effective time of the merger, each share of Eaton Industries
issued and outstanding immediately prior to the effective time of the merger
will be converted into one fully paid and nonassessable common share of the
surviving corporation.
No dissenting shareholder will be entitled to any portion of the merger
consideration or other distributions unless and until the dissenting shareholder
fails to perfect or otherwise effectively withdraws or loses his or her
dissenters' rights under Ohio law. Aeroquip-Vickers common shares as to which
dissenters' rights have been exercised will be treated in accordance with
Section 1701.85 of Ohio law. If any person, who otherwise would be deemed a
dissenting shareholder, fails to properly perfect or effectively loses the right
to dissent with respect to any Aeroquip-Vickers common shares, those shares will
be treated as though they had been converted as of the effective date of the
merger into the right to receive the merger consideration. See "The
Merger -- Dissenters' Rights."
TREATMENT OF EQUITY PLANS
Stock Options. At the effective time of the merger, each holder of an
outstanding option to purchase Aeroquip-Vickers common shares issued pursuant to
Aeroquip-Vickers' 1998 Stock Incentive Plan, Aeroquip-Vickers' 1994 Stock
Incentive Plan, as amended, Aeroquip-Vickers' 1987 Stock Option Plan, as
amended, and Aeroquip-Vickers' Non-Employee Directors' Stock Award Plan, as
amended, whether or not then exercisable, will be entitled to receive, in
settlement thereof, for each share subject to such option an amount in cash,
subject to any applicable withholding tax, equal to the difference between $58
and the per share exercise price of such option to the extent such difference is
a positive number, such amount being hereinafter referred to as, the option
consideration. At the effective time of the merger, the Aeroquip-Vickers options
will be canceled. The payment of these amounts will be made by the surviving
corporation or Eaton within one business day following the effective time of the
merger, provided that Aeroquip-Vickers has previously delivered a list of these
amounts.
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Treatment of Restricted Stock. At the effective time of the merger, each
outstanding Aeroquip-Vickers common share awarded under the 1989 Non-Employee
Director Equity Plan, which is still subject to forfeiture under the terms of
this plan, will vest and no longer be subject to restrictions. These shares will
be canceled and converted into the right to receive an amount in cash equal to
$58.
Treatment of Stock Units and Stock Awards. At the effective time of the
merger, each holder of any outstanding stock award granted under the
Aeroquip-Vickers' Non-Employee Directors' Stock Award Plan, whether or not
deferred or vested, will be entitled to receive for each Aeroquip-Vickers common
share represented by the stock award, in settlement thereof, an amount in cash
equal to $58. In addition, each holder of any stock units credited pursuant to
Aeroquip-Vickers' Directors' Retirement Plan or Aeroquip-Vickers' Plan for
Optional Deferment of Directors' Fees will be entitled to receive, for each
stock unit, in settlement thereof, an amount in cash equal to $58. The payment
of these amounts will be made by the surviving corporation or Eaton within one
business day following the effective time of the merger, provided that
Aeroquip-Vickers has previously delivered a list of these amounts.
Termination of Plans. Aeroquip-Vickers agrees to use its reasonable efforts to
obtain all necessary consents or releases from holders of Aeroquip-Vickers stock
options, restricted shares, stock units or stock awards under each of the equity
plans described in this "Treatment of Equity Plans" section to provide for and
give effect to the transactions contemplated by this section. Except as
otherwise agreed to in writing by Eaton and Aeroquip-Vickers, each of the equity
plans described in this section will terminate as of the effective time of the
merger, 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 shares
of Aeroquip-Vickers or any subsidiary thereof will be canceled as of the
effective time of the merger. Moreover, Aeroquip-Vickers will use its reasonable
efforts to ensure that, following the effective time of the merger, no
participant in these equity plans, or other plans, programs or arrangements,
will have any right under the equity plans to acquire equity securities of
Aeroquip-Vickers, the surviving corporation or any subsidiary thereof.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties by
Aeroquip-Vickers, Eaton and Eaton Industries relating to, among other things:
- the corporate organization, standing and power of each of
Aeroquip-Vickers, Eaton and Eaton Industries;
- the subsidiaries of Aeroquip-Vickers;
- the capital structure of Aeroquip-Vickers;
- each of Aeroquip-Vickers', Eaton's and Eaton Industries' authority to
enter, and noncontravention of certain agreements and documents upon
entrance, into the merger agreement;
- documents filed by Aeroquip-Vickers with the Securities and Exchange
Commission and other regulatory entities and the accuracy of information
contained therein;
- the absence of certain material changes or events with respect to
Aeroquip-Vickers since September 30, 1998;
- Aeroquip-Vickers' compliance with applicable laws and litigation;
- matters relating to Aeroquip-Vickers' compliance with the Employee
Retirement Income Security Act of 1974, as amended;
- Aeroquip-Vickers' tax matters;
- the vote required by the shareholders of Aeroquip-Vickers in connection
with the merger agreement;
- Aeroquip-Vickers' satisfaction of Ohio state takeover statutes;
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- Aeroquip-Vickers' and Eaton's engagement of and payment of fees to
brokers, investment bankers, finders and financial advisors in connection
with the merger agreement;
- the financial ability of Eaton to consummate the transactions
contemplated by the merger agreement;
- environmental matters affecting Aeroquip-Vickers;
- the amendment of Aeroquip-Vickers' shareholder rights plan;
- the preparation of this proxy statement;
- certain material contracts and noncompetition agreements of
Aeroquip-Vickers;
- intellectual property matters of Aeroquip-Vickers, including efforts to
resolve any "Year 2000" computer problems;
- the opinion of Morgan Stanley;
- labor agreements and material labor disputes of Aeroquip-Vickers; and
- material product recalls by Aeroquip-Vickers.
COVENANTS
Conduct of Business. Pursuant to the merger agreement, Aeroquip-Vickers has
agreed that, except as consented to by Eaton, during the period from the date of
the merger agreement to its effective time, Aeroquip-Vickers will carry on its
business in the ordinary course consistent with past practice and in compliance
in all material respects with all applicable laws and regulations. To the extent
consistent with the previous sentence, Aeroquip-Vickers will use all reasonable
efforts to keep the services of its current officers and other key employees
available and preserve its relationships with those persons having business
dealings with Aeroquip-Vickers.
The merger agreement provides that Aeroquip-Vickers and its subsidiaries
will not, among other things and with some exceptions:
- declare or pay dividends or recapitalize or redeem its capital shares;
- issue, sell or encumber any shares of capital stock or options to acquire
any shares of such capital stock;
- amend its organizational documents or shareholder rights plan or merge
with any person;
- sell, lease or encumber property or assets, except immaterial assets in
the ordinary course of business consistent with past practice;
- enter into any capital commitments more than $10,000,000 in the
aggregate, except for budgeted maintenance and repairs in the ordinary
course of business;
- increase any compensation or benefits payable, except for changes that
are not material in the ordinary course consistent with past practice;
- adopt, enter into or otherwise increase, reprice or accelerate the
payment or vesting of amounts, benefits or other rights payable or
accrued under any employee benefit plan;
- enter into any employment agreement;
- incur any indebtedness, except for short-term indebtedness in the
ordinary course of business and not in excess of $50,000,000 under
existing lines of credit;
- acquire, or purchase, or acquire any material amount of assets of any
business entity, other than purchase of assets from suppliers or vendors
in the ordinary course of business consistent with past practice;
- satisfy claims or liabilities of Aeroquip-Vickers, other than
satisfaction, in the ordinary course of business consistent with past
practice, in accordance with their terms or in an amount not to exceed
$5,000,000 in
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the aggregate, of liabilities reflected or reserved against, in, or
contemplated by, the consolidated financial statements of
Aeroquip-Vickers;
- amend, terminate, waive, release or assign any contract, right or claim,
or forgive any indebtedness owed to Aeroquip-Vickers or its subsidiaries,
other than in the ordinary course of business consistent with past
practice; or
- take any action that would reasonably be expected to result in any of the
conditions to the merger not being satisfied.
In addition, Eaton agrees that it will not take any action that would
reasonably be expected to result in any of the conditions to the merger not
being satisfied.
No Solicitation. The merger agreement provides that Aeroquip-Vickers will
not, and will not authorize or permit any of its subsidiaries or any of its or
their directors, officers, employees, agents or representatives, directly or
indirectly, to solicit, initiate, encourage or knowingly facilitate, or furnish
or disclose non-public information in furtherance of, any inquiries or the
making of any proposal with respect to any recapitalization, merger,
consolidation or other business combination involving Aeroquip-Vickers, or
acquisition of any capital stock (other than upon exercise of the
Aeroquip-Vickers options that are outstanding as of the date of the merger
agreement) or all or any material portion of the assets of Aeroquip-Vickers and
Aeroquip-Vickers' subsidiaries, taken as a whole, in a single transaction or a
series of related transactions, or any combination of the foregoing (a
"Competing Transaction"), or negotiate, explore or otherwise engage in
discussions with any person (other than Eaton, Eaton Industries, or their
respective directors, officers, employees, agents and representatives) with
respect to any Competing Transaction or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
merger or any other transactions contemplated by the merger agreement.
- Notwithstanding the foregoing, at any time prior to the approval of the
merger by the shareholders of Aeroquip-Vickers, the Board of Directors of
Aeroquip-Vickers may, in the exercise of its fiduciary obligations under
Ohio law as determined by the Board of Directors of Aeroquip-Vickers in
good faith, after consultation with and receipt of advice from its
outside counsel, pursuant to a customary confidentiality agreement with
terms not substantially more favorable to such third party than the
confidentiality agreement between Eaton and Aeroquip-Vickers, furnish
information to, and negotiate or otherwise engage in discussions with,
any third party who delivers a written proposal for a Superior Proposal
(as defined below) that was not solicited, initiated, knowingly
facilitated or encouraged after the date of the merger agreement. The
term "Superior Proposal" means a Competing Transaction that the Board of
Directors of Aeroquip-Vickers determines is, after consulting with and
receiving advice from Morgan Stanley & Co. Incorporated (or any other
nationally recognized investment banking firm), more favorable to the
shareholders of Aeroquip-Vickers from a financial point of view than the
transactions contemplated by the merger agreement, including any
adjustment to the terms and conditions proposed by Eaton or Eaton
Industries in response to such Competing Transaction, and that it
reasonably expects a transaction pursuant to such proposal could be
consummated.
- If prior to the approval of the merger by the shareholders of
Aeroquip-Vickers, the Board of Directors of Aeroquip-Vickers receives a
Superior Proposal that was not solicited, initiated, knowingly
facilitated or encouraged after the date of the merger agreement except
as otherwise permitted pursuant to the merger agreement, as described
above, the Board of Directors of Aeroquip-Vickers may, subject to this
and the following sentences, in the exercise of its fiduciary obligations
under Ohio law as determined by the Board of Directors of
Aeroquip-Vickers in good faith, after consultation with and receipt of
advice from its outside counsel, withdraw, modify or change, in a manner
adverse to Eaton, the recommendation of the Board of Directors of
Aeroquip-Vickers of the merger agreement and/or recommend a Superior
Proposal to the shareholders of Aeroquip-Vickers and/or comply with Rule
14e-2 promulgated under the Exchange Act with respect to a Competing
Transaction, provided that it gives Eaton five business days prior
written notice of its intention to do so. Any withdrawal, modification or
change of the recommendation of the Board of Directors of
Aeroquip-Vickers of the merger agreement will not change the approval of
the
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<PAGE> 35
Board of Directors of Aeroquip-Vickers for purposes of causing any state
takeover statute or other state law to be inapplicable to the
transactions contemplated by the merger agreement, including the merger.
- From and after the execution of the merger agreement, Aeroquip-Vickers
must promptly, but in any event within two calendar days, advise Eaton in
writing of the receipt of any inquiries, discussions, negotiations or
proposals relating to a Competing Transaction, including the specific
terms thereof and the identity of the other party or parties involved,
and promptly furnish to Eaton a copy of any written proposal along with
any information provided to or by any third-party relating thereto. In
addition, Aeroquip-Vickers shall promptly, but in any event within two
calendar days, advise Eaton in writing if the Board of Directors of
Aeroquip-Vickers makes any determination to take any action with respect
to any Competing Transaction as permitted by the merger agreement (as
described above).
- Nothing in the merger agreement permits Aeroquip-Vickers to terminate the
merger agreement or enter into any agreement with respect to any
Competing Transaction before the special meeting.
ADDITIONAL AGREEMENTS
Shareholders Meeting. Aeroquip-Vickers agreed to, as soon as practicable
following the date of the merger agreement, duly call, give notice of, convene
and hold a meeting of its shareholders in accordance with law, the
Aeroquip-Vickers' Articles of Incorporation and Code of Regulations for the
purpose of obtaining shareholder approval and, through the Aeroquip-Vickers
Board of Directors, subject to the no solicitation provisions of the merger
agreement, recommend to its shareholders the adoption of the merger agreement,
the merger and the other transactions contemplated thereby. The shareholders
meeting may not be adjourned or postponed beyond July 15, 1999.
Access to Information; Confidentiality. To the extent permitted by
applicable law and subject to the confidentiality agreement dated November 6,
1998, between Aeroquip-Vickers and Eaton, Aeroquip-Vickers agreed to afford to
Eaton and to the officers, employees, accountants, counsel, financial advisors
and other representatives of Eaton, full access during normal business hours
during the period prior to the effective time of the merger to all of
Aeroquip-Vickers' properties, books, contracts, commitments, personnel and
records and all other information concerning its business, properties and
personnel as Eaton reasonably requests. Each of Aeroquip-Vickers and Eaton
Industries agreed to hold, and to cause its respective officers, employees,
accountants, counsel, financial advisors and other representatives and
affiliates to hold, any non-public information in accordance with the terms of
the confidentiality agreement.
Efforts; Cooperation. Subject to the terms and conditions provided in the
merger agreement, each of Aeroquip-Vickers, Eaton and Eaton Industries agreed
to, and Aeroquip-Vickers agreed to cause each subsidiary to, cooperate and use
reasonable efforts to make, or cause to be made, all filings necessary or proper
under applicable laws and regulations to consummate and make effective the
transactions contemplated by the merger agreement, including cooperation in the
preparation and filing of this proxy statement, any required filings under the
Hart-Scott-Rodino Act or other foreign filings and any amendments. In addition,
if, at any time prior to the effective time of the merger, any event or
circumstance relating to either Aeroquip-Vickers, Eaton or Eaton Industries or
any of their respective subsidiaries should be discovered by Aeroquip-Vickers or
Eaton, which should be set forth in an amendment to this proxy statement, the
discovering party agreed to promptly inform the other party of such event or
circumstance. If, at any time after the effective time of the merger, any
further action is necessary or desirable to carry out the purposes of the merger
agreement, including the execution of additional instruments, the proper
officers and directors of each party to the merger agreement agreed to take all
such necessary action.
Each of the parties agreed to use its reasonable efforts to obtain as
promptly as practicable all required consents and approvals of any governmental
entity or any other person required in connection with, and waivers of any
violations that may be caused by, the consummation of the transactions
contemplated by the merger agreement. In addition, Aeroquip-Vickers and Eaton
agreed to coordinate in advance of sending any communications to or scheduling
any meetings with any governmental entity relating to the merger agreement or
the merger and agreed to promptly share all correspondences or other
communications received from any governmental entity relating to the merger
agreement or the merger.
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<PAGE> 36
Aeroquip-Vickers agreed to take all reasonable steps to assist in any
challenge by Eaton to the validity or applicability to the transactions
contemplated by the merger agreement, including the merger, of any state
takeover law upon the request of Eaton.
Indemnification and Insurance. Pursuant to the merger agreement, the
articles of incorporation and code of regulations of the surviving corporation
must contain similar provisions with respect to indemnification and exculpation
from liability set forth in the Articles of Incorporation and Code of
Regulations of Aeroquip-Vickers on the date the merger agreement was executed.
These provisions may not be amended or otherwise modified for a period of six
years from the effective time of the merger in any manner that would adversely
affect the rights of individuals who on or prior to the effective time of the
merger were directors, officers, employees or agents of Aeroquip-Vickers, unless
such modification is required by law. Eaton agreed to guarantee the obligations
of the surviving corporation with respect to the indemnification provisions
contained in the articles of incorporation and code of regulations of the
surviving corporation.
The merger agreement also provides that for six years after the effective
time of the merger, the surviving corporation or Eaton will maintain officers'
and directors' liability insurance covering acts or omissions occurring prior to
the effective time with respect to those persons who were covered by
Aeroquip-Vickers' directors' and officers' liability insurance policy on terms
and amounts no less favorable than those in effect on the date of the merger
agreement. Eaton, however, is not required to expend in any one year an amount
in excess of 200% of the annual premiums currently paid by Aeroquip-Vickers for
the insurance. Notwithstanding the foregoing, if the annual premiums for this
insurance coverage exceed that amount, Eaton must obtain a policy with the
greatest coverage available for a cost not exceeding that amount. Moreover, at
any time on or after the second anniversary of the effective time of the merger,
Eaton may undertake to provide funds to the surviving corporation to the extent
necessary so that the surviving corporation may self-insure with respect to the
level and scope of insurance coverage required under the merger agreement in
lieu of causing to remain in effect any directors' and officers' liability
insurance policy.
If the surviving corporation or any of its successors or assigns (a)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger, or (b)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each case, proper provision will be made so that the
successors and assigns of the surviving corporation assume the indemnification
and insurance obligations set forth in the merger agreement.
Fees and Expenses. Except as described below, whether or not the merger is
completed, all fees and expenses incurred in connection with the merger, the
merger agreement and the transactions contemplated thereby will be paid by the
party incurring these fees or expenses.
If (a) Eaton terminates the merger agreement as a result of a third party
acquiring 30% of the Aeroquip-Vickers common shares, or as a result of the Board
of Directors of Aeroquip-Vickers exercising its fiduciary rights with respect to
a Competing Transaction, as further described under "Certain Provisions of the
Merger Agreement -- Termination, Fees, Amendment and Waiver" below or because
Aeroquip-Vickers willfully breached the no solicitation or shareholder
recommendation provisions of the merger agreement or (b) after a proposal
relating to a Competing Transaction is made known to Aeroquip-Vickers, and the
shareholders of Aeroquip-Vickers fail to adopt the merger agreement, either
party terminates the merger agreement, then Aeroquip-Vickers will, within two
days of the termination, pay Eaton a fee equal to $2 multiplied by the number of
Aeroquip-Vickers common shares outstanding on a fully diluted basis (or
approximately $57,500,000 in the aggregate).
Credit Agreement. Aeroquip-Vickers agreed to terminate, prior to the
effective time of the merger, its bank credit facility or, at the option of
Aeroquip-Vickers, obtain a waiver of the credit facility, so long as such waiver
would prevent a cross default under any other agreements.
Employee Benefits. Except for employees subject to collective bargaining
agreements, through December 31, 2000, Eaton agreed to maintain, or cause the
surviving corporation to maintain, employee benefits under tax-qualified
employee benefit plans, annual bonus plans, deferred compensation plans and
supplemental non-qualified pension plans substantially equivalent in the
aggregate to those provided by Aeroquip-Vickers
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<PAGE> 37
immediately prior to the effective time of the merger or, at the election of
Eaton, those Eaton provides to similarly-situated employees of Eaton.
Following the effective time of the merger, Eaton agreed to cause the
surviving corporation to honor in accordance with their terms all written
employment, severance and other compensation agreements of Aeroquip-Vickers and
its subsidiaries, including those that are more fully described in "The Merger
- -- Interests of Certain Persons in the Merger."
CONDITIONS PRECEDENT
Aeroquip-Vickers' and Eaton's obligation to effect the merger is subject to
the satisfaction or waiver on or prior to the closing date of the merger of the
following customary closing conditions:
- the Aeroquip-Vickers shareholders having adopted the merger agreement;
- all consents, approvals and actions of, filings with and notices to any
governmental entity required of Eaton, Eaton Industries, Aeroquip-Vickers
or any of Aeroquip-Vickers' subsidiaries to consummate the merger and the
other transactions contemplated by the merger agreement having been
obtained in form and substance reasonably satisfactory to each of Eaton
and Aeroquip-Vickers;
- no judgment, order, decree, statute, law, ordinance, rule or regulation
enacted, entered, promulgated, enforced or issued by any court or other
governmental entity of competent jurisdiction or other legal restraint or
prohibition being in effect (a) preventing the consummation of the merger
or (b) limiting the ownership or operation by Aeroquip-Vickers, Eaton or
any of their respective subsidiaries of any material portion of the
business or assets of Aeroquip-Vickers or Eaton; provided, however, that
the party seeking to assert this condition to terminate the merger
agreement must not have breached its obligations under the merger
agreement in any material respect; and
- the waiting period, including any extensions, applicable to the
consummation of the merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 having expired or been terminated.
In addition, Eaton's and Eaton Industries' obligation to effect the merger
is subject to the satisfaction or waiver of the following conditions:
- Aeroquip-Vickers' representations and warranties set forth in the merger
agreement being true and correct in all respects, without giving effect
to any materiality or material adverse effect qualifications contained
therein, as of the date of the merger agreement and as of the closing
date, except where the failure of such representations and warranties to
be so true would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on Aeroquip-Vickers;
- Aeroquip-Vickers having performed in all material respects all
obligations required to be performed by it under the merger agreement at
or prior to the closing date of the merger;
- with the exception of any consents required under Aeroquip-Vickers'
credit facility and outstanding medium term notes, Aeroquip-Vickers
having obtained the consents required in connection with the merger under
all agreements or instruments to which it or any of its subsidiaries is a
party, except those for which failure to obtain such consents and
approvals could not reasonably be expected to have a material adverse
effect prior to or after the effective time of the merger;
- no action, claim, proceeding or investigation instituted by any
governmental entity challenging or seeking to restrain or prohibit the
consummation of the merger or any of the other transactions contemplated
by the merger agreement being pending;
- as of immediately prior to the effective time of the merger, holders of
no more than 10% of the outstanding Aeroquip-Vickers common shares having
taken actions to assert dissenters' rights under Ohio law; and
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<PAGE> 38
- Aeroquip-Vickers having furnished Eaton and Eaton Industries with a
certificate dated the closing date signed on its behalf by an executive
officer to the effect that the conditions regarding accuracy of its
representations and warranties and performance of its obligations have
been satisfied.
In addition, Aeroquip-Vickers' obligation to effect the merger is subject
to the satisfaction or waiver of the following conditions:
- the representations and warranties of Eaton and Eaton Industries set
forth in the merger agreement being true and correct in all respects,
without giving effect to any materiality or material adverse effect
qualifications contained therein, as of the date of the merger agreement
and as of the closing date, except where the failure of such
representations and warranties to be so true and correct would not have,
individually or in the aggregate, a material adverse effect on their
ability to consummate the merger;
- Eaton Industries and Eaton having performed in all material respects all
obligations required to be performed by them under the merger agreement
at or prior to the closing date; and
- Each of Eaton and Eaton Industries having furnished Aeroquip-Vickers with
a certificate dated the closing date signed on its behalf by an executive
officer to the effect that the conditions regarding accuracy of their
representations and warranties and performance of their obligations have
been satisfied.
TERMINATION, FEES, AMENDMENT AND WAIVER
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after shareholder approval:
- by mutual written consent of Eaton and Aeroquip-Vickers;
- by either Eaton or Aeroquip-Vickers:
- if the merger has not been completed by July 31, 1999 or a later agreed
upon date; provided, however, that the right to terminate the merger
agreement will not be available to any party whose failure to perform
any of its obligations under the merger agreement results in the failure
of the merger to be completed by such time;
- if the special meeting has concluded and the approval of the
shareholders of Aeroquip-Vickers has not been obtained; or
- if any judgments, orders, decrees, statutes, laws, ordinances, rules or
regulations that have any of the effects set forth in the third
condition listed in the first paragraph of "-- Conditions Precedent"
above will be in effect and will have become final and nonappealable;
provided, however, that a party may not terminate the merger agreement
for this reason if its failure to perform any of its obligations under
the merger agreement resulted in any of such effects;
- by Eaton, if Aeroquip-Vickers breaches or fails to perform in any
material respect any of its representations, warranties, covenants or
other agreements contained in the merger agreement, which breach or
failure to perform is not cured within 30 days after written notice or is
incapable of being cured;
- by Aeroquip-Vickers, if Eaton Industries or Eaton breaches or fails to
perform in any material respect any of their representations, warranties,
covenants or other agreements contained in the merger agreement, which
breach or failure to perform is not cured within 30 days after written
notice thereof or is incapable of being cured (it being understood that
Eaton's failure to obtain financing for the transactions contemplated by
the merger agreement by the 11th day after the satisfaction or waiver of
the conditions precedent set forth in the merger agreement is incapable
of cure); or
- by Eaton, if any person other than an affiliate of Eaton acquires 30% of
the outstanding Aeroquip-Vickers common shares or if the Board of
Directors of Aeroquip-Vickers or any of its committees:
- withdraws or modifies or changes, or proposes or announces any intention
to withdraw or modify or change, in a manner adverse to Eaton or Eaton
Industries, the approval or recommendation by the
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<PAGE> 39
Board of Directors of Aeroquip-Vickers or one of its committees of the merger
agreement or the transactions contemplated by the merger agreement, including
the merger;
- approves or recommends, or proposes to or announces any intention to
approve or recommend, any Competing Transaction; or
- proposes or announces any intention to enter into any agreement, with
respect to any Competing Transaction;
- By Eaton, if Aeroquip-Vickers willfully breaches the no solicitation and
shareholder recommendation provisions of the merger agreement.
If either Aeroquip-Vickers or Eaton terminates the merger agreement, the
merger agreement will become void and have no effect, without any liability or
obligation on the part of Aeroquip-Vickers, Eaton or Eaton Industries, other
than the following provisions, which survive termination: (a) the obligation of
Aeroquip-Vickers and Eaton to keep all non-public information connected with the
merger confidential, (b) the agreement between Aeroquip-Vickers and Eaton to
each pay their own fees and, in certain circumstances, Aeroquip-Vickers'
obligation to pay Eaton a termination fee, (c) the agreement among
Aeroquip-Vickers, Eaton Industries and Eaton to consult with each other before
issuing press releases or other public statements and to only issue any press
releases or other public statements if required by law or a national securities
exchange, and (d) the effects of termination as described under this
"Termination, Fees, Amendment and Waiver" section.
If Eaton terminates the merger agreement (i) as a result of any person
other than an affiliate of Eaton acquiring 30% of the outstanding
Aeroquip-Vickers common shares or (ii) because the Board of Directors of
Aeroquip-Vickers or any committee thereof (a) withdraws or modifies or changes,
or proposes or announces any intention to withdraw or modify or change, in a
manner adverse to Eaton or Eaton Industries, the approval or recommendation by
the Board of Directors or one of its committees of the merger agreement or the
transactions contemplated by the merger agreement, including the merger, (b)
approves or recommends, or proposes to or announces any intention to approve or
recommend, any Competing Transaction or (c) proposes or announces any intention
to enter into any agreement with respect to any Competing Transaction, or (iii)
because Aeroquip-Vickers willfully breaches the no solicitation or shareholder
recommendation provisions of the merger agreement, then Aeroquip-Vickers must
promptly pay Eaton a fee equal to $2 multiplied by the number of
Aeroquip-Vickers common shares outstanding on a fully diluted basis (or
approximately $57,500,000 in the aggregate). If either Aeroquip-Vickers or Eaton
terminates the merger agreement because shareholder approval is not obtained at
the special meeting, and, prior to the special meeting a proposal with respect
to a Competing Transaction has been made known to Aeroquip-Vickers or been made
directly to its shareholders generally or any person has publicly announced an
intention, whether or not conditional, to make a proposal with respect to a
Competing Transaction or solicited proxies or consents in opposition to the
merger, then Aeroquip-Vickers must promptly pay Eaton a fee equal to $2
multiplied by the number of Aeroquip-Vickers common shares outstanding on a
fully diluted basis.
Amendment. The merger agreement may be amended by the parties at any time
before or after the approval of the merger agreement by the Aeroquip-Vickers
shareholders. After approval, however, the parties may not make any amendment
that by law requires further approval by the Aeroquip-Vickers shareholders.
Extension; Waiver. At any time prior to the effective time of the merger, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in the merger agreement or in any
document delivered pursuant to the merger agreement or (c) subject to the second
sentence of the immediately preceding paragraph, waive compliance by the other
party with any of the agreements or conditions contained in the merger
agreement. Any agreement on the part of a party to any extension or waiver will
be valid only if set forth in writing signed on behalf of the party extending or
waiving the condition or agreement. The failure of any party to the merger
agreement to assert its rights under the merger agreement or otherwise will not
constitute a waiver of these rights.
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<PAGE> 40
THE COMPANIES
AEROQUIP-VICKERS, INC.
Aeroquip-Vickers, Inc. is two companies, Aeroquip Corporation and Vickers,
Incorporated, world leaders in the design, manufacture and distribution of
engineered components and systems to industrial, aerospace and automotive
industries.
Aeroquip was founded in 1940 by Peter Hurst on the technology of
detachable, reusable hose fittings. Aeroquip designs, manufactures and
distributes fluid connectors and plastic products. Fluid connectors include all
pressure ranges of hose and hose assemblies; fittings, adapters, couplings and
swivels; automotive air conditioning, power steering, and oil and transmission
cooler components and assemblies; tube fittings and assemblies;
refrigeration/air conditioning connectors; clamps and V-band couplings;
fuel-handling products; noise-reduction products; chemical containment products;
and electronic fluid system products. Aeroquip plastic products include molded,
extruded and co-extruded plastic products. Aeroquip serves original equipment
and aftermarket customers in industrial applications located principally in the
U.S., Europe, Asia-Pacific and Brazil; original equipment and aftermarket
customers in aerospace and defense industries located principally in the U.S.
and Europe; and automobile, light truck, sport utility and van manufacturers in
automotive industries located principally in the U.S. and Europe.
Vickers was founded in 1921 by Harry Vickers, whose invention of the
balanced vane pump launched his firm's success. Vickers designs, manufactures
and distributes power and motion control products. Vickers products include
hydraulic, electrohydraulic, pneumatic and electronic control devices; piston
and vane pumps and motors; open architecture machine controls; hydraulic and
pneumatic cylinders; hydraulic power packages; electric motors and drives; fuel
pumps; electric motorpumps and generator packages; electrohydraulic and
electromechanical actuators; sensors and monitoring devices; hydraulic and
lubrication filtration; and fluid-evaluation products and services. Vickers
serves original equipment and aftermarket customers in industrial markets
located principally in the U.S., Europe, Asia-Pacific and Brazil, and original
equipment and aftermarket customers in aerospace and defense markets located
principally in the U.S. and Europe.
Aeroquip-Vickers' principal executive offices are located at 3000 Strayer,
Maumee, Ohio, and its telephone number is (419) 867-2200.
For a more detailed description of the business and properties of
Aeroquip-Vickers, see the descriptions thereof set forth in Aeroquip-Vickers'
Annual Report on Form 10-K for the year ended December 31, 1997, which is
incorporated herein by reference. See "Where You Can Find More Information."
EATON CORPORATION
Eaton Corporation, an Ohio corporation, is a global manufacturer of highly
engineered products which serve industrial, vehicle, construction, commercial
and semiconductor industries. Principal products include electrical power
distribution and control equipment, truck drivetrain systems, engine components,
hydraulic products, ion implanters and a wide variety of controls. Eaton has
approximately 49,500 employees, and maintains manufacturing facilities at
approximately 155 manufacturing sites in 25 countries. In 1998, Eaton's sales
were approximately $6.6 billion.
EATON INDUSTRIES INC.
Eaton Industries Inc. is a newly formed Ohio corporation and a wholly owned
subsidiary of Eaton, created for the purpose of being an acquisition subsidiary.
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<PAGE> 41
MARKET PRICES OF COMMON STOCK
The principal market on which Aeroquip-Vickers common shares are traded is
the New York Stock Exchange under the ticker symbol "ANV." On March 5, 1999, the
last trading day before the printing of this proxy statement, the high and low
sales prices of Aeroquip-Vickers common shares were $57.31 and $57.13,
respectively. On January 29, 1999, the last trading day before the public
announcement of the merger agreement, the high and low sales prices of
Aeroquip-Vickers common shares were $36.50 and $35.06, respectively.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR AEROQUIP-VICKERS
COMMON SHARES.
The following table sets forth, for the calendar quarters indicated, the
high and low closing prices per Aeroquip-Vickers common share as reported by the
New York Stock Exchange:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1999
First Quarter (through March 5)........................... $57.31 $29.75
1998
First Quarter............................................. $58.63 $44.94
Second Quarter............................................ 72.25 55.88
Third Quarter............................................. 60.00 28.75
Fourth Quarter............................................ 38.50 22.81
1997
First Quarter............................................. $40.25 $33.50
Second Quarter............................................ 48.38 33.00
Third Quarter............................................. 57.50 47.88
Fourth Quarter............................................ 55.81 47.31
</TABLE>
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<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to ownership by beneficial owners of more than 5%
of any class of Aeroquip-Vickers common shares is set forth below. This
information is based upon reports filed by certain beneficial owners with the
Securities and Exchange Commission pursuant to Sections 13(d) or 13(g) of the
Securities Exchange Act of 1934 as of February 28, 1999.
<TABLE>
<CAPTION>
AMOUNT & NATURE
OF BENEFICIAL PERCENT OF
NAME & ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
---------------------------------- --------------- ----------
<S> <C> <C>
Morgan Stanley Dean Witter & Co.
and its subsidiaries............................ 3,856,424(1) 13.9%
1585 Broadway
New York, NY 10036
Gabelli Funds, Inc.
and its affiliates.............................. 5,350,350(2) 19.29%
One Corporate Center
Rye, NY 10580
</TABLE>
- ---------------
(1) Morgan Stanley Dean Witter & Co. and its subsidiaries have sole voting power
over 0 shares, shared voting power over 3,367,735 shares, sole dispositive
power over 0 shares and shared dispositive power over 3,856,424 shares.
(2) Gabelli Funds, Inc. and its related entities have sole voting power over
5,270,250 shares, shared voting power over 0 shares, sole dispositive power
over 5,350,350 shares and shared dispositive power over 0 shares.
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<PAGE> 43
The following table sets forth, as of February 28, 1999, information known
to Aeroquip-Vickers concerning the beneficial ownership of Aeroquip-Vickers
common shares by each of its present directors individually, each of the named
executive officers individually, and all present directors and executive
officers as a group. The totals for each person and for the group include shares
held personally; shares held by immediate family members sharing the same
household; shares held as of February 28, 1998, under Aeroquip-Vickers' dividend
reinvestment plan and savings and profit-sharing plan; and shares that may be
acquired within 60 days following February 28, 1999, through the exercise of
options.
<TABLE>
<CAPTION>
Amount & Nature of Percent
NAME OF BENEFICIAL OWNER Beneficial Ownership(1)(3) of Class(2)
------------------------ -------------------------- -----------
<S> <C> <C>
Virgis W. Colbert.................................. 1,403 *
Purdy Crawford..................................... 6,355 *
Joseph C. Farrell.................................. 6,113 *
David R. Goode..................................... 2,893 *
Paul A. Ormond..................................... 3,013 *
John P. Reilly..................................... 4,273 *
William R. Timken, Jr.............................. 5,003 *
Darryl F. Allen(3)................................. 347,477 1%
Chairman of the Board, President and Chief
Executive Officer of Aeroquip-Vickers
William R. Ammann(3)............................... 102,605 *
Vice President - Administration and Treasurer of
Aeroquip-Vickers
James E. Kline(3).................................. 42,821 *
Vice President and General Counsel of
Aeroquip-Vickers
David M. Risley(3)................................. 76,616 *
Vice President - Finance and Chief Financial
Officer
Howard M. Selland(3)............................... 108,679 *
Executive Vice President of Aeroquip-Vickers and
President of Aeroquip Corporation
All Directors and Executive Officers as a Group (18
persons)......................................... 858,270 3%(4)
* Indicates beneficial ownership of less than 1%.
</TABLE>
- ---------------
(1) Each director and named executive officer has sole voting and dispositive
power with respect to all Aeroquip-Vickers common shares indicated except
that (i) 5,727 shares listed for Darryl F. Allen are held by Mr. Allen's
wife, and (ii) 450 shares listed for Darryl F. Allen are held by one of Mr.
Allen's children, who resides with Mr. Allen; Mr. Allen has disclaimed
beneficial ownership of such shares.
(2) Each director and named executive officer, other than Mr. Allen, owns less
than 1% of the outstanding Aeroquip-Vickers common shares as of February 28,
1999.
(3) A portion of the total for the named executive officers and the group
includes Aeroquip-Vickers common shares that could be acquired within 60
days following February 28, 1999 through the exercise of stock options:
260,000 common shares for Darryl F. Allen; 78,000 common shares for William
R. Ammann; 30,333 common shares for James E. Kline; 58,000 common shares for
David M. Risley; 85,000 common shares for Howard M. Selland; and 628,233
common shares for all executive officers included in the group of directors
and executive officers. Two hundred three shares of restricted stock issued
pursuant to the Non-employee Directors' Stock Award Plan have been included
in the total for each director. The restrictions on these shares lapsed upon
the filing of the preliminary proxy statement on February 12, 1999. These
1,421 shares are also included in the group total.
(4) For the purpose of computing the percent of class, the Aeroquip-Vickers
common shares for which all directors and executive officers as a group may
acquire beneficial ownership within 60 days following February 28, 1999,
through the exercise of options, are deemed to be outstanding.
37
<PAGE> 44
INDEPENDENT ACCOUNTANTS
Representatives of Ernst & Young LLP, Aeroquip-Vickers' independent
auditors, are expected to be present at the special meeting. These
representatives will have an opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
If the merger is not consummated, Aeroquip-Vickers will hold a 1999 Annual
Meeting of Shareholders. If this 1999 meeting is held, shareholder proposals
that were intended to be considered in Aeroquip-Vickers' proxy materials were
required to have been submitted on or before November 9, 1998, and any proposal
not received before this time was considered untimely.
WHERE YOU CAN FIND MORE INFORMATION
Aeroquip-Vickers files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
Shareholders may read and copy any reports, statements or other information that
Aeroquip-Vickers files at the public reference facilities of the Securities and
Exchange Commission at its principal office at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington DC 20549, and its regional offices at
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and at 7 World Trade Center, Suite 1300, New York, New York 10048. Shareholders
may call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Aeroquip-Vickers' Securities and
Exchange Commission filings are also available to the public from commercial
document retrieval services and at the web site maintained by the Securities and
Exchange Commission at http://www.sec.gov. Reports, proxy statements and other
information concerning Aeroquip-Vickers also may be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Securities and Exchange Commission allows Aeroquip-Vickers to
"incorporate by reference" information into this proxy statement, which means
that Aeroquip-Vickers can disclose important information to shareholders by
referring them to another document filed separately with the Securities and
Exchange Commission. The information incorporated by reference is deemed to be
part of this proxy statement, except for any information superseded by
information in this proxy statement. This proxy statement incorporates by
reference the documents set forth below that Aeroquip-Vickers has previously
filed with the Securities and Exchange Commission. These documents contain
important information about Aeroquip-Vickers and its finances.
<TABLE>
<CAPTION>
AEROQUIP-VICKERS SECURITIES AND
EXCHANGE COMMISSION FILINGS (FILE NO. 1-924) PERIOD
- -------------------------------------------- ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarters ended March 31, 1998, June 30, 1998
and September 30, 1998
Current Report on Form 8-K Filed on February 12, 1999
</TABLE>
AEROQUIP-VICKERS IS ALSO HEREBY INCORPORATING BY REFERENCE ADDITIONAL
DOCUMENTS THAT IT FILES WITH THE SECURITIES AND EXCHANGE COMMISSION BETWEEN THE
DATE OF THIS PROXY STATEMENT AND THE DATE OF THE SPECIAL MEETING.
Eaton and Eaton Industries have supplied all information contained or
incorporated by reference in this proxy statement relating to Eaton and Eaton
Industries, and Aeroquip-Vickers has supplied all such information relating to
Aeroquip-Vickers.
38
<PAGE> 45
Aeroquip-Vickers may have sent to Aeroquip-Vickers shareholders some of the
documents incorporated by reference, but shareholders can obtain any of them
through Aeroquip-Vickers or the Securities and Exchange Commission. Documents
incorporated by reference are available from Aeroquip-Vickers without charge,
excluding all exhibits unless Aeroquip-Vickers has specifically incorporated by
reference an exhibit in this proxy statement. Shareholders may obtain documents
incorporated by reference in this proxy statement by requesting them in writing
at the following address:
Aeroquip-Vickers, Inc.
3000 Strayer
Maumee, Ohio 43537
Attention: Secretary
Telephone: (419) 867-2200
Web Site: www.aeroquip-vickers.com
If you would like to request documents from Aeroquip-Vickers, please do so
by March 31, 1999 to receive them before the special meeting.
Shareholders should rely only on the information contained or incorporated
by reference in this proxy statement to vote their shares at the special
meeting. Aeroquip-Vickers has not authorized anyone to provide you with
information that is different from what is contained in this proxy statement.
This proxy statement is dated March 8, 1999. Shareholders should not assume that
the information contained in the proxy statement is accurate as of any date
other than such date, and the mailing of this proxy statement to shareholders
will not create any implication to the contrary.
39
<PAGE> 46
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 47
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EATON CORPORATION
EATON INDUSTRIES INC.,
AND
AEROQUIP-VICKERS, INC.
DATED AS OF JANUARY 31, 1999
<PAGE> 48
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger....................................................... A-1
Section 1.2 Closing.......................................................... A-1
Section 1.3 Effective Time................................................... A-1
Section 1.4 Effects of the Merger............................................ A-1
Section 1.5 Articles of Incorporation and Code of Regulations................ A-2
Section 1.6 Directors and Officers of the Surviving Corporation.............. A-2
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
SURRENDER OF CERTIFICATES AND PAYMENT
Section 2.1 Effect on Capital Stock.......................................... A-2
(a) Cancellation of Treasury Stock and Buyer Owned Stock........ A-2
(b) Conversion of Common Stock.................................. A-2
(c) Capital Stock of Buyer...................................... A-2
Section 2.2 Payment and Surrender of Certificates............................ A-2
(a) Paying Agent................................................ A-2
(b) Payment Procedures.......................................... A-2
(c) Stock Transfer Books........................................ A-3
(d) Termination of Payment Fund................................. A-3
(e) No Liability................................................ A-3
(f) Lost Certificates........................................... A-3
Section 2.3 Company Equity Plans............................................. A-3
(a) Conversion of Options....................................... A-3
(b) Treatment of Restricted Stock............................... A-4
(c) Treatment of Stock Units and Stock Award.................... A-4
(d) Termination of Plans........................................ A-4
Section 2.4 Dissenters' Rights............................................... A-4
Section 2.5 Further Assurances............................................... A-4
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of Company........................ A-5
(a) Organization, Standing and Corporate Power.................. A-5
(b) Subsidiaries................................................ A-5
(c) Capital Structure........................................... A-5
(d) Authority; Noncontravention................................. A-6
(e) SEC Reports and Financial Statements........................ A-7
(f) Absence of Certain Changes or Events........................ A-7
</TABLE>
i
<PAGE> 49
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(g) Compliance with Applicable Laws; Litigation................. A-8
(h) ERISA Compliance............................................ A-8
(i) Taxes....................................................... A-11
(j) Voting Requirement.......................................... A-11
(k) State Takeover Statutes..................................... A-11
(l) Brokers..................................................... A-11
(m) Environmental Matters....................................... A-11
(n) The Company Rights Agreement................................ A-13
(o) Proxy Statement............................................. A-13
(p) Intellectual Property....................................... A-13
(q) Opinion of Financial Advisor................................ A-13
(r) Labor Agreements............................................ A-13
(s) Contracts; Debt Instruments................................. A-14
(t) Year 2000 Issues............................................ A-14
(u) Product Recalls............................................. A-14
Section 3.2 Representations and Warranties of Parent and Buyer............... A-14
(a) Organization, Standing and Corporate Power.................. A-14
(b) Authority; Noncontravention................................. A-14
(c) Ownership of Common Stock................................... A-15
(d) Brokers..................................................... A-15
(e) Financing................................................... A-15
(f) Information in Proxy Statement.............................. A-15
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business.............................................. A-15
(a) Conduct of Business by the Company.......................... A-15
(b) Other Actions............................................... A-17
(c) Advice of Changes........................................... A-17
Section 4.2 No Solicitation.................................................. A-17
ARTICLE 5
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Shareholders Meeting............. A-19
Section 5.2 Access to Information; Confidentiality........................... A-19
Section 5.3 Efforts; Cooperation............................................. A-19
Section 5.4 Indemnification.................................................. A-20
Section 5.5 Employee Benefits................................................ A-20
Section 5.6 Public Announcements............................................. A-21
Section 5.7 Fees and Expenses................................................ A-21
Section 5.8 Credit Agreement................................................. A-21
</TABLE>
ii
<PAGE> 50
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger....... A-21
(a) Shareholder Approval........................................ A-21
(b) Governmental and Regulatory Approvals....................... A-21
(c) No Injunctions or Restraints................................ A-21
(d) HSR Act..................................................... A-21
Section 6.2 Conditions to Obligations of Parent and Buyer.................... A-22
(a) Representations and Warranties.............................. A-22
(b) Performance of Obligations of the Company................... A-22
(c) Consents.................................................... A-22
(d) Governmental Litigation..................................... A-22
(e) Dissenting Shares........................................... A-22
(f) Officer's Certificate....................................... A-22
Section 6.3 Conditions to Obligations of the Company......................... A-22
(a) Representations and Warranties.............................. A-22
(b) Performance of Obligations of Parent and Buyer.............. A-22
(c) Officer's Certificate....................................... A-22
Section 6.4 Frustration of Closing Conditions................................ A-22
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination...................................................... A-23
Section 7.2 Effect of Termination............................................ A-23
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Amendment........................................................ A-24
Section 8.2 Extension; Waiver................................................ A-24
Section 8.3 Nonsurvival of Representations and Warranties.................... A-24
Section 8.4 Notices.......................................................... A-24
Section 8.5 Interpretation................................................... A-25
Section 8.6 Counterparts..................................................... A-25
Section 8.7 Entire Agreement; No Third-Party Beneficiaries................... A-25
Section 8.8 Governing Law.................................................... A-25
Section 8.9 Assignment....................................................... A-25
Section 8.10 Consent to Jurisdiction.......................................... A-26
Section 8.11 Specific Enforcement............................................. A-26
Section 8.12 Severability..................................................... A-26
</TABLE>
iii
<PAGE> 51
TABLE OF DEFINED TERMS
<TABLE>
<S> <C>
1987 Plan............................. A-3
1994 Plan............................. A-3
1998 Plan............................. A-3
affiliate............................. A-25
Agreement............................. A-1
Business Day.......................... A-1
Buyer................................. A-1
Certificate of Merger................. A-1
Certificate........................... A-2
Closing............................... A-1
Closing Date.......................... A-1
Code.................................. A-9
Common Stock.......................... A-1
Company............................... A-1
Company Benefit Plans................. A-8
Company Disclosure Letter............. A-5
Company Entities...................... A-5
Company Intellectual Property......... A-13
Company Material Adverse Effect....... A-5
Company Rights Agreement.............. A-13
Company Subsidiaries.................. A-5
Company Subsidiary.................... A-5
Competing Transaction................. A-17
Confidentiality Agreement............. A-19
control............................... A-25
Director Equity Plan.................. A-3
Director Plan......................... A-3
Dissenting Shares..................... A-2
Dissenting Shareholders............... A-2
Effective Time........................ A-1
Environmental Claim................... A-12
Environmental Laws.................... A-12
Equity Plans.......................... A-3
ERISA................................. A-9
ERISA Affiliate....................... A-9
Exchange Act.......................... A-7
Foreign Plan.......................... A-10
GAAP.................................. A-7
Governmental Entity................... A-7
Hazardous Substance................... A-12
HSR Act............................... A-7
Indemnified Parties................... A-20
knowledge............................. A-25
Liens................................. A-5
Merger................................ A-1
Merger Consideration.................. A-2
Multiemployer Plan.................... A-10
Multiple Employer Plan................ A-10
OGCL.................................. A-1
Old Right............................. A-5
Old Rights Agreement.................. A-5
Option Consideration.................. A-4
Option................................ A-3
Parent................................ A-1
Parent Material Adverse Effect........ A-14
Paying Agent.......................... A-2
Payment Fund.......................... A-2
Permits............................... A-8
person................................ A-25
Preferred Stock....................... A-5
Proxy Statement....................... A-7
Recent SEC Reports.................... A-11
Release............................... A-12
Restraints............................ A-21
Right................................. A-6
SEC................................... A-7
SEC Documents......................... A-7
Securities Act........................ A-7
Shareholder Approval.................. A-11
Shareholders Meeting.................. A-19
Superior Proposal..................... A-18
Surviving Corporation................. A-1
Takeover Statute...................... A-11
Termination Fee....................... A-24
</TABLE>
iv
<PAGE> 52
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of January 31,
1999, by and among EATON CORPORATION, an Ohio corporation ("Parent"), EATON
INDUSTRIES INC., an Ohio corporation and a wholly owned subsidiary of Parent
("Buyer"), and AEROQUIP-VICKERS, INC., an Ohio corporation (the "Company").
WITNESSETH:
1. The respective Boards of Directors of the Company, Parent and Buyer have
each approved the merger of Buyer with and into the Company (the "Merger"), upon
the terms and subject to the conditions set forth in this Agreement and in
accordance with the General Corporation Law of the State of Ohio (the "OGCL"),
whereby each issued and outstanding share of common stock, par value $5.00 per
share, of the Company ("Common Stock"), other than Dissenting Shares and any
shares of Common Stock owned by Parent, Buyer or held in the treasury of the
Company, will be converted into the right to receive the Merger Consideration.
Any reference in this Agreement to Common Stock shall be deemed to include the
Old Rights issued under the Old Rights Agreement or the Rights to be issued
under the Company Rights Agreement, as appropriate.
2. The Board of Directors of the Company has determined that the Merger is
fair to and in the best interest of the Company and its shareholders.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the OGCL, Buyer will be merged
with and into the Company at the Effective Time and the separate corporate
existence of Buyer will thereupon cease. Following the Effective Time, the
Company will be the surviving corporation (the "Surviving Corporation").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take
place at a time and on a date to be specified by the parties, which is to be no
later than the second Business Day (or, at the option of Parent, the 11th day)
after satisfaction or waiver (subject to applicable law) of the conditions
(excluding conditions that, by their terms, cannot be satisfied until the
Closing Date) set forth in Article 6, unless another time or date is agreed to
by the parties to this Agreement. The Closing will be held at the offices of
Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019,
or such other location as the parties to this Agreement agree to in writing. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date." "Business Day" means any day other than Saturday, Sunday, or any federal
holiday.
Section 1.3 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall (i) file
a certificate of merger (the "Certificate of Merger") in such form as is
required by and executed in accordance with the relevant provisions of the OGCL
and (ii) make all other filings or recordings required under the OGCL. The
Merger will become effective at such time as the Certificate of Merger is duly
filed with the Secretary of State of the State of Ohio, or at such subsequent
date or time as the Company and Buyer agree and specify in the Certificate of
Merger (the date and time the Merger becomes effective is hereinafter referred
to as the "Effective Time").
Section 1.4 Effects of the Merger. The Merger will have the effects set
forth in the OGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of the Company and Buyer will be vested in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Buyer will become the
debts, liabilities and duties of the Surviving Corporation.
<PAGE> 53
Section 1.5 Articles of Incorporation and Code of Regulations. The
Articles of Incorporation and Code of Regulations of Buyer, as in effect
immediately before the Effective Time, will be the Articles of Incorporation and
Code of Regulations, respectively, of the Surviving Corporation (with such
changes thereto as the parties may agree), until thereafter changed or amended
as provided therein or by applicable law.
Section 1.6 Directors and Officers of the Surviving Corporation. The
directors of Buyer immediately prior to the Effective Time will be the directors
of the Surviving Corporation, until the earlier of their death, resignation or
removal or until their respective successors are duly elected and qualified, as
the case may be. The officers of the Company immediately prior to the Effective
Time will be the officers of the Surviving Corporation, until the earlier of
their death, resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
SURRENDER OF CERTIFICATES AND PAYMENT
Section 2.1 Effect on Capital Stock. At the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
capital stock of the Company or Buyer:
(a) Cancellation of Treasury Stock and Buyer Owned Stock. Each share
of Common Stock that is owned by Parent or Buyer and any Common Stock held
in the treasury of the Company will automatically be canceled and retired
and will cease to exist, and no consideration will be delivered in exchange
therefor. Each share of Common Stock, if any, that is owned by a subsidiary
of Parent (other than Buyer) or a Company Subsidiary shall remain
outstanding.
(b) Conversion of Common Stock. Each issued and outstanding share of
Common Stock (other than shares to be canceled or to remain outstanding in
accordance with Section 2.1(a) and shares of Common Stock ("Dissenting
Shares") that are owned by shareholders ("Dissenting Shareholders") that
have properly exercised appraisal rights pursuant to Section 1701.85 of the
OGCL)) will be converted into the right to receive $58.00, without
interest, in cash (the "Merger Consideration") upon surrender of the
certificate representing immediately prior to the Effective Time such share
of Common Stock (the "Certificate") in the manner provided in Section 2.2.
At the Effective Time, all such shares of Common Stock will no longer be
outstanding and will automatically be canceled and retired and will cease
to exist, and each holder of a Certificate will cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
upon surrender of such Certificate in accordance with Section 2.2.
(c) Capital Stock of Buyer. At the Effective Time, each share of
common stock of Buyer issued and outstanding immediately prior to the
Effective Time will be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
Section 2.2 Payment and Surrender of Certificates.
(a) Paying Agent. Prior to the Effective Time, Buyer shall appoint the
Company's registrar and transfer agent or such other United States bank or
trust company as may be approved in writing by the Company (such approval
not to be unreasonably withheld) to act as paying agent (the "Paying
Agent") for the payment of the Merger Consideration. Buyer shall deposit or
shall cause to be deposited with the Paying Agent, in a separate fund
established for the benefit of the holders of shares of Common Stock for
payment in accordance with this Article 2 through the Paying Agent (the
"Payment Fund"), immediately available funds in amounts necessary to make
the payments pursuant to Section 2.1(b) and this Section 2.2 to holders of
shares of Common Stock entitled thereto.
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time and in any event not later than three Business Days
following the Effective Time, Parent shall cause the Paying Agent to mail
to each holder of record of a Certificate or Certificates whose shares were
converted into the right to receive the Merger Consideration pursuant to
Section 2.1(b), (i) a letter of transmittal (which must specify that
A-2
<PAGE> 54
delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon delivery of the Certificates to the Paying Agent and
will be in such form and have such other provisions as the Company and
Buyer may reasonably specify) and (ii) instructions for use in surrendering
the Certificates in exchange for the Merger Consideration. Upon surrender
of a Certificate for cancellation to the Paying Agent, together with such
letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate
will be entitled to receive in exchange therefor cash in an amount equal to
the product of (i) the number of shares of Common Stock represented by such
Certificate multiplied by (ii) the Merger Consideration, and the
Certificate so surrendered will forthwith be canceled. Absolutely no
interest will be paid or accrued on the Merger Consideration payable upon
the surrender of any Certificate. If payment is to be made to a person
other than the person in whose name the surrendered Certificate is
registered, it will be a condition of payment that the Certificate so
surrendered will be properly endorsed or otherwise in proper form for
transfer and that the person requesting such payment, shall pay 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
surrendered Certificate or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable.
(c) Stock Transfer Books. After the Effective Time, there shall be no
further registration of transfers on the stock transfer books of the
Surviving Corporation of shares of Common Stock. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or the Paying
Agent for any reason, they will be canceled and exchanged as provided in
this Article 2, except as otherwise provided by law. Until surrendered as
contemplated by this Section 2.2, each Certificate (other than Certificates
representing Dissenting Shares and shares, if any, remaining outstanding
under Section 2.1(a)) will be deemed at any time after the Effective Time
to represent only the right to receive upon surrender the Merger
Consideration that the holder thereof has the right to receive in respect
of such Certificate pursuant to the provisions of this Article 2.
(d) Termination of Payment Fund. Any portion of the Payment Fund that
remains undistributed to holders of the Certificates for six months after
the Effective Time is to be delivered to the Surviving Corporation, upon
demand, and any holders of the Certificates who have not theretofore
complied with this Article 2 shall thereafter look only to the Surviving
Corporation for payment of their claim for the Merger Consideration.
(e) No Liability. None of Buyer, the Company, the Surviving
Corporation or the Paying Agent shall be liable to any person in respect of
any amount properly delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. Immediately prior to
the date on which any payment pursuant to this Article 2 would otherwise
escheat to or become the property of any Governmental Entity, such payment
shall, to the extent permitted by applicable law, become the property of
the Surviving Corporation, free and clear of all claims or interests of any
person previously entitled thereto.
(f) Lost Certificates. If any Certificate has been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Paying Agent shall issue in exchange for such lost, stolen
or destroyed Certificate the Merger Consideration due to such person
pursuant to this Agreement.
Section 2.3 Company Equity Plans.
(a) Conversion of Options. At the Effective Time, each holder of a
then-outstanding option to purchase shares of Common Stock under the
Company's 1987 Stock Option Plan, as amended (the "1987 Plan"), the
Company's 1998 Stock Incentive Plan (the "1998 Plan"), the Company's 1994
Stock Incentive Plan, as amended (the "1994 Plan"), and the Company's
Non-Employee Directors' Stock Award Plan, as amended (the "Director Plan"
and together with the 1987 Plan, the 1998 Plan, the 1994 Plan, the
Company's 1989 Non-Employee Director Equity Plan (the "Director Equity
Plan"), the Company's Directors' Retirement Plan and the Company's Plan for
Optional Deferment of Directors' Fees, the "Equity Plans"), whether or not
then exercisable (an "Option"), will be entitled to receive, in settlement
thereof, for
A-3
<PAGE> 55
each share subject to such Option an amount (subject to any applicable
withholding tax) in cash equal to the difference between the Merger
Consideration and the per share exercise price of such Option to the extent
such difference is a positive number (such amount is hereinafter referred
to as the "Option Consideration"). The payment of the Option Consideration
shall be made by the Surviving Corporation or Parent within one Business
Day following the Effective Time (provided the Company has delivered by the
Effective Time a list of outstanding Options as of the Effective Time).
Upon the Effective Time, the Options will be canceled.
(b) Treatment of Restricted Stock. At the Effective Time, each
then-outstanding share of Common Stock awarded under the Director Equity
Plan that is still subject to forfeiture under the terms of the Director
Equity Plan will be vested and no longer subject to restrictions and will
be canceled and converted into the right to receive the Merger
Consideration as set forth in Section 2.1(b).
(c) Treatment of Stock Units and Stock Awards. At the Effective Time,
(i) each holder of any then-outstanding stock award granted under the
Director Plan, whether or not deferred or vested, will be entitled to
receive for each share of Common Stock represented by the stock award, in
settlement thereof, an amount in cash equal to the Merger Consideration and
(ii) each holder of any stock units credited pursuant to the Company's
Directors' Retirement Plan or the Company's Plan for Optional Deferment of
Directors' Fees will be entitled to receive, for each stock unit, in
settlement thereof, an amount in cash equal to the Merger Consideration.
The payment of the amounts under this Section 2.3(c) shall be made by the
Surviving Corporation or the Parent within one Business Day following the
Effective Time provided that the Company has delivered by the Effective
Time a list of such amounts as of the Effective Time.
(d) Termination of Plans. Prior to the Effective Time, the Company
shall use its reasonable efforts to obtain all necessary consents or
releases from holders of Options, restricted shares, stock units or stock
awards under the Equity Plans and take all such other lawful action as may
be necessary (which include, but are not limited to, satisfying the
requirements of Rule 16b-3(e) promulgated under Section 16 of the Exchange
Act, without incurring any liability in connection therewith) to provide
for and give effect to the transactions contemplated by this Section 2.3.
Except as otherwise agreed to in writing by the parties, (i) the Equity
Plans will 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
subsidiary thereof will be canceled as of the Effective Time, and (ii) the
Company shall use its reasonable efforts to assure that following the
Effective Time no participant in the Equity Plans, or other plans, programs
or arrangements, will have any right thereunder to acquire equity
securities of the Company, the Surviving Corporation or any subsidiary
thereof.
Section 2.4 Dissenters' Rights. No Dissenting Shareholder will be entitled
to any portion of the Merger Consideration pursuant to this Article 2 unless and
until the holder thereof has failed to perfect or has effectively withdrawn or
lost such holder's right to dissent from the Merger under the OGCL, and any
Dissenting Shareholder will be entitled to receive only the payment provided by
Section 1701.85 of the OGCL with respect to shares of Common Stock owned by such
Dissenting Shareholder. If any person who otherwise would be deemed a Dissenting
Shareholder has failed to properly perfect or has effectively withdrawn or lost
the right to dissent with respect to any shares of Common Stock, such shares of
Common Stock will thereupon be treated as though such shares of Common Stock had
been converted into the right to receive the Merger Consideration with respect
to such shares of Common Stock as provided in this Article 2. The Company shall
give Buyer prompt notice of any written demands for appraisal, attempted
withdrawals of such demands and any other instruments received by the Company
relating to shareholders' rights of appraisal. Buyer and, after the Effective
Time, Parent shall conduct all negotiations and proceedings with respect to
demand for appraisal under the OGCL and the Company shall be entitled to
participate therein only as and to the extent requested by Parent. The Company
shall not, except with the prior written consent of Buyer, make any payment with
respect to any demands for appraisals of Dissenting Shares, offer to settle or
settle any such demands or approve any withdrawal of any such demands.
Section 2.5 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Buyer, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or Buyer, any other actions and things to vest,
perfect or confirm of record or otherwise in the
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Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of Company. The Company hereby
represents and warrants to Parent and Buyer as follows:
(a) Organization, Standing and Corporate Power. The Company and each
of the Company Subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to
jurisdictions that recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business as
now being conducted, except for those jurisdictions where the failure to be
so organized, existing or in good standing individually or in the aggregate
would not reasonably be expected to have a material adverse effect on the
condition (financial or otherwise), business, assets, liabilities or
results of operations of the Company and its subsidiaries taken as whole (a
"Company Material Adverse Effect"). The Company and each of the Company
Subsidiaries 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 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.
(b) Subsidiaries. Section 3.1(b) of the disclosure letter delivered by
the Company to Buyer prior to the execution of this Agreement (the "Company
Disclosure Letter"), sets forth all the subsidiaries of the Company
(specifying those that as of the date of this Agreement are Significant
Subsidiaries (as defined in Rule 1-02 of Regulation S-X under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), and
treating as a Significant Subsidiary of the Company the joint ventures
listed on Schedule 3.1(b) of the Company Disclosure Letter (each a "Company
Subsidiary," collectively, the "Company Subsidiaries," and together with
the Company, the "Company Entities"). Except as set forth on Schedule
3.1(b) of the Company Disclosure Letter, all outstanding shares of capital
stock of, or other equity interests in, each Company Subsidiary (i) have
been validly issued and are fully paid and nonassessable, (ii) are free and
clear of all pledges, claims, liens, options, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively, "Liens")
and (iii) are free of any other restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests), except in the case of clauses (ii) and (iii) for any
Liens or restrictions that, individually or in the aggregate, would not
reasonably be expected to have a Company Material Adverse Effect. Except as
set forth on Schedule 3.1(b) of the Company Disclosure Letter and except
for directors' qualifying shares, all outstanding shares of capital stock
(or equivalent equity interests of entities other than corporations) of
each of the Company Subsidiaries are beneficially owned, directly or
indirectly, by the Company. The Company does not, directly or indirectly,
own more than 20% but less than 100% of the capital stock or other equity
interest in any person except as listed on Schedule 3.1(b) of the Company
Disclosure Letter.
(c) Capital Structure. The authorized capital stock of the Company
consists of (i) 100,000,000 shares of Common Stock and (ii) 4,000,000
shares of Serial Preferred Stock, no par value per share, of the Company
("Preferred Stock"). At the close of business on January 28, 1999: (i)
27,600,520 shares of Common Stock were issued and outstanding (including
1,810 shares of restricted stock and excluding 6,680,326 shares of Common
Stock held in the treasury of the Company); (ii) no shares of Preferred
Stock were issued or outstanding; and (iii) 2,787,331 shares of Common
Stock were reserved for issuance under the Equity Plans. Section 3.1(c) of
the Company Disclosure Letter sets forth the holders of all outstanding
Options, stock units and stock awards and the number, exercise prices,
vesting schedules and expiration dates of each grant to such holders. Each
share of Common Stock carries with it an associated share purchase right
(an "Old Right"), issued pursuant to the Rights Agreement between the
Company and First Chicago Trust Company of New York, dated as of January
26, 1989 (the "Old Rights Agreement") which
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entitles the holder thereof to purchase, upon the occurrence of certain
events, Preferred Stock. As of February 6, 1999, the Old Rights will lapse
and thereafter be of no effect. Each share of Common Stock will carry, from
February 6, 1999, an associated share purchase right pursuant to the
Company Rights Agreement (a "Right"), which will entitle the holder thereof
to purchase, on the occurrence of certain events, Preferred Stock. All
outstanding shares of capital stock of the Company are, and all shares that
may be issued will be, when issued, duly authorized, validly issued, fully
paid and nonassessable and not subject to or issued in violation of
preemptive rights. Except (i) as set forth above, (ii) for shares of Common
Stock issued pursuant to Options outstanding on January 29, 1999 that are
described on Schedule 3.1(c) of the Company Disclosure Letter, and (iii) as
set forth on Schedule 3.1(c) of the Company Disclosure Letter, (x) there
are not issued, reserved for issuance or outstanding (A) any shares of
capital stock or other voting securities of the Company, (B) any securities
convertible into or exchangeable or exercisable for shares of capital stock
or voting securities of the Company, or (C) 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, voting securities or securities convertible into or exchangeable or
exercisable for capital stock or voting securities of the Company and (y)
there are no outstanding obligations of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire any such securities
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. Neither the Company nor any Company Subsidiary is a party
to any voting agreement with respect to the voting of any such securities.
Except as set forth on Schedule 3.1(c) of the Company Disclosure Letter,
there are no outstanding (A) securities convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities or
ownership interests in any Company Subsidiary, (B) 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, 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 in, any Company Subsidiary,
or (C) obligations of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any such outstanding securities of Company
Subsidiaries or to issue, deliver or sell, or cause to be issued, delivered
or sold, any such securities. Except as set forth on Schedule 3.1(c) of the
Company Disclosure Letter, there are no agreements, arrangements or
commitments of any character (contingent or otherwise) entered into in
connection with acquisitions pursuant to which any person is or may be
entitled to receive any payment based on the revenues, earnings or
financial performance of the Company or any of its subsidiaries or assets
or calculated in accordance therewith.
(d) Authority; Noncontravention. The Company has all requisite
corporate power and authority to enter into this Agreement, and, subject to
the Shareholder Approval, to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on
the part of the Company, subject, in the case of the Merger, to the
Shareholder Approval. This Agreement has been duly executed and delivered
by the Company, and, assuming the due authorization, execution and delivery
by Buyer and Parent, constitutes a legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
Except as set forth on Schedule 3.1(d) of the Company Disclosure Letter,
the execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions of this Agreement will not, (i) conflict with the articles of
incorporation or code of regulations or comparable organizational documents
of any of the Company Entities, (ii) result in any breach, violation or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or creation or acceleration of
any obligation or right of a third party or loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of
the Company Entities under, any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, license or other authorization applicable to the
Company Entities or their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, conflict with or violate any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company Entities or
their respective properties or assets, other than, in the case of clauses
(ii) and (iii) any such conflicts, violations, defaults, rights, losses or
Liens that, individually
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or in the aggregate, would not reasonably be expected to have a Company
Material Adverse Effect or that would not prevent or materially delay
consummation of the transactions contemplated by this Agreement. No
consent, approval, order or authorization of, action by or in respect of,
or registration, declaration or filing with, any federal, state, or local,
foreign or supra-national government, any court, administrative, regulatory
or other governmental agency, commission or authority or any
non-governmental United States or foreign self-regulatory agency,
commission or authority or any arbitral tribunal (each, a "Governmental
Entity") is required by the Company in connection with the execution and
delivery of this Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby or thereby, except for: (i)
the filing with the Securities and Exchange Commission (the "SEC") of a
proxy statement relating to the Shareholders Meeting (such proxy statement,
as amended or supplemented from time to time, the "Proxy Statement"); (ii)
the filing of the Certificate of Merger with the Secretary of State of the
State of Ohio; (iii) the filing of a premerger notification and report form
by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR Act"); (iv) the consents, approvals, orders or
authorizations set forth on Schedule 3.1(d) of the Company Disclosure
Letter; (v) the antitrust and competition laws of foreign countries; (vi)
the "takeover" or "blue sky" laws of various states; and (vii) such
consents, approvals, orders or authorizations the failure of which to be
made or obtained, individually or in the aggregate, would not reasonably be
expected to have a Company Material Adverse Effect or would not prevent or
materially delay consummation of the transactions contemplated by this
Agreement.
(e) SEC Reports and Financial Statements. The Company has timely filed
all required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) under
the Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act, with the SEC since January 1, 1996 (as such reports,
schedules, forms, statements and documents have been amended since the time
of their filing, collectively, the "SEC Documents"). As of their respective
dates, or if amended prior to the date hereof, as of the date of the last
such amendment, the SEC Documents complied in all material respects with
the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the SEC promulgated thereunder
applicable to such SEC Documents, and none of the SEC Documents when filed,
or as so amended, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the SEC Documents comply as to form, as of their
respective date of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
United States generally accepted accounting principles ("GAAP") (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto), and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated
statement of earnings, cash flows and shareholders' equity for the periods
then ended (subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except as set forth in the SEC
Documents filed prior to the date of this Agreement and except for
liabilities and obligations that are not material to the Company as a
whole, neither the Company nor any Company Subsidiary has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) which have been incurred or shall have arisen prior to September
30, 1998.
(f) Absence of Certain Changes or Events. Except as disclosed on
Schedule 3.1(f) of the Company Disclosure Letter, since September 30, 1998,
(i) the Company Entities have conducted their respective operations only in
the ordinary course consistent with past practice, (ii) there has not been
a Company Material Adverse Effect, (iii) the Company Entities have not
taken action that if taken after the date of this Agreement would
constitute a violation of Section 4.1, (iv) neither the Company nor any
Company Subsidiary has incurred nor shall there have arisen any liabilities
(direct, contingent or otherwise) material to the Company as a whole and
(v) neither the Company nor any Company Subsidiary has engaged in any
material transaction or entered into any material agreement or commitments
outside the ordinary course of business (except for the transactions
contemplated by this Agreement). The unaudited financial statements
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included in the earnings release published by the Company on January 28,
1999 fairly present in all material respects the consolidated financial
position of the Company and its consolidated subsidiaries as of December
31, 1998 and the results of operations of the Company and its consolidated
subsidiaries for the year then ended.
(g) Compliance with Applicable Laws; Litigation.
(i) Except for violations of Environmental Laws (which are the
subject of Section 3.1(m)), the operations of the Company Entities have
not been and are not being conducted in violation of any law or any
Permit, except where such violations, individually or in the aggregate,
would not reasonably be expected to have or result in a Company Material
Adverse Effect. Except as set forth on Schedule 3.1(g) of the Company
Disclosure Letter, none of the Company Entities has received any notice,
or has knowledge of any claim, alleging any such violation.
(ii) The Company Entities hold all licenses, permits, variances,
consents, authorizations, waivers, grants, franchises, concessions,
exemptions, orders, registrations and approvals of Governmental Entities
or other persons necessary for the conduct of their respective
businesses as currently conducted ("Permits"), except where the failure
to hold such Permits, individually or in the aggregate, would not
reasonably be expected to have or result in a Company Material Adverse
Effect. None of the Company Entities has received notice that any Permit
will be terminated or modified or cannot be renewed in the ordinary
course of business, and the Company has no knowledge of any reasonable
basis for any such termination, modification or nonrenewal, except for
such terminations, modifications or nonrenewals as, individually or in
the aggregate, would not reasonably be expected to have or result in a
Company Material Adverse Effect. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated
hereby and thereby do not and will not violate any Permit, or result in
any termination, modification or nonrenewals thereof, except for such
violations, terminations, modifications or nonrenewals thereof as,
individually or in the aggregate, would not reasonably be expected to
have or result in a Company Material Adverse Effect.
(iii) Except as disclosed in Schedule 3.1(g) of the Company
Disclosure Letter, no action, demand, requirement or investigation by
any Governmental Entity and no suit, action or proceeding by any person,
in each 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 as of the date of this Agreement, other than, in
each case, those the outcome of that, 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 contemplated by this Agreement.
(h) ERISA Compliance.
(i) Schedule 3.1(h)(i) of the Company Disclosure Letter sets forth
a true and complete list of each United States collective bargaining
agreement and any United States bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, employment,
disability, death benefit, hospitalization, medical, life, severance or
other plan, agreement, arrangement or understanding, or change of
control agreement providing benefits to any current or former employee,
officer or director of the Company or any Company Subsidiary or to which
the Company or any Company Subsidiary contributes or is obligated to
contribute (collectively, the "Company Benefit Plans"). For purposes of
this Agreement, the term "Foreign Plan" shall refer to each plan,
agreement, arrangement or understanding that is subject to or governed
by the laws of any jurisdiction other than the United States, and which
would have been treated as a Company Benefit Plan had it been a United
States plan, agreement, arrangement or understanding. With respect to
each Company Benefit Plan and Foreign Plan, no event has occurred and
there exists no condition or set of circumstances in connection with
which the Company could be subject to any liability that, individually
or in the aggregate, would reasonably be expected to have a Company
Material Adverse Effect.
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(ii) Except as set forth on Schedule 3.1(h) of the Company
Disclosure Letter, each Company Benefit Plan has been administered in
accordance with its terms, all applicable laws, including the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and the
Internal Revenue Code of 1986, as amended (the "Code"), and the terms of
all applicable collective bargaining agreements, except for any failures
so to administer any Company Benefit Plan that, individually or in the
aggregate, would not reasonably be expected to have a Company Material
Adverse Effect. The Company and all Company Benefit Plans are in
compliance with the applicable provisions of ERISA, the Code and all
other applicable laws and the terms of all applicable collective
bargaining agreements, except for any failures to be in such compliance
that, individually or in the aggregate, would not reasonably be expected
to have a Company Material Adverse Effect. Each Company Benefit Plan
that is intended to be qualified under Section 401(a) or 401(k) of the
Code is so qualified and each trust established in connection with any
Company Benefit Plan that is intended to be exempt from federal income
taxation under Section 501(a) of the Code is so exempt. No fact or event
has occurred which is reasonably likely to affect adversely the
qualified status of any such Company Benefit Plan or the exempt status
of any such trust, except for any occurrence that, individually or in
the aggregate, would not reasonably be expected to have a Company
Material Adverse Effect, and all contributions to, and payments from,
such Company Benefit Plans that are required to be made in accordance
with such Company Benefit Plans, ERISA or the Code have been timely made
other than any failures that, individually or in the aggregate, would
not reasonably be expected to have a Company Material Adverse Effect.
Each Company Benefit Plan intended to meet the requirements of Section
501(c)(9) of the Code meets such requirements in all material respects
and provides no disqualified benefits (as defined in Section 4976(b) of
the Code).
(iii) Neither the Company nor any trade or business, whether or not
incorporated, which, together with the Company, would be deemed to be a
"single employer" within the meaning of Section 4001(b) of ERISA (an
"ERISA Affiliate") has incurred any liability under Title IV of ERISA or
4971 of the Code, or has a current failure to meet the minimum funding
standards of Section 302 of ERISA or Section 412 of the Code, and no
condition exists that presents a risk to the Company or any ERISA
Affiliate of the Company of incurring any such liability or failure
(other than liability for benefits or premiums to the Pension Benefit
Guaranty Corporation arising in the ordinary course, all of which have
been timely paid in full). Except as disclosed on actuarial reports
previously provided to Parent, with respect to each Company Benefit Plan
that is subject to Title IV or Section 302 of ERISA or Section 412 or
4971 of the Code, the fair market value of the assets of such Company
Benefit Plan equals or exceeds the actuarial present value of all
accrued benefits under such Company Benefit Plan (whether or not
vested), based upon the actuarial assumptions used to prepare the most
recent actuarial report for such Company Benefit Plan and, to the
knowledge of the Company, no event has occurred which would be
reasonably expected to change any such funded status.
(iv) Except for Company Benefit Plans set forth on Schedule
3.1(h)(iv) of the Company Disclosure Letter, no Company Benefit Plan
provides medical benefits (whether or not insured) with respect to
current or former employees or officers or directors after retirement or
other termination of service.
(v) Except for Company Benefit Plans set forth on Schedule
3.1(h)(v) of the Company Disclosure Letter, the consummation of the
transactions contemplated by this Agreement will not, either alone or in
combination with another event, (A) entitle any current or former
employee, officer or director of the Company to severance pay,
unemployment compensation or any other payment, except as expressly
provided in this Agreement, or (B) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee,
officer or director.
(vi) Except for Company Benefit Plans set forth on Schedule
3.1(h)(vi) of the Company Disclosure Letter, neither the Company nor any
Company Subsidiary is a party to any agreement, contract or arrangement
(including this Agreement) that could result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code. No
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Company Benefit Plan provides for the reimbursement of excise taxes
under Section 4999 of the Code or any income taxes under the Code.
(vii) With respect to each Company Benefit Plan, the Company has
delivered or made available to Parent a true and complete copy of: (A)
each writing constituting a part of such Company Benefit Plan,
including, without limitation, all Company Benefit Plan documents, and
trust agreements; (B) the most recent Annual Report (Form 5500 Series)
and accompanying schedule, if any; (C) the most recent annual financial
report, if any; (D) the most recent actuarial report, if any; and (E)
the most recent determination letter from the Internal Revenue Service,
if any. Except as specifically provided in the foregoing documents
delivered or made available to Buyer, there are no amendments to any
Company Benefit Plan that have been adopted or approved nor has the
Company or any Company Subsidiary undertaken to make any such amendments
or to adopt or approve any new Company Benefit Plan.
(viii) No Company Benefit Plan is a multiemployer plan (as defined
in Section 4001(a)(3) of ERISA) (a "Multiemployer Plan") or a plan that
has two or more contributing sponsors at least two of whom are not under
common control, within the meaning of Section 4063 of ERISA (a "Multiple
Employer Plan"). None of the Company, the Company Subsidiaries nor any
of their respective ERISA Affiliates has, at any time during the last
six years, contributed to or been obligated to contribute to any
Multiemployer Plan or Multiple Employer Plan. None of the Company, the
Company Subsidiaries nor any ERISA Affiliates has incurred any material
withdrawal liability under a Multiemployer Plan that has not been
satisfied in full.
(ix) Except as set forth on Schedule 3.1(h) of the Company
Disclosure Letter, there are no pending or threatened claims (other than
claims for benefits in the ordinary course), lawsuits or arbitrations
that have been asserted or instituted, or to the Company's knowledge, no
set of circumstances exists that may reasonably give rise to a claim or
lawsuit, against the Company Benefit Plans, any fiduciaries thereof with
respect to their duties to the Company Benefit Plans or the assets of
any of the trusts under any of the Company Benefit Plans that could
reasonably be expected to result in any liability of the Company or any
Company Subsidiaries to the Pension Benefit Guaranty Corporation, the
United States Department of Treasury, the United States Department of
Labor, any Multiemployer Plan, any Company Benefit Plan or any
participant in a Company Benefit Plan, other than any liability that,
individually or in the aggregate, would not reasonably be expected to
have a Company Material Adverse Effect.
(x) Except as could not be expected, individually or in the
aggregate, to have a Material Adverse Effect, with respect to each
Company Benefit Plan that is subject to or governed by the law of any
jurisdiction other than the United States (a "Foreign Plan"): (A) all
amounts required to be reserved under each book reserved Foreign Plan
have been so reserved in accordance with reasonable accounting practices
prevailing in the country where such Foreign Plan is established; (B)
each Foreign Plan required to be registered with a Governmental Entity
has been registered, has been maintained in good standing with the
appropriate Governmental Entities, and has been maintained and operated
in accordance with its terms and applicable law; and (C) the fair market
value of the assets of each funded Foreign Plan that is a defined
pension plan (or termination indemnity plan), and the liability of each
insurer for each Foreign Plan that is a defined benefit pension plan (or
termination indemnity plan) and is funded through insurance or the book
reserve established for each Foreign Plan that is a defined benefit
pension plan (or termination indemnity plan) that utilizes book
reserves, together with any accrued contributions, is sufficient to
procure or provide for the liability for accrued benefits with respect
to those current and former employees of the Company and the Company
Subsidiaries that participate in such Foreign Plan according to the
reasonable actuarial or other applicable assumptions and valuations most
recently used to determine employer contributions to or the funded
status or book reserve of such Foreign Plans.
(xi) For purposes of this Section 3.1(h), the term "employee" shall
be considered to include individuals rendering personal services to the
Company or any Company Subsidiary as independent contractors.
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(i) Taxes. Except as set forth on Schedule 3.1(i) of the Company
Disclosure Letter and except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect: (A) the Company and each Company Subsidiary has filed all tax
returns and reports required to be filed by it or requests for extensions
to file such returns or reports have been timely filed, granted and have
not expired, and all such filed returns and reports are complete and
accurate, (B) the Company and each Company Subsidiary has paid (or the
Company has paid on its behalf) all taxes shown as due on such returns, (C)
there are no pending or threatened in writing audits, examinations,
investigations or other proceedings in respect of taxes relating to the
Company or any Company Subsidiary, (D) there are no liens for taxes upon
the assets of the Company or any of the Company Subsidiaries, other than
liens for current taxes not yet due and liens for taxes that are being
contested in good faith by appropriate proceedings, (E) neither the Company
nor any of the Company Subsidiaries has any liability for taxes of any
person (other than the Company and the Company Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any comparable provision of state or local
or foreign law), and (F) neither the Company nor any Company Subsidiary is
a party to any agreement relating to the allocation or sharing of taxes. As
used in this Agreement, "taxes" includes all federal, state or local or
foreign net and gross income, alternative or add-on minimum, environmental,
gross receipts, ad valorem, value added, goods and services, capital stock,
profits, license, single business, employment, severance, stamp,
unemployment, customs, property, sales, excise, use, occupation, service,
transfer, payroll, franchise, withholding and other taxes or similar
governmental duties, charges, fees, levies or other assessments, including
any interest, penalties or additions with respect thereto. The consolidated
federal income tax returns of the Company and the Company Subsidiaries have
been examined, or the statute of limitations has closed, with respect to
all taxable years through and including 1985.
(j) Voting Requirement. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock at the Shareholders
Meeting to adopt this Agreement (the "Shareholder Approval") is the only
vote of the holders of any class or series of the Company's capital stock
necessary to adopt and approve this Agreement, and the Merger and the
transactions contemplated hereby and thereby.
(k) State Takeover Statutes. The Board of Directors of the Company has
taken all necessary action so that no "fair price," "moratorium," "control
share acquisition" or other antitakeover statute or regulation (each, a
"Takeover Statute") (including the control share acquisition provisions
codified in Sections 1701.83 et seq. of the OGCL and the moratorium
provisions codified in Sections 1704.02 et seq. of the OCGL) is applicable
to the Merger and the transactions contemplated by this Agreement.
(l) Brokers. Except for Morgan Stanley & Co. Incorporated (the
engagement letter with whom has previously been provided to Parent), no
broker, investment banker, financial advisor or other person is entitled to
any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company.
(m) Environmental Matters.
(i) Except as disclosed in the SEC Reports filed since January 1,
1998 (the "Recent SEC Reports") or as set forth on Schedule 3.1(m) of
the Company Disclosure Letter, except where noncompliance, individually
or in the aggregate, would not reasonably be expected to have or result
in a Company Material Adverse Effect, the Company Entities are in
compliance with all applicable Environmental Laws.
(ii) Except as disclosed in the Recent SEC Reports or as disclosed
on Schedule 3.1(m) of the Company Disclosure Letter, there are no
written (or, to the knowledge of the Company, other) Environmental
Claims pending or, to the knowledge of the Company, threatened, against
the Company or any of the Company Subsidiaries that, individually or in
the aggregate, would reasonably be expected to have or result in a
Company Material Adverse Effect.
(iii) The Company has disclosed and, where requested, made
available to Buyer all material information, including such studies,
analyses and test results, in the possession, custody or control of or
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otherwise known and available to the Company Entities relating to the
environmental conditions on, under or about any of the properties or
assets owned, leased, or operated by any of the Company Entities at the
present time or for which any of the Company Entities may be
responsible.
(iv) Except as disclosed in the Recent SEC Reports or as disclosed
on Schedule 3.1(m) of the Company Disclosure Letter, prior to and during
the period of ownership or operation by the Company or the Company
Subsidiaries, to the knowledge of the Company, no Hazardous Substance
was generated, treated, stored, disposed of, used, handled or
manufactured at, or transported, shipped or disposed of from, currently
or previously owned or leased properties in violation of applicable
Environmental Laws that would reasonably be expected to have or result
in a Company Material Adverse Effect and there were no Releases of
Hazardous Substance in, on, under or affecting any currently or
previously owned or leased properties in violation of applicable
Environmental Laws that would reasonably be expected to have or result
in a Company Material Adverse Effect.
(v) Except as disclosed in the Recent SEC Reports, or as set forth
on Schedule 3.1(m) of the Company Disclosure Letter, none of the Company
or the Company Subsidiaries has received from any Governmental Entity or
other third party any written (or, to the knowledge of the Company,
other) notice that any of them or any of their predecessors is or may be
a potentially responsible party in respect of or may otherwise bear
liability for any actual or threatened Release of Hazardous Substance at
any site or facility that is, has been or could reasonably be expected
to be listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar or analogous federal, state, provincial, territorial,
municipal, county, local or other domestic or foreign list, schedule,
inventory or database of Hazardous Substance sites or facilities, except
where such notice or the circumstances referred to therein would not
reasonably be expected to have or result in a Company Material Adverse
Effect.
(vi) As used in this Agreement:
(a) the term "Environmental Claim" means any written or other
claim, demand, suit, action, proceeding, investigation or notice to
any of the Company Entities by any person alleging any potential
liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, or penalties) arising out of, based on, or
resulting from the presence, or Release into the environment, of any
Hazardous Substance at any location, whether or not owned, leased,
operated or used by the Company or the Company Subsidiaries;
(b) the term "Environmental Laws" means all laws in effect as of
the date of this Agreement relating to emissions, discharges,
Releases or threatened Releases of Hazardous Substances, or otherwise
relating to the manufacture, generation, processing, distribution,
use, sale, treatment, receipt, storage, disposal, transport or
handling of Hazardous Substances, including the Comprehensive
Environmental Response, Compensation and Liability Act and the
Resource Conversation and Recovery Act, and the Occupational Safety
and Health Act;
(c) the term "Hazardous Substance" means (i) chemicals,
pollutants, contaminants, hazardous wastes, toxic substances, and oil
and petroleum products, (ii) any substance that is or contains
friable asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum or petroleum-derived substances or wastes, radon
gas or related materials, (iii) any substance that requires removal
or remediation under any Environmental Law, or is defined, listed or
identified as a "hazardous waste" or "hazardous substance"
thereunder, or (iv) any substance that is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic,
mutagenic, or otherwise hazardous; in each case in clauses (i)-(iv)
which is regulated under any Environmental Law; and
(d) the term "Release" means any unauthorized releasing,
disposing, discharging, injecting, spilling, leaking, pumping,
dumping, emitting, escaping, emptying, migration, transporting,
placing and the like, including into or upon, any land, soil, surface
water, ground water or air, or otherwise entering into the
environment.
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(n) The Company Rights Agreement. The Rights Agreement dated February
7, 1999, between the Company and First Chicago Trust Company of New York
(the "Company Rights Agreement") and the Old Rights Agreement have been
amended to (i) render the Company Rights Agreement and the Old Rights
Agreement inapplicable to the Merger and the other transactions
contemplated by this Agreement, (ii) ensure that (x) none of Parent or its
wholly owned subsidiaries is an Acquiring Person (as defined in the Company
Rights Agreement or the Old Rights Agreement) pursuant to the Company
Rights Agreement or the Old Rights Agreement, (y) a Distribution Date, a
Triggering Event or a Share Acquisition Date (as such terms are defined in
the Company Rights Agreement or the Old Rights Agreement) does not occur
solely by reason of the execution of this Agreement, the consummation of
the Merger, or the consummation of the other transactions contemplated by
this Agreement and (z) ensure that the Company Rights Agreement will expire
or otherwise terminate immediately prior to the Effective Time. The Old
Rights Agreement will expire by its terms on February 6, 1999.
(o) Proxy Statement. The Proxy Statement at the date mailed to Company
shareholders and at the time of the Shareholders Meeting will not 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 and (ii) will comply in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder;
except that no representation is made by the Company with respect to
statements made in the Proxy Statement based on information supplied in
writing by Parent or Buyer specifically for inclusion in the Proxy
Statement.
(p) Intellectual Property. Except as disclosed on Schedule 3.1(p) of
the Company Disclosure Letter, the Company and the Company Subsidiaries own
or have a binding, enforceable right to use all intellectual property,
including letters patent, patent applications, trade names, brand names,
trademarks, service marks, trademark and service mark registrations and
applications, copyright registrations and applications, both domestic and
foreign, trade secrets, inventions, proprietary processes, licenses,
confidential information and know-how (collectively, the "Company
Intellectual Property") used in their businesses as currently conducted,
except for such Company Intellectual Property, the failure of which to own
or have a binding, enforceable right to use, individually or in the
aggregate, would not reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any of the Company Subsidiaries has
received any written (or, to the knowledge of the Company, other) notice of
infringement of and, to the knowledge of the Company, the business of the
Company and the Company Subsidiaries as presently conducted does not
infringe upon the rights of others with respect to the use of any
intellectual property that, individually or in the aggregate, in either
such case, would reasonably be expected to have a Company Material Adverse
Effect. Neither the Company nor any of the Company Subsidiaries has
received any written (or, to the knowledge of the Company, other) notice
that the conduct of another person's business or the nature of any products
sold or services provided by another person infringes upon the Company
Intellectual Property other than those infringements or conflicts that
individually or in the aggregate would not reasonably be expected to have a
Company Material Adverse Effect.
(q) Opinion of Financial Advisor. The Company has received the opinion
of Morgan Stanley & Co. Incorporated, dated the date of this Agreement, to
the effect that, as of such date, the Merger Consideration is fair from a
financial point of view to holders of shares of Common Stock, a signed copy
of which opinion will be made available to Parent promptly after the date
hereof.
(r) Labor Agreements. Schedule 3.1(r) of the Company Disclosure Letter
sets forth a true and complete list of each collective bargaining agreement
or other labor agreement with any union or labor organization to which the
Company or any of the Company Subsidiaries is a party in the United States
and the Company does not know of any activity or proceeding of any labor
organization (or representative thereof) to organize any of its or their
employees that would be reasonably expected to result in a Company Material
Adverse Effect. The Company and the Company Subsidiaries are not, and have
not since January 1, 1997 been, subject to any pending, or to the knowledge
of the Company, threatened (i) unfair labor practice, employment
discrimination or other complaint, (ii) strike, lockout or dispute,
slowdown or work stoppage or (iii) claim, suit, action or governmental
investigation, in respect of which any director, officer, employee or agent
of the Company or any of the Company Subsidiaries is or may be entitled to
claim indemnification
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from the Company or any Company Subsidiary, except for the foregoing which,
in the case of (i), (ii) and (iii), would not, individually or in the
aggregate, reasonably be expected to result in a Company Material Adverse
Effect.
(s) Contracts; Debt Instruments. Each material contract of the Company
and the Company Subsidiaries is valid and binding and in full force and
effect, and neither the Company nor any Company Subsidiary is in violation
of or in default under (nor does there exist any condition which upon the
passage of time or the giving of notice, or both, would cause such a
violation of or default under) any loan or credit agreement, note, bond,
mortgage, indenture or lease, or any other material contract to which it is
a party or by which it or any of its properties or assets is bound, except
for such failures to be valid and binding and for violations or defaults
that could not, individually or in the aggregate, reasonably be expected to
result in a Company Material Adverse Effect. Except for those agreements
listed on Schedule 3.1(s) of the Company Disclosure Letter, the Company and
Company Subsidiaries are not, and after the Effective Time neither the
Surviving Corporation nor Parent will be (by reason of any agreement to
which the Company is a party), subject to any material noncompetition or
similar restriction on their respective businesses.
(t) Year 2000 Issues. The Company has adopted and implemented a
commercially reasonable plan to investigate and correct any "year 2000
problems" associated with (i) the operation of the Company's business, and
(ii) the products manufactured and distributed by the Company. The Company
has provided to Parent a complete and correct copy of such plan, an
accurate written explanation of the costs that the Company and Company
Subsidiaries have incurred in each of the past two fiscal years to
investigate and correct the "year 2000 problem," as well as a written
report of its estimates of the costs to be incurred in the future to
investigate and correct the "year 2000 problem."
(u) Product Recalls. Except as set forth on Schedule 3.1(u) of the
Company Disclosure Letter, the Company is not aware of any pattern or
series of claims against the Company or any of Company Subsidiaries that
reasonably could be expected to result in a generalized product recall
relating to products sold by the Company or any of Company Subsidiaries,
regardless of whether such product recall is formal, informal, voluntary or
involuntary that, individually or in the aggregate, would reasonably be
expected to result in a Company Material Adverse Effect.
Section 3.2 Representations and Warranties of Parent and Buyer. Parent and
Buyer hereby jointly and severally represent and warrant to the Company as
follows:
(a) Organization, Standing and Corporate Power. Each of Parent and
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio and has the requisite
corporate authority to carry on its business as now being conducted. Each
of Parent and Buyer 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 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 prevent or materially delay
the consummation by Parent or Buyer of the transactions contemplated by
this Agreement (a "Parent Material Adverse Effect").
(b) Authority; Noncontravention. Parent and Buyer have all requisite
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by Parent and Buyer, and the consummation by
Parent and Buyer of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of
Parent and Buyer. This Agreement has been duly executed and delivered by
Parent and Buyer, and, assuming the due authorization, execution and
delivery by the Company, each constitutes a legal, valid and binding
obligation of each of Parent and Buyer, as applicable, enforceable against
Parent and Buyer in accordance with its terms. The execution and delivery
of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, (i) conflict with the respective Articles of
Incorporation or Code of Regulations or comparable organizational documents
of Parent and Buyer, (ii) result in any breach, violation or default (with
or without notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or
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creation or acceleration of any obligation or loss of a benefit under, or
result in the creation of any Lien upon any of the properties or assets of
Parent or Buyer under any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise, license or similar authorization applicable to Parent or Buyer
or their respective properties or assets, or (iii) subject to the
governmental filings and other matters referred to in the following
sentence, conflict with or violate any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or Buyer or their
respective properties or assets, other than in the case of this clause (ii)
and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that, individually or in the aggregate, would not reasonably be
expected to have a Parent Material Adverse Effect. No consent, approval,
order or authorization of, action by or in respect of, or registration,
declaration or filing with, any Governmental Entity is required by Parent
and Buyer in connection with the execution and delivery of this Agreement
by Parent and Buyer or the consummation by Parent and Buyer of the
transactions contemplated hereby and thereby, except for (i) the filing of
a premerger notification and report form under the HSR Act; (ii) the filing
of the Certificate of Merger with the Secretary of the State of Ohio; (iii)
the consents, approvals, orders or authorizations set forth on Section
3.1(d) of the Company Disclosure Letter; (iv) the antitrust and competition
laws of foreign countries; (v) the "takeover" or "blue sky" laws of various
states; and (vi) such consents, approvals, orders or authorizations the
failure of which to be made or obtained, individually or in the aggregate,
would not reasonably be expected to have a Parent Material Adverse Effect.
(c) Ownership of Common Stock. Except for any shares of Company Common
Stock acquired by employee benefit trust funds in the ordinary course of
business, none of Parent, Buyer or any of its affiliates (i) beneficially
owns, directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of, in each case, shares of Common Stock.
(d) Brokers. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of Buyer or
Parent.
(e) Financing. Parent and Buyer, collectively, will at the Effective
Time have cash on hand or borrowing availability under financing
arrangements from financially responsible third parties, or a combination
thereof, in an aggregate amount sufficient to enable Parent and Buyer to
(i) pay in full the Merger Consideration, the Option Consideration and all
fees and expenses payable by Parent and Buyer in connection with this
Agreement and the transactions contemplated thereby, and (ii) refinance
such of the Company's existing indebtedness as, pursuant to its terms, will
become due and payable prior to its stated maturity as a result of the
consummation of the transactions contemplated hereby (as set forth by the
Company on Section 3.1(d) of the Company Disclosure Letter).
(f) Information in Proxy Statement. None of the information supplied
in writing by Parent or Buyer specifically for inclusion in the Proxy
Statement will, at the date mailed to shareholders and at the time of the
Shareholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
ARTICLE 4
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business.
(a) Conduct of Business by the Company. Except as set forth on
Schedule 4.1(a) of the Company Disclosure Letter, or consented to in
writing by Buyer, during the period from the date of this Agreement to the
Effective Time, the Company shall carry on its businesses in the ordinary
course consistent with past practice and in compliance with all applicable
laws and regulations and, to the extent consistent therewith, use all
reasonable efforts to keep available the services of its current officers
and other key employees and preserve its relationships with customers,
suppliers, distributors and other persons having business dealings with
them. Without limiting the generality of the foregoing (but subject to the
above exceptions), during the
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period from the date of this Agreement to the Effective Time, the Company
shall not, and shall not permit any Company Subsidiary, to:
(i) (x) other than (a) the regular quarterly cash dividend of $.22
per share payable to holders of the Common Stock on March 15, 1999 and
(b) dividends and distributions by a direct or indirect wholly owned
Company Subsidiary to its parent, declare, set aside or pay any
dividends on, or make any other distributions in respect of, any of its
capital stock, (y) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock,
except for issuances of the Common Stock upon the exercise of the
Options or other rights under the Equity Plans, in each case which are
disclosed on Schedule 3.1(c) of the Company Disclosure Letter as
outstanding on the date hereof;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject
to any Lien any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options
to acquire, any such shares, voting securities or convertible
securities, other than the issuance of shares of Common Stock upon the
exercise of the Options or other rights under the Equity Plans or in
connection with other awards under the Equity Plans, in each case, which
are disclosed on Schedule 3.1(c) of the Company Disclosure Letter as
outstanding on the date hereof and in accordance with their present
terms, or redeem, purchase or otherwise acquire, directly or indirectly,
any of its capital stock or other securities;
(iii) amend its articles of incorporation, code of regulations or
other comparable organizational documents, amend or take any other
action with respect to the Company Rights Agreement or the Old Rights
Agreement or the Rights or Old Rights respectively, or merge or
consolidate with any person;
(iv) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets other than immaterial assets in the ordinary course of business
consistent with past practice;
(v) enter into commitments for capital expenditures involving more
than $10,000,000 in the aggregate except as may be necessary for the
maintenance of existing facilities, machinery and equipment in good
operating condition and repair in the ordinary course of business, as
reflected in the capital plan of the Company previously provided to
Parent;
(vi) incur any long-term indebtedness (whether evidenced by a note
or other instrument, pursuant to a financing lease, sale-leaseback
transaction, or otherwise) or incur short-term indebtedness other than
up to $50,000,000 of short-term indebtedness under lines of credit
existing on the date hereof;
(vii) (A) except for normal increases in salary and wages in the
ordinary course of business consistent with past practice that are not
material or as set forth on Schedule 5.5, grant any increase in the
compensation or benefits payable or to become payable by the Company or
any Company Subsidiary to any current or former director, officer,
employee or consultant; (B) adopt, enter into, amend or otherwise
increase, reprice or accelerate the payment or vesting of the amounts,
benefits or rights payable or accrued or to become payable or accrued
under any bonus, incentive compensation, deferred compensation,
severance, termination, change in control, retention, hospitalization or
other medical, life, disability, insurance or other welfare, profit
sharing, stock option, stock appreciation right, restricted stock or
other equity based, pension, retirement or other employee compensation
or benefit plan, program, agreement or arrangement; (C) enter into or
amend any employment or collective bargaining agreement or, except as
required in accordance with the existing written policies of the Company
or contracts or agreements entered into or approved (and previously
disclosed to Parent) on or prior to the date of this Agreement, grant
any severance or termination pay to any officer, director, consultant or
employee of the Company or any Company Subsidiaries (except in the
ordinary course of business consistent with past practice and not in
excess of one week of severance for every year of employment and, in the
aggregate for all such payments, $1,000,000); or (D) pay or award any
pension, retirement, allowance or other non-equity incentive awards, or
other employee benefit not required by any outstanding employee benefit
plan or arrangement;
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(viii) change the accounting principles used by it unless required
by GAAP (or, if applicable with respect to foreign subsidiaries, foreign
generally accepted accounting principles);
(ix) acquire by merging or consolidating with, by purchasing any
equity interest in or a portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire
any material amount of assets of any other person (other than the
purchase of assets from suppliers or vendors in the ordinary course of
business consistent with past practice);
(x) except in the ordinary course of business consistent with past
practice, make or rescind any express or deemed election or settle or
compromise any claim or action relating to U.S. federal, state or local
taxes, or change any of its methods of accounting or of reporting income
or deductions for U.S. federal income tax purposes;
(xi) satisfy any claims or liabilities, other than the
satisfaction, in the ordinary course of business consistent with past
practice, in accordance with their terms or in an amount not to exceed
$5,000,000 in the aggregate, of liabilities reflected or reserved
against in, or contemplated by, the consolidated financial statements
(or the notes thereto) of the Company included in the Recent SEC
Documents or incurred in the ordinary course of business consistent with
past practice;
(xii) make any loans, advances or capital contributions to, or
investments in, any other person, except for loans, advances, capital
contributions or investments between any wholly owned Company Subsidiary
and the Company or another wholly owned Company Subsidiary and except
for employee advances for expenses in the ordinary course of business
consistent with past practice;
(xiii) other than in the ordinary course of business consistent
with past practice, (A) modify, amend or terminate any contract, (B)
waive, release, relinquish or assign any contract (or any of the
Company's rights thereunder), right or claim, or (C) cancel or forgive
any indebtedness owed to the Company or any Company Subsidiaries;
provided, however, that the Company may not under any circumstance waive
or release any of its rights under any confidentiality agreement to
which it is a party; or
(xiv) authorize, or commit or agree to take, any of the foregoing
actions; provided, however, that the limitations set forth in this
Section 4.1(a) (other than clause (iii)) do not apply to any transaction
to which the only parties are wholly owned subsidiaries of the Company.
(b) Other Actions. Except as required by law, the Company, Parent and
Buyer shall not, and, in the case of the Company, shall not permit any
Company Subsidiary to, voluntarily take any action that would reasonably be
expected to result in any of the conditions to the Merger set forth in
Article 6 not being satisfied.
(c) Advice of Changes. The Company and Buyer shall promptly advise the
other party orally and in writing to the extent it has knowledge of any
change or event having, or which, insofar as can reasonably be foreseen,
would reasonably be expected to have a Material Adverse Effect on such
party or on the truth of their respective representations and warranties or
the ability of the conditions set forth in Article 6 to be satisfied;
provided, however, that no such notification will affect the
representations, warranties, covenants or agreements of the parties (or
remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement.
Section 4.2 No Solicitation. The Company agrees that, during the term of
this Agreement, it shall not, and shall not authorize or permit any of the
Company Subsidiaries or any of its or their directors, officers, employees,
agents or representatives, directly or indirectly, to solicit, initiate,
encourage or knowingly facilitate, or furnish or disclose non-public information
in furtherance of, any inquiries or the making of any proposal with respect to
any recapitalization, merger, consolidation or other business combination
involving the Company, or acquisition of any capital stock (other than upon
exercise of the Options that are outstanding as of the date hereof) or all or
any material portion of the assets of the Company and the Company Subsidiaries,
taken as a whole, in a single transaction or a series of related transactions,
or any combination of the foregoing (a "Competing Transaction"),
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or negotiate, explore or otherwise engage in discussions with any person (other
than Parent, Buyer or their respective directors, officers, employees, agents
and representatives) with respect to any Competing Transaction or enter into any
agreement, arrangement or understanding requiring it to abandon, terminate or
fail to consummate the Merger or any other transactions contemplated by this
Agreement; provided that, at any time prior to the approval of the Merger by the
shareholders of the Company, the Board of Directors of the Company may, in the
exercise of its fiduciary obligations under the OGCL as determined by the Board
of Directors of the Company in good faith, after consultation with and receipt
of advice from its outside counsel (who may be its regularly engaged outside
counsel), pursuant to a customary confidentiality agreement with terms not
substantially more favorable to such third party than the Confidentiality
Agreement, furnish information to, and negotiate or otherwise engage in
discussions with, any third party who delivers a written proposal for a Superior
Proposal which was not solicited, initiated, knowingly facilitated or encouraged
after the date of this Agreement. The Company will immediately cease all
existing activities, discussions and negotiations with any parties conducted
heretofore with respect to any proposal for a Competing Transaction and request
the return of all confidential information regarding the Company provided to any
such parties prior to the date hereof pursuant to the terms of any
confidentiality agreements or otherwise. In the event that prior to the approval
of the Merger by the shareholders of the Company, the Board of Directors of the
Company receives a Superior Proposal that was not solicited, initiated,
knowingly facilitated or encouraged after the date of this Agreement (except as
otherwise permitted pursuant to the proviso contained in the first sentence of
this Section 4.2), the Board of Directors of the Company may (subject to this
and the following sentences) in the exercise of its fiduciary obligations under
the OGCL as determined by the Board of Directors of the Company in good faith,
after consultation with and receipt of advice from its outside counsel (who may
be its regularly engaged outside counsel) withdraw, modify or change, in a
manner adverse to Parent, the recommendation of the Board of Directors of the
Company of this Agreement and/or recommend a Superior Proposal to the
shareholders of the Company and/or comply with Rule 14e-2 promulgated under the
Exchange Act with respect to a Competing Transaction, provided that it gives
Parent five Business Days prior written notice of its intention to do so
(provided that the foregoing shall in no way limit or otherwise affect Parent's
right to terminate this Agreement pursuant to Section 7.1(e) at such time as the
requirements of such subsection have been met). Any such withdrawal,
modification or change of the recommendation of the Board of Directors of the
Company of this Agreement shall not change the approval of the Board of
Directors of the Company for purposes of causing any state takeover statute or
other state law to be inapplicable to the transactions contemplated hereby,
including the Merger. From and after the execution of this Agreement, the
Company shall promptly (but in any event within two calendar days) advise Parent
in writing of the receipt, directly or indirectly, of any inquiries,
discussions, negotiations or proposals relating to a Competing Transaction
(including the specific terms thereof and the identity of the other party or
parties involved) and promptly furnish to Parent a copy of any such written
proposal in addition to any information provided to or by any third-party
relating thereto. In addition, the Company shall promptly (but in any event
within two calendar days) advise Parent, in writing, if the Board of Directors
of the Company shall make any determination as to any Competing Transaction as
contemplated by the proviso to the first sentence of this Section 4.2. As used
herein, the term "Superior Proposal" means a Competing Transaction that the
Board of Directors of the Company determines is, after consulting with and
receipt of advice from Morgan Stanley & Co. Incorporated (or any other
nationally recognized investment banking firm), more favorable to the
shareholders of the Company from a financial point of view than the transactions
contemplated by this Agreement (including any adjustment to the terms and
conditions proposed by Parent or Buyer in response to such Competing
Transaction), and that it reasonably expects a transaction pursuant to such
proposal could be consummated. Nothing in this Section 4.2 shall (x) permit the
Company to terminate this Agreement, (y) permit the Company to enter into any
agreement with respect to any Competing Transaction or (z) affect any other
obligation of the Company under this Agreement.
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ARTICLE 5
ADDITIONAL AGREEMENTS
Section 5.1 Preparation of Proxy Statement; Shareholders Meeting.
(a) As soon as practicable, but in no event later than 21 days
following the date of this Agreement, the Company shall prepare and file
with the SEC, and Parent and Buyer shall cooperate with the Company in such
preparation and filing of, the Proxy Statement. The Company shall cause the
Proxy Statement to be mailed to the Company's shareholders as promptly as
practicable after the Proxy Statement is cleared by the staff of the SEC
for mailing to the Company's shareholders.
(b) The Company shall, as soon as practicable following the date of
this Agreement, duly call, give notice of, convene and hold a meeting of
its shareholders (the "Shareholders Meeting") in accordance with law, the
Company's Articles of Incorporation and the Company's Code of Regulations
for the purpose of obtaining Shareholder Approval and shall, through the
Board of Directors of the Company, subject to Section 4.2, recommend to its
shareholders the approval and adoption of this Agreement, the Merger and
the other transactions contemplated hereby. The Shareholders Meeting may
not be adjourned or postponed beyond July 15, 1999.
(c) Parent agrees that (i) it will provide the Company with all
information concerning Parent or the Buyer necessary or reasonably
appropriate to be included in the Proxy Statement and (ii) at the
Shareholders Meeting, if held, or any postponement or adjournment thereof
(or at any other meeting at which the Merger or this Agreement are
considered by shareholders), it will vote, or cause to be voted, all of the
shares of Common Stock then owned by it, the Buyer or any of its other
subsidiaries, if any, in favor of the approval and adoption of this
Agreement and the transactions contemplated hereby.
Section 5.2 Access to Information; Confidentiality. To the extent
permitted by applicable law and subject to the Agreement dated November 6, 1998,
between the Company and Parent (the "Confidentiality Agreement"), the Company
shall afford to Parent and to the officers, employees, accountants, counsel,
financial advisors and other representatives of Parent, full access during
normal business hours during the period prior to the Effective Time to all of
the Company's properties, books, contracts, commitments, personnel and records
and all other information concerning its business, properties and personnel as
Parent may reasonably request. Each of the Company and Buyer shall hold, and
shall cause its respective officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information in accordance with the terms of the Confidentiality Agreement.
Section 5.3 Efforts; Cooperation.
(a) Subject to the terms and conditions provided herein, each of the
Company, Parent and Buyer shall, and the Company shall cause each Company
Subsidiary to, cooperate and use reasonable efforts to make, or cause to be
made, all filings necessary or proper under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement, including, but not limited to, cooperation in the preparation
and filing of the Proxy Statement, any required filings under the HSR Act
or other foreign filings and any amendments to any thereof.
In addition, if, at any time prior to the Effective Time, any event or
circumstance relating to either the Company or Parent or Buyer or any of
their respective subsidiaries should be discovered by the Company or
Parent, as the case may be, which should be set forth in an amendment to
the Proxy Statement, the discovering party will promptly inform the other
party of such event or circumstance. If, at any time after the Effective
Time, any further action is necessary or desirable to carry out the
purposes of this Agreement, including the execution of additional
instruments, the proper officers and directors of each party to this
Agreement shall take all such necessary action.
(b) Each of the parties will use its reasonable efforts to obtain as
promptly as practicable all required consents and approvals of any
Governmental Entity or any other person required in connection with, and
waivers of any violations that may be caused by, the consummation of the
transactions contemplated by this Agreement.
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(c) The Company and Parent shall coordinate in advance of sending any
communications to or scheduling any meetings with any Governmental Entity
relating to this Agreement or the Merger and shall promptly share all
correspondence or other communication received from any Governmental Entity
relating to this Agreement or the Merger.
(d) The Company shall, upon the request of Buyer, take all reasonable
steps to assist in any challenge by Buyer to the validity or applicability
to the transactions contemplated by this Agreement, including the Merger,
of any state takeover law.
Section 5.4 Indemnification.
(a) The Articles of Incorporation and the Code of Regulations of the
Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation from liability set forth in the Articles of
Incorporation and Regulations of the Company on the date of this Agreement,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who on or prior to
the Effective Time were directors, officers, employees or agents of the
Company, unless such modification is required by law. Parent shall
guarantee the obligations of the Surviving Corporation with respect to the
indemnification provisions contained in the Articles of Incorporation and
Code of Regulations of the Surviving Corporation.
(b) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person
and is not 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, then, and in each such
case, proper provision will be made so that the successors and assigns of
the Surviving Corporation assume the obligations set forth in this Section
5.4.
(c) For six years after the Effective Time, the Surviving Corporation
or Parent shall maintain in effect directors' and officers' liability
insurance covering acts or omissions occurring prior to the Effective Time
with respect to those persons who are currently covered by the Company's
directors' and officers' liability insurance policy (a copy of which has
been heretofore delivered to Parent) (the "Indemnified Parties") on terms
with respect to such coverage and amount no less favorable than those of
such current insurance coverage; provided, however, that in no event shall
Parent be required to expend in any one year an amount in excess of 200% of
the annual premiums currently paid by the Company for such insurance; and
provided, further, that, if the annual premiums of such insurance coverage
exceed such amount, Parent shall be obligated to obtain a policy with the
greatest coverage available for a cost not exceeding such amount.
Notwithstanding the foregoing, at any time on or after the second
anniversary of the Effective Time, Parent may, at its election, undertake
to provide funds to the Surviving Corporation to the extent necessary so
that the Surviving Corporation may self-insure with respect to the level
and scope of insurance coverage required under this Section 5.4(c) in lieu
of causing to remain in effect any directors' and officers' liability
insurance policy.
(d) The provisions of this Section 5.4 are (i) intended to be for the
benefit of, and will be enforceable by, each Indemnified Party, his or her
heirs and his or her representatives and (ii) in addition to, and not in
substitution for, any other rights to indemnification or contribution that
any such person may have by contract or otherwise.
Section 5.5 Employee Benefits.
(a) Except for employees subject to collective bargaining agreements,
through December 31, 2000, Parent shall maintain, or cause the Surviving
Corporation to maintain employee benefits under tax-qualified employee
benefit plans, annual bonus plans, deferred compensation plans, and
supplemental non-qualified pension plans substantially equivalent in the
aggregate to (i) those provided by the Company immediately prior to the
Effective Time or (ii) at the election of Parent, those provided by Parent
to similarly-situated employees of Parent.
(b) Following the Effective Time, Parent shall cause the Surviving
Corporation to honor in accordance with their terms all written employment,
severance and other compensation agreements of the Company and
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Company Subsidiaries that are set forth on Schedule 3.1(h) of the Company
Disclosure Letter; and, to the extent necessary under these agreements and
plans, the preceding clause will be deemed an assumption of the Company's
obligations under these agreements and plans by the Surviving Corporation.
(c) The Company shall use its reasonable efforts to provide or make
available to Buyer within thirty days following the date of this Agreement,
the following items:
(i) true and complete copies, with respect to Company Benefit
Plans, of all insurance contracts and funding vehicles, benefit
schedules, summary plan descriptions (and material modifications) and
material written employee communications; and
(ii) a list of Foreign Plans and true and complete copies of the
items described in Section 3.1(h)(vii) and Section 5.5(c)(i), as they
would be applicable to Foreign Plans.
Section 5.6 Public Announcements. Parent, Buyer and the Company shall
consult with each other before issuing, and provide each other the opportunity
to review, comment upon and concur with, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement, except as either party may determine is required by
applicable law, court process or by obligations pursuant to any rules and
regulations of any national securities exchange in which event prior
consultation with the other party shall be required.
Section 5.7 Fees and Expenses. Except as provided in Section 7.2(b), all
fees and expenses incurred in connection with the Merger, this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated.
Section 5.8 Credit Agreement. Prior to the Effective Time, the Company
shall terminate its bank credit facility or, at the option of the Company,
obtain a waiver of such credit facility (so long as such waiver would prevent a
cross default under any other agreements).
ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder Approval. The Shareholder Approval shall have been
obtained.
(b) Governmental and Regulatory Approvals. Other than the filing of
the Certificate of Merger and insignificant consents, approvals and
actions, all consents, approvals and actions of, filings with and notices
to any Governmental Entity required of Parent, Buyer, the Company or any
Company Subsidiary to consummate the Merger and the other transactions
contemplated hereby shall have been obtained in form and substance
reasonably satisfactory to each of Parent and the Company.
(c) No Injunctions or Restraints. No judgment, order, decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced
or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect preventing the consummation of the Merger
or limiting the ownership or operation by Parent, the Company or any of
their respective subsidiaries of any material portion of the business or
assets of Parent or the Company; provided, however, that the party seeking
to assert this condition to terminate the Agreement shall not have breached
its obligations under this Agreement in any material respect.
(d) HSR Act. The waiting period (including any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
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Section 6.2 Conditions to Obligations of Parent and Buyer. The obligation
of Parent and Buyer to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Company contained in Section 3.1(c) shall be true and correct in all
respects both when made and as of the Closing Date as though made on and as
of the Closing Date, and all other representations and warranties of the
Company set forth herein shall be true and correct in all respects (without
giving effect to any materiality or material adverse effect qualifications
contained therein) both when made and at and as of the Closing Date, as if
made at and as of such time (except to the extent expressly made as of an
earlier date, in which case as of such date), except where the failure of
such other representations and warranties to be so true and correct would
not reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all of its obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) Consents. With the exception of any consents required under the
Company's credit facility and outstanding medium term notes, the Company
shall have obtained the consent of each person whose consent shall be
required in connection with the Merger under all agreements or instruments
to which it or any of its subsidiaries is a party, except those for which
failure to obtain such consents and approvals could not reasonably be
expected to have a Company Material Adverse Effect prior to or after the
Effective Time.
(d) Governmental Litigation. There shall not be pending any action,
claim, proceeding or investigation instituted by any Governmental Entity
challenging or seeking to restrain or prohibit the consummation of the
Merger or any of the other transactions contemplated by this Agreement.
(e) Dissenting Shares. As of immediately prior to the Effective Time,
no more than 10% of the outstanding shares of Company Common Stock shall
have taken actions to assert dissenter's rights under Section 1701.85 of
the OGCL.
(f) Officer's Certificate. The Company shall have furnished Parent and
Buyer with a certificate dated the Closing Date signed on its behalf by an
executive officer to the effect that the conditions set forth in Sections
6.2(a) and (b) have been satisfied.
Section 6.3 Conditions to Obligations of the Company. The obligation of
the Company to effect the Merger is further subject to satisfaction or waiver of
the following conditions:
(a) Representations and Warranties. The representations and warranties
of Parent and Buyer set forth herein shall be true and correct in all
respects (without giving effect to any materiality or material adverse
effect qualifications contained therein) both when made and at and as of
the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case as of such date),
except where the failure of such representations and warranties to be so
true and correct would not have, individually or in the aggregate, a Parent
Material Adverse Effect.
(b) Performance of Obligations of Parent and Buyer. Parent and Buyer
shall have performed in all material respects all obligations required to
be performed by them under this Agreement at or prior to the Closing Date.
(c) Officer's Certificate. Each of Parent and Buyer shall have
furnished the Company with a certificate dated the Closing Date signed on
its behalf by an executive officer to the effect that the conditions set
forth in Section 6.3(a) and (b) have been satisfied.
Section 6.4 Frustration of Closing Conditions. None of Parent, Buyer nor
the Company may rely on the failure of any condition set forth in Sections 6.1,
6.2 or 6.3, as the case may be, to be satisfied if such failure was caused by
such party's failure to comply with its obligations to consummate the Merger and
the other transactions contemplated by this Agreement, as required by and
subject to Section 5.3.
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ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the Shareholder Approval:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Merger has not been consummated by July 31, 1999 or such
later date, if any, as Parent and the Company agree upon; provided,
however, that the right to terminate this Agreement pursuant to this
Section 7.1(b)(i) is not available to any party whose failure to perform
any of its obligations under this Agreement results in the failure of
the Merger to be consummated by such time;
(ii) if the Shareholders Meeting (including any adjournment or
postponement thereof) shall have concluded and the Shareholder Approval
shall not have been obtained, or
(iii) if any Restraint having any of the effects set forth in
Section 6.1(c) is in effect and has become final and nonappealable;
provided, however, that the right to terminate this Agreement pursuant
to this Section 7.1(b)(iii) is not available to any party whose failure
to perform any of its obligations under this Agreement results in such
Restraint;
(c) by Parent, if the Company has breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) is not cured within 30 days after written notice thereof or (B) is
incapable of being cured by the Company;
(d) by the Company, if Parent or Buyer has breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform (A) is not cured within 30 days after written notice
thereof or (B) is incapable of being cured by Parent or Buyer (it being
understood that Parent's failure to obtain the requisite financing by the
11th day after the satisfaction or waiver of the conditions set forth in
Article 6 shall be incapable of cure);
(e) by Parent, if any person (other than an affiliate of Parent) shall
acquire 30% of the outstanding shares of Company Common Stock or if the
Board of Directors of the Company or any committee thereof shall (i)
withdraw or modify or change, or propose or announce any intention to
withdraw or modify or change, in a manner adverse to Parent or Buyer, the
approval or recommendation by the Board of Directors of the Company or
committee thereof of this Agreement or the transactions contemplated
hereby, including the Merger, (ii) approve or recommend, or propose to or
announce any intention to approve or recommend, any Competing Transaction
proposal, or (iii) propose or announce any intention to enter into any
agreement, with respect to any Competing Transaction proposal, or if the
Company shall willfully breach the provisions of Section 4.2 or Section
5.1(b).
Section 7.2 Effect of Termination. (a) In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Buyer, the Company or Parent, other than the
provisions of the last sentence of Section 5.2, Section 5.6, Section 5.7, this
Section 7.2 and Article 8, which provisions survive such termination; provided,
however, that nothing herein will relieve any party from any liability for any
willful and material breach by such party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
(b) In the event that this Agreement is terminated (i) by Parent pursuant
to Section 7.1(e) or (ii) by either the Company or Parent pursuant to Section
7.1(b)(ii), if, prior to the Shareholders Meeting, an Competing Transaction
proposal shall have been made known to the Company or been made directly to its
shareholders generally or any person shall have publicly announced an intention
(whether or not conditional) to make an Competing Transaction proposal or
solicited proxies or consents in opposition to the Merger, then, in the case of
either clause (i) or (ii), the Company shall promptly, but in no event later
than two days after the date of such
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termination, pay Parent a fee equal to $2 multiplied by the number of shares of
Company Common Stock outstanding on a fully diluted basis (the "Termination
Fee"), payable by wire transfer of same day funds. The Company acknowledges that
the agreements contained in this Section 7.2(b) are an integral part of the
transactions contemplated by this Agreement, and that, without these agreements,
Parent would not enter into this Agreement.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Amendment. This Agreement may be amended by the parties at any
time before or after the Shareholder Approval; provided, however, that, after
such Shareholder Approval, there is not to be made any amendment that by law
requires further approval by the shareholders of the Company without further
approval of such shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
Section 8.2 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
8.1, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise will not constitute a waiver of such rights.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement will survive the Effective
Time, except the covenants and agreements contained in Article 2 and in Sections
5.4 and 5.5(a) and (b), each of which will survive in accordance with its terms.
Section 8.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement must be in writing and will be deemed given
if delivered personally, telecopied (which is confirmed) or sent by a nationally
recognized overnight courier service (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as is
specified by like notice):
<TABLE>
<S> <C>
(a) if to the Company, to: Aeroquip-Vickers, Inc.
3000 Strayer
P.O. Box 50
Maumee, OH 43537
Telecopy No.: (419) 867-2209
Attention: Vice President and General Counsel
with a copy to: Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Telecopy No.: (216) 579-0212
Attention: Charles W. Hardin, Jr., Esq.
</TABLE>
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<TABLE>
<S> <C>
(b) if to Parent or Buyer, to: Eaton Corporation
Eaton Center
Cleveland, OH 44114
Telecopy No.: (216) 479-7056
Attention: Executive Vice President and General Counsel
with a copy to: Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy No.: (212) 403-2000
Attention: Daniel A. Neff, Esq.
</TABLE>
Section 8.5 Interpretation. When a reference is made in this Agreement to
an Article, Section or Exhibit, such reference is to an Article or Section of,
or an Exhibit to, this Agreement unless otherwise indicated. The table of
contents, table of defined terms and headings contained in this Agreement are
for reference purposes only and do not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they will be deemed to be followed by
the words "without limitation." The words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement will refer to this Agreement
as a whole and not to any particular provision of this Agreement. All terms
defined in this Agreement will have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such term. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time amended, modified or supplemented, including (in
the case of agreements or instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and references to all
attachments thereto and instruments incorporated therein. For purposes of this
Agreement, (a) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity (including its permitted successors and assigns),
(b) "knowledge" of any person that is not an individual means the knowledge
after due inquiry of such person's executive officers and officers with direct
responsibility for the subject matter to which such knowledge relates, and (c)
"affiliate" of any person means another person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person, where "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
Section 8.6 Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) and the
Confidentiality Agreement (a) constitute the entire agreement, and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter of this Agreement and (b) except for the
provisions of Article 2 and Section 5.4, are not intended to confer upon any
person other than the parties any rights or remedies.
Section 8.8 Governing Law. This Agreement is to be governed by, and
construed in accordance with, the laws of the State of Ohio, regardless of the
laws that might otherwise govern under applicable principles of conflict of laws
thereof.
Section 8.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other party. Any assignment in violation of this
Section 8.9 will be void. Subject to the preceding two sentences, this Agreement
is binding upon, inures to the benefit of, and is enforceable by, the parties
and their respective successors and assigns.
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Section 8.10 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Ohio or any Ohio state court in the event any dispute
arises out of this Agreement or any of the transactions contemplated by this
Agreement, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of Ohio or an Ohio state court.
Section 8.11 Specific Enforcement. The parties 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 of this Agreement in any federal court
located in the State of Ohio or an Ohio state court, this being in addition to
any other remedy to which they are entitled at law or in equity.
Section 8.12 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
AEROQUIP-VICKERS, INC.
By: /s/ DARRYL F. ALLEN
------------------------------------
Name: Darryl F. Allen
Title: Chairman, President and
Chief Executive Officer
EATON CORPORATION
By: /s/ GERALD L. GHERLEIN
------------------------------------
Name: Gerald L. Gherlein
Title: Executive Vice President and
General Counsel
By: /s/ MARK HENNESSEY
------------------------------------
Name: Mark Hennessey
Title: Attorney-In-Fact
EATON INDUSTRIES INC.
By: /s/ GERALD L. GHERLEIN
------------------------------------
Name: Gerald L. Gherlein
Title: Vice President
By: /s/ MARK HENNESSEY
------------------------------------
Name: Mark Hennessey
Title: Assistant Secretary
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ANNEX B
MORGAN STANLEY DEAN WITTER
ONE FINANCIAL PLACE
440 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60605
(312) 706-4000
January 31, 1999
Board of Directors
Aeroquip-Vickers, Inc.
3000 Strayer
Maumee, Ohio 43537-0050
Members of the Board:
We understand that Aeroquip-Vickers, Inc. (the "Company"), Eaton
Corporation ("Eaton") and Eaton Industries Inc. ("Acquisition Sub"), a wholly
owned subsidiary of Eaton, have entered into an Agreement and Plan of Merger,
dated January 31, 1999 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Acquisition Sub with and into the
Company. Pursuant to the Merger, the Company will become a wholly owned
subsidiary of Eaton, and each outstanding share of common stock, par value $5.00
per share (the "Company Common Stock") of the Company, other than shares held in
treasury or held by Eaton or Acquisition Sub or as to which dissenter's rights
have been perfected, will be converted into the right to receive $58.00 per
share in cash. The terms and conditions of the Merger are more fully set forth
in the Merger Agreement.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of the Company Common Stock pursuant to the
Merger Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for Company Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of Company Common Stock with that of certain other
comparable publicly-traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) reviewed the pro forma impact of the Merger on Eaton's financial
position;
(ix) participated in discussions and negotiations among representatives of
the Company and Eaton;
(x) reviewed the Merger Agreement dated January 31, 1999; and
<PAGE> 80
(xi) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. In addition, we have assumed that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. We have not made
any independent valuation or appraisal of the assets or liabilities of the
Company, nor have we been furnished with any such appraisals. Our opinion is
necessarily based on financial, economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction involving the Company, nor did we
negotiate with any parties, other than Eaton, which may have expressed interest
in the possible acquisition of, or combination with, the Company or certain of
its constituent businesses.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Eaton and have
received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company, except that this opinion may be included in its
entirety in any filing made by the Company in respect of the Merger with the
Securities and Exchange Commission. In addition, Morgan Stanley expresses no
opinion or recommendation as to how the shareholders of the Company should vote
at the shareholders' meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of the
Company Common Stock pursuant to the Merger Agreement is fair from a financial
point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ FRANCIS J. OELERICH III
------------------------------------
Francis J. Oelerich III
Managing Director
B-2
<PAGE> 81
ANNEX C
OHIO REVISED CODE
TITLE XVII CORPORATIONS -- PARTNERSHIPS
CHAPTER 1701: GENERAL CORPORATION LAW
SECTION 1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholder records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
<PAGE> 82
corporation, which in the case of a merger or consolidation may be the surviving
or new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the proposal was adopted by the shareholders of
the corporation, or, if the proposal was not required to be submitted to the
shareholders, was approved by the directors. Other dissenting shareholders,
within that three-month period, may join as plaintiffs or may be joined as
defendants in any such proceeding, and any two or more such proceedings may be
consolidated. The complaint shall contain a brief statement of the facts
including the vote and the facts entitling the dissenting shareholder to the
relief demanded. No answer to such a complaint is required. Upon the filing of
such a complaint, the court, on motion of the petitioner, shall enter an order
fixing a date for a hearing on the complaint and requiring that a copy of the
complaint and a notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which summons is required to be served
or substituted service is required to be made in other cases. On the day fixed
for the hearing on the complaint or any adjournment of it, the court shall
determine from the complaint and from such evidence as is submitted by either
party whether the dissenting shareholder is entitled to be paid the fair cash
value of any shares and, if so, the number and class of such shares. If the
court finds that the dissenting shareholder is so entitled, the court may
appoint one or more persons as appraisers to receive evidence and to recommend a
decision on the amount of the fair cash value. The appraisers have such power
and authority as is specified in the order of their appointment. The court
thereupon shall make a finding as to the fair cash value of a share and shall
render judgment against the corporation for the payment of it, with interest at
such rate and from such date as the court considers equitable. The costs of the
proceeding, including reasonable compensation to the appraisers to be fixed by
the court, shall be assessed or appointed as the court considers equitable. The
proceeding is a special proceeding and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the rules of Appellate Procedure
and, to the extent not in conflict with those rules, Chapter 2505. of the
Revised Code. If, during the pendency of any proceeding instituted under this
section, a suit or proceeding is or has been instituted to enjoin or otherwise
to prevent the carrying out of the action as to which the shareholder has
dissented, the proceeding instituted under this section shall be stayed until
the final determination of the other suit or proceeding. Unless any provision in
division (D) of this section is applicable, the fair cash value of the shares
that is agreed upon by the parties or fixed under this section shall be paid
within thirty days after the date of final determination of such value under
this division, the effective date of the amendment to the articles, or the
consummation of the other action involved, whichever occurs last. Upon the
occurrence of the last such event, payment shall be made immediately to a holder
of uncertificated securities entitled to such payment. In the case of holders of
shares represented by certificates, payment shall be made only upon and
simultaneously with the surrender to the corporation of the certificates
representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, a fair cash value as to those shareholders shall be determined as
of the date prior to the day on which the vote by the shareholders was taken
and, in the case of a merger pursuant to section 1701.80 or 1701.801 of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
C-2
<PAGE> 83
(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or jointed in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
C-3
<PAGE> 84
P AEROQUIP-VICKERS, INC.
R
O THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
X
Y The undersigned hereby appoints Darryl F. Allen, Purdy Crawford and
William R. Timken, Jr., and each of them, the attorneys and proxies of
the undersigned with full power of substitution to vote as indicated
herein, all the Common Shares of Aeroquip-Vickers, Inc. held of record by
the undersigned at the close of business on March 5, 1999, at the Special
Meeting of Shareholders to be held on April 8, 1999, or any adjournment
thereof, with all the powers the undersigned would possess if then and
there personally present.
Comments/Change of address
----------------------------------------
----------------------------------------
----------------------------------------
Receipt of Notice of Special Meeting of Shareholders and the related
Proxy Statement dated March 8, 1999, is hereby acknowledged.
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH CARD HERE
SPECIAL MEETING OF SHAREHOLDERS
DATE: APRIL 8, 1999
TIME: 10:00 A.M. LOCAL TIME
PLACE: AEROQUIP-VICKERS WORLD HEADQUARTERS
3000 STRAYER
MAUMEE, OHIO
<PAGE> 85
[X] PLEASE MARK YOUR 5042
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED BY THE SHAREHOLDER.
IF NO SPECIFICATIONS ARE MADE, THE PROXY WILL BE VOTED FOR THE PROPOSAL BELOW.
FOR AGAINST ABSTAIN
1. Approval and adoption of the proposal to merge [ ] [ ] [ ]
Aeroquip-Vickers, Inc. with and into Eaton
Industries Inc., a wholly owned subsidiary
of Eaton Corporation.
2. In their discretion, to vote upon such other
business as may properly come before the meeting.
SIGNATURE(S) OF SHAREHOLDERS______________________________ DATE___________, 1999
NOTE: Please sign as your name appears hereon. If shares are held jointly, all
holders must sign. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH CARD HERE
