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 [par.]240.14a-11(c) or
[par.]240.14a-12
MLX Corp.
(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):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and O-11.
1) Title of each class of securities to which transaction
applies: N/A
2) Aggregate number of securities to which transaction
applies: N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule O-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined): $60,000,000
4) Proposed maximum aggregate value of transaction:
$60,000,000
5) Total fee paid: $12,000
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule O-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Notes: The transaction to which this Preliminary Proxy Statement
relates is the sale of stock of a subsidiary and the fee is
based on the purchase price to be paid for such stock.
<PAGE>
MLX CORP.
1000 Center Place
Norcross, Georgia 30093
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of
Shareholders of MLX Corp. (the "Company") at Kilpatrick & Cody, 27th
Floor, 1100 Peachtree Street, Atlanta, Georgia, on June 27, 1995, at
11 a.m., Atlanta time.
At the Annual Meeting, you will be asked to approve a
proposal to sell all the capital stock of the Company's S.K. Wellman
Limited, Inc. subsidiary, which is the entity through which all of
the Company's current business operations are conducted. You will
also vote on the election of seven directors to constitute the entire
Board of Directors of the Company and on a new Stock Option and
Incentive Award Plan.
Your Board of Directors believes that these proposals are
in the best interests of the Company and recommends that you vote
"FOR" each of them. An important part of your consideration of the
S.K. Wellman transaction is what courses of action the Company might
pursue after the sale, when it would have substantial cash resources
and no debt. Your Board has spent a great deal of time considering
these matters, and has focused on investment options that (a)
provide reasonable safety to the Company's investment principal, (b)
maximize the use of the Company's strategic assets, and (c) provide
cash liquidity to enable the Company to capitalize on acquisition
opportunities.
The "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC.
SUBSIDIARY - OPERATIONS AFTER THE SALE" section of the enclosed Proxy
Statement (which begins on page 23) contains a discussion of
potential post-sale strategies that the Board has considered. One
particularly intriguing alternative, which is discussed in detail
there, is the sale of a "market auction preferred stock", or "MAPS".
Qualified issuers can typically pay a relatively low dividend rate on
these securities, which is set by auction every seven weeks.
Reinvestment of such funds by the Company in U.S. government
securities or similar high quality investments would generate
investment income that would be largely sheltered from federal income
tax by the Company's net operating loss ("NOL") carry-forwards. The
Board has held preliminary discussions with two investment banking
firms that have been active in MAPS issuances. Based on these
discussions, the Board believes this is a potentially promising
alternative, although substantial additional study is clearly
required.
You are urged to read carefully the enclosed Proxy
Statement in its entirety for a complete description of the S.K.
Wellman proposal and the other proposals described therein.
Sincerely,
Brian R. Esher
Chairman, President and
Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 27, 1995
The Annual Meeting of Shareholders of MLX Corp. will be held on June
27, 1995, at 11:00 a.m., Atlanta time at the offices of Kilpatrick &
Cody, 27th Floor, 1100 Peachtree Street, Atlanta, Georgia for the
following purposes:
1. To vote on the proposed sale of all the capital stock of
the S.K. Wellman Limited, Inc. subsidiary.
2. To elect seven directors to hold office until the next
Annual Meeting of Shareholders or until their successors
are elected and qualified.
3. To vote on the proposed MLX Corp. Stock Option and
Incentive Award Plan.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 9,
1995, as the record date for the determination of Shareholders
entitled to notice of and to vote at the meeting.
A copy of the Annual Report to Shareholders for the fiscal year ended
December 31, 1994 is enclosed.
By Order of the Board of Directors,
Thomas C. Waggoner, Secretary
Norcross, Georgia
June 2, 1995
The vote of every Shareholder is important, and your cooperation in
returning your executed proxy promptly will be appreciated. The proxy
is revocable and will not affect your right to vote in person if you
attend the meeting. It will, however, reduce proxy solicitation
costs.
<PAGE>
MLX Corp.
1000 Center Place
Norcross, Georgia 30093
PROXY STATEMENT
For Annual Meeting of Shareholders
to be held on June 27, 1995
INTRODUCTION
June 2, 1995
This Proxy Statement and the enclosed proxy, which is first being
mailed to the shareholders of MLX Corp. (the "Shareholders") on
approximately June 2, 1995, is furnished to you in connection with
the solicitation of proxies on behalf of the Board of Directors of
MLX Corp. ("MLX" or the "Company") to be used at the Annual Meeting
of Shareholders (the "Annual Meeting") to be held at the offices of
Kilpatrick & Cody, 27th Floor, 1100 Peachtree Street, Atlanta,
Georgia on June 27, 1995, at 11:00 a.m. Atlanta time, and at any
subsequent time which may be necessary by an adjournment or
adjournments thereof.
Proxies in proper form received by the time of the meeting will be
voted as specified. A Shareholder giving a proxy may revoke it at any
time before it is exercised by filing with the Secretary of the
Company a revoking instrument or a duly executed proxy bearing a
later date, or by attending the meeting and voting in person. Shares
cannot be voted at the meeting unless the holder is present or
represented by proxy.
The cost of soliciting proxies, including the preparation, assembling
and mailing of the Notice of Meeting, Proxy Statement, form of proxy
and other soliciting material, as well as the cost of forwarding such
material to the beneficial owners of the Company's common stock (the
"Common Stock"), is to be borne by the Company. Directors, officers
and employees of the Company may also solicit proxies, but without
compensation other than their regular compensation, by further
mailings, personal conversations or by telephone. The Company may
reimburse brokers and others holding stock in their names or in the
names of nominees for their reasonable out-of-pocket expenses
incurred in sending the proxy materials to principals and beneficial
owners.
The proposals that will be submitted to the Shareholders at the
Annual Meeting are listed on the Notice of Meeting and described
herein. Each Shareholder is entitled to one vote on each proposal
per share of Common Stock held as of the Record Date. In determining
whether a quorum exists at the Annual Meeting for purposes of all
matters to be voted on, all votes "for" or "against," as well as all
abstentions (including votes to withhold authority to vote in certain
cases), with respect to the proposal receiving the most such votes,
will be counted. The vote required to approve the proposed sale of
the S.K. Wellman Limited, Inc. subsidiary (the "Sale Proposal"), is
a majority of the outstanding shares of Common Stock.
Thus, with respect to approval of the proposed sale of the S.K.
Wellman Limited, Inc. subsidiary, an abstention or broker non-vote
will have the same effect as a vote "against" the proposed sale. The
vote required for the election of directors is a plurality of the
votes cast at an election, provided a quorum is present. Thus, with
respect to the proposal for the election of directors (the "Board
Proposal"), an abstention or broker non-vote will have no effect.
With respect to the proposal to adopt the MLX Corp. Stock Option and
Incentive Award Plan (the "Plan Proposal"), the proposal will be
adopted if the number of votes cast in favor of the proposal exceed
the number of votes cast opposing the proposal. Thus, with
respect to the Plan Proposal, an abstention or broker non-vote will
have no effect.
The Board of Directors of the Company (the "Board"), in accordance
with the Bylaws, has fixed the close of business on May 9, 1995, as
the record date for determining the Shareholders entitled to notice
of and to vote at the Annual Meeting or any adjournments thereof. At
the close of business on such date, the outstanding number of voting
securities of the Company was 2,565,450 shares of Common Stock, $.01
par value, each of which is entitled to one vote.
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . i
INCORPORATION OF CERTAIN DOCUMENTS . . . . . . . . . . . . . . 1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SHAREHOLDERS MEETING . . . . . . . . . . . . . . . . . . . 2
GENERAL INFORMATION REGARDING THE SALE PROPOSAL. . . . . . 2
POST-SALE OPERATIONS . . . . . . . . . . . . . . . . . . . 3
REQUIRED VOTE. . . . . . . . . . . . . . . . . . . . . . . 3
BOARD RECOMMENDATION; FAIRNESS OPINION . . . . . . . . . . 3
CLOSING DATE . . . . . . . . . . . . . . . . . . . . . . . 4
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 4
CONDITIONS TO AND TERMINATION OF THE PURCHASE AGREEMENT. . 4
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE SALE. . 4
CERTAIN INCOME TAX CONSEQUENCES OF THE SALE. . . . . . . . 5
APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . . . 5
PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY . . . . 6
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . 6
BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . 6
RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND REASONS
FOR THE SALE . . . . . . . . . . . . . . . . . . . . . . 7
OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . 8
THE PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . 11
General. . . . . . . . . . . . . . . . . . . . . . . . 11
Purchase Price . . . . . . . . . . . . . . . . . . . . 11
Closing. . . . . . . . . . . . . . . . . . . . . . . . 12
Representations and Warranties . . . . . . . . . . . . 12
Certain Agreements . . . . . . . . . . . . . . . . . . 12
Conditions to the Purchase and Sale. . . . . . . . . . 13
Indemnification. . . . . . . . . . . . . . . . . . . . 14
Termination. . . . . . . . . . . . . . . . . . . . . . 14
Termination Fee. . . . . . . . . . . . . . . . . . . . 14
Hawk Corp. Guarantee . . . . . . . . . . . . . . . . . 15
Escrow Agreement . . . . . . . . . . . . . . . . . . . 15
PRO FORMA FINANCIAL INFORMATION. . . . . . . . . . . . . . 15
OPERATIONS PRIOR TO THE SALE . . . . . . . . . . . . . . . 21
Business . . . . . . . . . . . . . . . . . . . . . . . 21
Properties . . . . . . . . . . . . . . . . . . . . . . 23
OPERATIONS AFTER THE SALE. . . . . . . . . . . . . . . . . 23
General. . . . . . . . . . . . . . . . . . . . . . . . 23
Potential Strategies . . . . . . . . . . . . . . . . . 24
Market Auction Preferred Stock Transaction . . . . . . 24
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE SALE. . 26
Management Employment Agreements . . . . . . . . . . . 26
MLX Series A Preferred Stock . . . . . . . . . . . . . 26
Variable Rate Subordinated Notes . . . . . . . . . . . 27
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 27
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SALE. . . . 27
ABSENCE OF APPRAISAL RIGHTS. . . . . . . . . . . . . . . . 27
<PAGE>
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . 27
BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . 27
MEETINGS OF THE BOARD OF DIRECTORS . . . . . . . . . . . . 27
COMMITTEES OF THE BOARD OF DIRECTORS . . . . . . . . . . . 28
NOMINEES FOR THE BOARD OF DIRECTORS . . . . . . . . . . . . 28
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS . . . . . . 28
Principal Shareholders . . . . . . . . . . . . . . . . 28
Directors and Officers . . . . . . . . . . . . . . . . 30
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS . . 31
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS . . . . . 32
Executive Compensation Summary . . . . . . . . . . . . 32
Compensation Committee Report on Executive Compensation.33
Five-Year Shareholder Return Comparison . . . . . . . . 35
Option Grants . . . . . . . . . . . . . . . . . . . . . 36
Option Exercises and Fiscal Year-End Values . . . . . . 37
Retirement Plans . . . . . . . . . . . . . . . . . . . 37
Directors Fees . . . . . . . . . . . . . . . . . . . . 38
Employment Agreements with Executive Officers . . . . . 38
COMPENSATION COMMITTEE INTERLOCKS AND RELATED TRANSACTIONS .39
PROPOSAL TO ADOPT THE MLX CORP. STOCK OPTION
AND INCENTIVE AWARD PLAN . . . . . . . . . . . . . . . . . . 40
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . 40
AWARDS UNDER THE INCENTIVE COMPENSATION PLAN . . . . . . . 41
CHANGES IN CONTROL . . . . . . . . . . . . . . . . . . . . 43
DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES. . . . . . . 43
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS. . . . . . . . . . . 44
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . 44
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . 44
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . 44
EXHIBITS
A . . . . . . . . . . .Fairness Opinion of Donaldson, Lufkin &
Jenrette Securities Corporation
B . . . . . . . . . . . .Agreement for Purchase and Sale of the
Capital Stock of S.K. Wellman Limited, Inc.
C . . . . . . . . . . .MLX Corp. Stock Option and Incentive Award
Plan
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS
MLX's 1994 Annual Report to Shareholders (the "Annual Report"), a
copy of which accompanies this Proxy Statement and which has been
filed with the Securities and Exchange Commission (the
"Commission"), other than the Letter to Shareholders set forth on
pages 2 and 3 thereof is incorporated by reference into this Proxy
Statement.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the
extent that a statement contained herein or in any other subsequently
filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be
deemed to constitute a part of this Proxy Statement.
No persons have been authorized to give any information or to make
any representations other than those contained in this Proxy
Statement in connection with the solicitations of proxies made hereby
and, if given or made, such information or representation must not be
relied upon as having been authorized by MLX or any other person.
The delivery of this Proxy Statement does not, under any
circumstances, create an implication that there has been no change in
the affairs of MLX since the date hereof or that the information
herein is correct as of any time subsequent to its date.
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Proxy Statement. Capitalized
terms used and not otherwise defined in this Summary have the
meanings ascribed to them elsewhere in this Proxy Statement.
SHAREHOLDERS MEETING
At the Annual Meeting and any adjournment or postponement thereof the
Shareholders will be asked to consider and vote upon:
(i) the sale of all the capital stock of the S.K. Wellman
Limited, Inc. subsidiary (the "Sale Proposal");
(ii) the election of seven directors (the "Board
Proposal");
(iii) the adoption of the MLX Corp. Stock Option and
Incentive Award Plan (the "Plan Proposal"); and
(iv) such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Annual Meeting is scheduled to be held at 11:00 a.m., Atlanta
time, on June 27, 1995, at the offices of Kilpatrick & Cody, 27th
Floor, 1100 Peachtree Street, Atlanta, Georgia. The
Board has fixed the close of business on May 9, 1995, as the record
date (the "Record Date") for the determination of holders of Common
Stock entitled to notice of and to vote at the Annual Meeting. See
"INTRODUCTION." On the Record Date there were 2,565,450
shares of Common Stock, $.01 par value, outstanding and entitled to
vote at the Annual Meeting.
GENERAL INFORMATION REGARDING THE SALE PROPOSAL
On April 10, 1995, the Company entered into an Agreement for the
Purchase and Sale of the Capital Stock of S.K. Wellman Limited, Inc.
(the "Purchase Agreement") with Hawk Corporation, a Delaware
corporation ("Hawk Corp.") and The Hawk Group of Companies,
Inc., an Ohio corporation and a subsidiary of Hawk Corp. ("Hawk
Group") (Hawk Corp. and Hawk Group are referred to collectively
herein as "Hawk"), pursuant to which MLX has agreed to sell all of
the capital stock of S.K. Wellman Limited, Inc. ("S.K. Wellman"), a
wholly-owned subsidiary of the Company, to the Hawk Group (such sale
is hereinafter referred to as the "Sale" or the "Transaction"). All
of the Company's current operations are conducted through the S.K.
Wellman subsidiary.
The aggregate purchase price for S.K. Wellman is $60,000,000, which
includes certain amounts related to the repayment or assumption of
debt and capital leases by Hawk. Net cash proceeds are estimated to
be approximately $48,800,000 after such adjustments and
estimated transaction expenses. The Purchase Agreement also provides
for an adjustment of the purchase price to the extent that the
consolidated net earnings of S. K. Wellman for April and May 1995 are
less than $200,000. Based on the net earnings of S. K. Wellman
through the date hereof, the Company does not believe this provision
will be applicable. See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC.
SUBSIDIARY - THE PURCHASE AGREEMENT - Purchase Price."
The Board has received the written opinion of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") to the effect that the
consideration to be received by the Company in the Transaction is
fair to the Company from a financial point of view. See "PROPOSAL TO
SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - OPINION OF FINANCIAL
ADVISOR."
<PAGE>
POST-SALE OPERATIONS
See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC., SUBSIDIARY - PRO
FORMA FINANCIAL INFORMATION" below for an indication of the Company's
balance sheet after receipt and application of the proceeds and
payment of expenses and costs associated with the Sale.
The Board has considered a number of means of maximizing Shareholder
value if the Sale is completed, including the following:
(i) Use of a portion of the cash balance resulting from
the sale of S.K. Wellman to support the issuance of a
series of structured preferred securities, known as
market auction preferred stock, which feature dividend
rates that are reset every 49 days. See "PROPOSAL TO
SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY -
OPERATIONS AFTER THE SALE - Market Auction Preferred
Stock Transaction."
(ii) Use of its substantial cash resources and lack of debt
to pursue the acquisition of new businesses.
(iii) Implementation of a Common Stock repurchase program.
See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC., SUBSIDIARY -
OPERATIONS AFTER THE SALE" for more detailed descriptions of the
foregoing alternatives. The foregoing is only an expression of the
Board's current position on courses of action that may be
advantageous following the Sale. No determination has been made
to pursue any of these alternatives, and there can be no assurance
that any of the alternatives described above will ultimately be
pursued, or will be pursued in the manner described above.
REQUIRED VOTE
The presence, either in person or by proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote
at the Annual Meeting is necessary to constitute a quorum at the
Annual Meeting. The Transaction constitutes a sale of assets
requiring Shareholder approval under Georgia law, and the affirmative
vote of the holders of a majority of the outstanding shares of Common
Stock is required to approve the Sale Proposal. The affirmative vote
of the holders of a plurality of the outstanding shares of Common
Stock present, in person or by proxy, at the Annual Meeting is
required to elect the persons described in the Board Proposal as
directors of the Company. The Plan Proposal will be approved if the
number of votes cast at the Annual Meeting in favor of the proposal
exceeds the number of votes cast opposing the proposal.
The MLX directors and certain major shareholders, who collectively
possess the power to direct the vote of an aggregate of approximately
39.1% of the outstanding shares of Common Stock, have granted
irrevocable proxies to the Hawk Group to vote such shares of
Common Stock in favor of the Sale Proposal. Consequently, it is
virtually assured that the Sale Proposal will be approved by the
requisite vote of the Company's shareholders.
BOARD RECOMMENDATION; FAIRNESS OPINION
The Board has approved the Sale Proposal, the Board Proposal and the
Plan Proposal and recommends that the Shareholders vote "FOR" such
proposals. See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC.
SUBSIDIARY - RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND REASONS
FOR THE SALE."
<PAGE>
CLOSING DATE
The closing of the Transaction (the "Closing") will take place as
soon as practicable after approval of the Sale at the Annual Meeting
and is expected to be held on June 29, 1995. See "PROPOSAL TO SELL
S.K. WELLMAN LIMITED, INC. SUBSIDIARY - THE PURCHASE AGREEMENT -
Closing."
INDEMNIFICATION
The Purchase Agreement provides for MLX to indemnify the Hawk Group,
its affiliates and certain related parties with respect to certain
potential losses arising after the Closing out of or relating to the
representations, warranties and agreements of MLX in the Purchase
Agreement, subject to a deductible of $600,000 (with a separate
$50,000 deductible for tax losses) and a cap of $5,000,000. The
obligation to indemnify Hawk will be partially secured by an escrow
fund of $4,000,000 which shall be deducted from the amount paid to
MLX at the Closing. See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC.
SUBSIDIARY - THE PURCHASE AGREEMENT - Indemnification." On the first
business day following the end of the 15th month after the date of
Closing, the Escrow Agent shall deliver to MLX the Escrow Fund, less
the amount of all allowed and settled claims (both paid and unpaid)
and of all asserted claims of which the Escrow Agent has received
notice but which have not yet been allowed or settled. See "PROPOSAL
TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - THE PURCHASE
AGREEMENT - Escrow Agreement."
CONDITIONS TO AND TERMINATION OF THE PURCHASE AGREEMENT
The consummation of the transactions contemplated by the Purchase
Agreement is subject to a number of conditions, including approval of
the Shareholders, and the Purchase Agreement may be terminated by MLX
or Hawk upon the occurrence or nonoccurrence of certain events. See
"PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - THE
PURCHASE AGREEMENT - Termination."
Under certain circumstances, including if the Sale Proposal is not
approved by the Shareholders, a termination fee of $2,000,000 may
become payable by MLX to Hawk in the event of a termination of the
Purchase Agreement. See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC.
SUBSIDIARY - THE PURCHASE AGREEMENT - Termination Fee."
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE SALE
Certain officers and directors of MLX have interests in the Sale that
differ from the interests of Shareholders generally, including those
listed below. See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC.
SUBSIDIARY - INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE SALE"
for a more detailed description of the following interests.
(1) Following the Sale, the Company intends to redeem the
outstanding shares of Series A Preferred Stock now held by certain
affiliates of Three Cities Holdings Limited. Messrs. de Vogel, Uhrig
and Wagner, each of whom are current members of the Board, also serve
as Managing Directors of Three Cities Research, Inc., a subsidiary of
Three Cities Holdings Limited.
(2) A three year employment agreement between S.K. Wellman
and Ronald E. Grambo, the President of S.K. Wellman, will become
effective upon the consummation of the Sale.
(3) Certain senior management personnel of S.K. Wellman
will become entitled to enhanced severance benefits following the
Sale if they are terminated without cause prior to January 1, 1996.
<PAGE>
(4) Following the Sale, the salary and annual incentive
compensation of Brian R. Esher, the Chairman, President and Chief
Executive Officer of the Company, will be reduced.
CERTAIN INCOME TAX CONSEQUENCES OF THE SALE
The sale of the Shares will be a taxable transaction to MLX. MLX and
Hawk have agreed to elect to treat the sale as a sale of the assets
of S.K. Wellman for federal income tax purposes under Sections 338(g)
and 338(h)(10) of the Internal Revenue Code. MLX estimates that
state income taxes that may arise from the Transaction will be
approximately $1,800,000. Because of its NOL carryforwards, however,
MLX believes the Alternative Minimum Tax is the only federal tax
liability that will result from the Sale. There will be no tax
consequences to the Company's shareholders from the Sale.
APPRAISAL RIGHTS
Under Georgia law, holders of Common Stock will not be entitled to
appraisal rights in connection with the Sale because the Common Stock
is listed on the NASDAQ National Market System.
<PAGE>
PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY
GENERAL
Subject to the approval of the Shareholders, as provided herein, at
the Closing the Company will transfer all of the issued and
outstanding shares of S.K. Wellman to the Hawk Group in exchange
for an aggregate purchase price of $60,000,000, which includes
certain amounts related to the repayment or assumption of debt and
capital leases by Hawk. $4,000,000 of the sale proceeds
will be deposited in an escrow fund to partially secure the Company's
obligations to indemnify Hawk, and an additional amount equal to 85%
of the Company's estimate of its obligations to pay certain state and
local taxes that may arise from the Sale will be deposited in an
escrow fund to partially secure such obligations. See "PROPOSAL TO
SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - THE PURCHASE AGREEMENT".
All of the Company's current operations are conducted through the
S.K. Wellman subsidiary.
BACKGROUND
In late August of 1994, a foreign competitor approached MLX
management with an unsolicited expression of interest in a business
combination with S.K. Wellman. In mid-October, MLX management met
again with the foreign competitor, and the competitor expressed a
continuing interest in a business combination with S.K. Wellman.
On October 20, 1994, the Board met to discuss the expression of
interest in S.K. Wellman and other strategic alternatives available
to MLX, including acquisitions of other businesses to complement S.K.
Wellman and/or the issuance of market auction preferred stock.
Despite steadily improving sales and operating earnings since 1991,
the Board and MLX senior management concluded that the long-term
success of S.K. Wellman depended on combining it with a
complimentary business. This conclusion was based in significant
part on the trend towards consolidation by S. K. Wellman's primary
competitors, most of whom were experiencing significant
growth through acquisition. MLX had been attempting since late 1993
to identify an acquisition for S.K. Wellman at an attractive price
with a business with complimentary products and personnel
that also presented opportunities for cost savings. Given the lack
of success of these efforts, the Board voted to engage Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") to canvas
strategic buyers to determine the value of S.K. Wellman in a
negotiated sale and to assist in dealing with the interested foreign
competitor.
While MLX prepared to canvas the market for interested bidders, it
also continued its discussions with the foreign competitor, who was
permitted to conduct plant tours at S.K. Wellman's U.S.
locations in late November 1994. By mid January 1995, MLX, through
DLJ, had contacted 18 strategic concerns (including the foreign
competitor) to determine their interest in S.K. Wellman.
Each of these strategic concerns was provided with a brief summary of
S.K. Wellman's history, products, customers, operations and goals.
DLJ delivered a more complete offering memorandum describing S.K.
Wellman to nine of these parties that requested additional
information and signed a confidentiality agreement.
In February 1995, DLJ received five responses to its requests for
indications of interest. The Board met on February 16, 1995, to
discuss the responses, and after consulting with DLJ and the
Company's legal counsel, decided to negotiate exclusively with Hawk
for a limited period of time. This decision was based primarily on
the fact that Hawk's estimated purchase price was significantly
higher than the others. The Board also believed that the combination
of S.K. Wellman and Hawk created more synergies than the other
potential combinations, including complimentary product lines and
personnel and cost saving opportunities given the close proximity of
Hawk's Ohio operations to S.K. Wellman's facilities. These synergies
suggested that Hawk would be the buyer most willing to pay the
highest price and conduct negotiations the quickest. After a few
weeks of
<PAGE>
negotiations, Hawk requested that the Company enter into a written
agreement not to negotiate with or solicit other parties. The
Company indicated that it was not willing to enter into a binding
agreement, although it did intend to continue to negotiate
exclusively with Hawk for a limited period. There was no prior
affiliation between the Company or S.K. Wellman and Hawk.
Negotiations with Hawk continued throughout the months of February
and March, with Board meetings to discuss and direct the negotiations
being held on March 16, 22 and 30. At a meeting on April 7, 1995,
the Board, by the unanimous vote of the directors present, voted to
approve the transaction with Hawk and recommend it to the
Shareholders, after receiving the oral advice of DLJ
that the consideration to be received by the Company in the
Transaction was fair to the Company from a financial point of view.
At the same time, the Board authorized H. Whitney Wagner and
Brian R. Esher to negotiate the final details of the Purchase
Agreement, which was executed on Monday, April 10, 1995.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS AND REASONS FOR THE SALE
At a meeting held on April 7, 1995, the Board concluded that the Sale
was in the best interest of the Shareholders and approved the
Purchase Agreement and the transactions contemplated thereby. All
directors present approved the Sale, and only Mr. de Vogel was absent
from the meeting. The Board also recommended that the Shareholders
approve the Purchase Agreement and the transactions and proposals
contemplated therein.
In determining to approve the Purchase Agreement and to recommend its
approval to the Shareholders, the Board considered the following
principal factors:
1. The valuation of S.K. Wellman by Hawk was considered to be
very attractive. While the Board had no pre-established range of
values that it believed appropriate for S.K. Wellman, the
price offered by Hawk was significantly greater than the indications
of interest expressed by the other parties that came forward in
response to the structured auction conducted by DLJ. The cash
proceeds to be received by MLX pursuant to the Transaction, less
certain purchase price adjustments and estimated fees and expenses,
are estimated to be approximately $48,800,000. The net proceeds to
be received by MLX pursuant to the Transaction are estimated to be
$36,000,000 (including funds to be deposited in escrow in accordance
with the Purchase Agreement) after redemption of the Series A
Preferred Stock, repayment of existing indebtedness, and payment of
estimated taxes resulting from the Sale. This is equivalent to
approximately $14.07 per share of outstanding Common Stock (or $12.81
per fully diluted share, based on outstanding common shares and
exercisable options). This represents a substantial premium over
the closing price of $4.50 per share of Common Stock on April 10,
1995, the last full day of trading prior to the public announcement
of the Transaction.
2. With the substantial cash balances that will result from
the payment of the purchase price and the elimination of all debt,
the Company will be in a better position to capitalize on the
opportunities to increase Shareholder value discussed under "PROPOSAL
TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - OPERATIONS AFTER THE
SALE."
3. The oral opinion of DLJ that the cash consideration to be
received by the Company in the Transaction is fair to the
Shareholders from a financial point of view, which opinion was
memorialized in the letter attached hereto as Exhibit A. While DLJ
did not provide a written valuation report to the Board other than
its fairness opinion, it did orally summarize the methodologies and
findings of its fairness opinion during the April 7 Board meeting.
The lack of written materials did not affect the Board's
deliberations because of the thoroughness of DLJ's oral summary and
the fact that Hawk offered the highest price for S.K. Wellman after
a structured auction conducted by DLJ. See "PROPOSAL TO SELL S.K.
WELLMAN LIMITED, INC. SUBSIDIARY - OPINION OF FINANCIAL ADVISOR" for
a description of the analysis undertaken by DLJ in rendering such
opinion and certain qualifications related thereto.
<PAGE>
4. The other provisions of the Purchase Agreement that (a)
require approval by a majority of the shares of Common Stock, and (b)
permit the Company's Board to consider and pursue a higher
proposal from a third party, if one should materialize, subject to
certain conditions and payment of certain fees as described in the
Purchase Agreement.
In light of the number and variety of factors considered by the Board
in connection with its evaluation of the Transaction, it was not
practicable to assign relative weights to the foregoing
factors, and the Board did not do so. In addition to the factors
described above, the Board also considered the interests of certain
officers, directors and other interested parties described in
"PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - INTERESTS
OF CERTAIN OFFICERS AND DIRECTORS IN THE SALE." After considering
these interests, Messrs. Glancy, Roberts and McMillan, MLX's
independent directors, voted in favor of the Transaction.
OPINION OF FINANCIAL ADVISOR
As described above under the sections captioned "PROPOSAL TO SELL
S.K. WELLMAN LIMITED, INC. SUBSIDIARY - BACKGROUND" and "PROPOSAL TO
SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - RECOMMENDATIONS OF THE
BOARD OF DIRECTORS AND REASONS FOR THE SALE," DLJ's written opinion,
delivered on April 10, 1995, to the Board of Directors of the
Company, indicated that, based upon the assumptions made, matters
considered and limits of the review undertaken, as set forth in such
opinion, the consideration to be received by the Company in the
Transaction is fair to the Company from a financial point of
view. The written opinion confirmed the advice given by DLJ during
the April 7, 1995 meeting of the Board.
The full text of DLJ's written opinion, dated April 10, 1995, is
attached hereto as Exhibit A to this Proxy Statement. SHAREHOLDERS
ARE URGED TO READ THE OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN
BY DLJ. The opinion of DLJ is directed only to the fairness from a
financial point of view of the consideration to be received by the
Company and does not constitute a recommendation to any shareholder
of the Company as to whether such Shareholder should vote their
Shares for the Transaction. The following is a brief summary of the
analyses performed by DLJ in preparation of its opinion letter dated
as of April 10, 1995, and reviewed with the MLX Board of Directors.
The summary of the opinion of DLJ set forth in this Proxy Statement
is qualified in its entirety by reference to the full text of such
opinion.
In arriving at its opinion, DLJ reviewed a draft of the Purchase
Agreement dated April 7, 1995. Changes subsequently made to the
Purchase Agreement prior to or on the date of the DLJ opinion
did not affect DLJ's opinion. DLJ also reviewed financial and other
information regarding MLX and S.K. Wellman that was publicly
available or furnished to DLJ by the Company and S.K. Wellman,
including information provided during discussions with their
respective managements. Included in the information provided during
discussions with their respective managements were certain
financial projections of S.K. Wellman for the period beginning
January 1, 1995, and ending December 31, 1999, which projections were
prepared by the respective managements of the Company and S.K.
Wellman. DLJ also considered the fact that it had contacted 18
strategic buyers to determine their interest in S.K. Wellman and that
the price offered by Hawk was significantly greater than the price
levels indicated by the four other parties which submitted
written indications of interest in acquiring S.K. Wellman.
The aggregate purchase price of $60,000,000 referenced in the DLJ
fairness opinion is based on the $49,900,000 in cash to be paid by
Hawk along with the long-term debt of S.K. Wellman to be
repaid by Hawk at closing. This long-term debt was assumed for
purposes of the Purchase Agreement to be $10,100,000, which was the
parties' negotiated estimate of the amount of such debt that would be
outstanding at the Closing. Such debt outstanding at the Closing to
be repaid by Hawk could be greater than or lower than such estimate,
which could result in a purchase price
<PAGE>
that is greater than or less than $60,000,000. At April 30, 1995,
the amount of such long-term debt outstanding was approximately
$9,600,000.
The following is a brief summary of the analyses performed by DLJ in
preparation of its opinion letter dated as of April 10, 1995 and
reviewed with the MLX Board of Directors.
Comparable Company Analysis
DLJ reviewed and analyzed certain publicly available financial and
market information for nine industrial manufacturing companies,
including Amcast Industrial Corp., Intermet Corporation,
Donnelly Corporation, Hayes Wheels International, Inc., Tower
Automotive, Inc., Mascotech, Inc., Magna International, Arvin
Industries, Inc., and Simpson Industries (collectively, the
"Comparable Companies") that, in DLJ's judgment, were comparable to
S.K. Wellman for purposes of this analysis. DLJ noted that no
company reviewed was identical to S.K. Wellman and that,
accordingly, the comparable company analysis necessarily involves
complex considerations and judgments concerning differences in
financial and operating characteristics of S.K. Wellman and
other factors that would affect the value of the companies to which
it is being compared. The Comparable Companies were selected on the
basis of, among other factors, having similar product lines or
customers, exhibiting similar demand characteristics, or having
similar manufacturing processes. Such financial and market
information included, among other things, market value,
earnings per share, market price as a multiple of earnings per share
and aggregate enterprise value (defined as equity value, plus
long-term debt and short-term debt, less cash and cash equivalents
(the "Aggregate Enterprise Value")) as a multiple of revenue and
earnings before interest, taxes, depreciation and amortization
("EBITDA"). The analysis indicated that based on S.K. Wellman's
actual 1994 financial results and projected 1995 financial results,
the aggregate purchase price of $60,000,000 for S.K. Wellman
represented a multiple of 1.0x revenue, 6.3x EBITDA, 19.7x net
income for the latest twelve months ("LTM"), and 16.5x projected 1995
net income. These multiples compared to the Comparable Companies'
range of multiples of 0.4x to 1.3x revenue, with a mean of 0.7x
(excluding minimum and maximum), and a range of 4.2x to 9.0x EBITDA
for the Comparable Companies with a mean of 6.2x (excluding minimum
and maximum). In addition, the Comparable Companies' range of
multiples for LTM net income were 9.6x to 13.4x with a mean of
11.4x (excluding minimum and maximum) and for 1995 projected net
income were 5.9x to 9.7x with a mean of 7.7x (excluding minimum and
maximum).
Analysis of Comparable Acquisition Transactions
DLJ reviewed the financial terms, to the extent publicly available,
of 16 selected completed merger and acquisition transactions of
companies engaged in industrial manufacturing that were
announced since January 1, 1990 (collectively, the "Comparable
Acquisition Transactions"). DLJ reviewed the price paid in such
transactions in terms of the equity value as a multiple of LTM
earnings, and in terms of Aggregate Enterprise Value as a multiple of
LTM revenue, as a multiple of LTM EBITDA and as a multiple of LTM
earnings before interest and taxes ("EBIT"). DLJ noted that
no transaction reviewed was identical to the Transaction and that,
accordingly, the comparable acquisition analysis necessarily involves
complex considerations and judgments concerning differences in
financial and operating characteristics of S.K. Wellman and other
factors that would affect the acquisition value of the companies to
which it is being compared. The analysis indicated that, for the
Comparable Acquisition Transactions, the range of multiples of equity
value to LTM earnings was 6.0x to 50.9x, with a mean (excluding
minimum and maximum) of 23.2x, and the range of multiples of
Aggregate Enterprise Value to LTM revenue was 0.5x to 2.0x with a
mean (excluding minimum and maximum) of 0.9x. In addition, the range
of multiples of Aggregate Enterprise Value to LTM EBITDA was 3.8x to
11.6x with a mean (excluding minimum and maximum) of 7.2x, and the
range of multiples of Aggregate Enterprise Value to LTM EBIT was 5.7x
to 23.2x with a mean (excluding minimum and maximum) of 11.5x. The
comparable acquisition analysis indicated a hypothetical reference
range of the Aggregate Enterprise Value for S.K. Wellman of $53.4
million to $86.8 million with a mean (excluding minimum and maximum)
of $62.7 million.
<PAGE>
Discounted Cash Flow Analysis
DLJ calculated the estimated unlevered after-tax cash flows that S.K.
Wellman could be expected to generate over the five-year period
ending December 31, 1999, using S.K. Wellman management's projections
of S.K. Wellman's future financial performance. Using these
projections, DLJ then calculated terminal values for S.K. Wellman at
the end of the five-year period by applying multiples ranging from
5.5x to 8.0x (which DLJ believed to be appropriate for S.K. Wellman's
business based on DLJ's judgment and experience) to such projection's
projected 1999 EBITDA. The unlevered cash flows for the projected
five-year period and the range of terminal values were then
discounted to December 31, 1994 using annual discount rates
ranging from 10.0% to 14.0% (chosen to reflect the weighted average
cost of capital of S.K. Wellman and other similar industrial
and manufacturing companies) to imply the hypothetical reference
range of Aggregate Enterprise Value for S.K. Wellman of $39.9 million
to $67.2 million.
In connection with the review of the Transaction by the Board of
Directors of MLX, DLJ performed a variety of financial and
comparative analyses for purposes of its opinion given in connection
therewith, all of which are summarized above. The summary set forth
above does not purport to be a complete description of the
presentation by DLJ to the MLX Board of Directors or the analyses
performed by DLJ in arriving at its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description.
DLJ believes that its analysis must be considered as a whole and that
selecting portions of its analyses and of the factors considered by
it, without considering all analyses and factors, could create a
misleading view of the processes underlying its opinion. In
addition, DLJ may have given various analyses more or less weight
than other analyses, and may have deemed various assumptions more or
less probable than other assumptions, so that the range of valuations
resulting for any particular analysis described above should not be
taken to be DLJ's view of the actual value of S.K. Wellman. In
performing its analyses, DLJ made numerous assumptions with respect
to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of S.K.
Wellman.
In rendering its opinion, DLJ relied upon and assumed the accuracy
and completeness of all of the financial and other information that
was available to DLJ from public sources, that was provided to
DLJ by the Company and S.K. Wellman or their respective
representatives, or that was otherwise supplied to DLJ. With respect
to the financial projections supplied to DLJ by the Company and
S.K. Wellman, it was assumed that they were reasonably prepared and
reflect the best currently available estimates and judgments of the
managements of the Company and of S.K. Wellman as to the expected
future operating and financial performance of S.K. Wellman. DLJ did
not assume any responsibility for making an independent evaluation of
S.K. Wellman's assets or liabilities or for making any independent
verification of any of the information supplied to or reviewed by
DLJ. DLJ has relied as to all legal matters on advice of counsel to
the Company.
DLJ's opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made
available to DLJ as of, April 10, 1995. It should be
understood that, although subsequent developments may affect this
opinion, DLJ does not have any obligation to update, revise or
reaffirm this opinion.
DLJ, as part of its investment banking services, is regularly engaged
in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of
listed and unlisted securities, private placements and valuations for
estate, corporate and other purposes.
<PAGE>
For its services as financial advisor, S.K. Wellman has agreed to pay
to DLJ a transaction fee of approximately $825,000 and to reimburse
DLJ for its reasonable out-of-pocket expenses. In addition, S.K.
Wellman has agreed to indemnify DLJ against certain liabilities,
including liabilities under the Federal securities laws, except in
any case where it is found that any such loss resulted primarily from
DLJ's bad faith or gross negligence. S.K. Wellman's obligations to
DLJ have been unconditionally guaranteed by MLX, but Hawk has agreed
in the Purchase Agreement that S.K. Wellman will pay all fees of DLJ.
THE PURCHASE AGREEMENT
General
The Purchase Agreement provides that, upon the satisfaction or waiver
of the conditions to the purchase and sale, the Hawk Group will
acquire from MLX all of the issued and outstanding shares
(the "Shares") of S.K. Wellman (such sale is hereinafter referred to
as the "Sale" or the "Transaction"). The following summary of the
Purchase Agreement is qualified in its entirety by reference to the
full text of the Purchase Agreement, which is set forth as Exhibit B
to this Proxy Statement.
Purchase Price
The aggregate purchase price is $60,000,000, which includes (i) the
long-term debt of S.K. Wellman to be repaid by Hawk at Closing, which
was assumed for purposes of the Purchase Agreement to be $10,100,000
(approximately $9,600,000 of such debt was outstanding on April
30, 1995), (ii) the penalties arising from such prepayment, which
will be paid by Hawk at Closing and are estimated to be approximately
$143,000, (iii) debt of the Italian subsidiary outstanding as
of the Closing, estimated to be approximately $94,000, and (iv) the
amount of certain capital leases to be assumed by Hawk, which were
valued as of March 31, 1995 at approximately $555,000. After such
adjustments and payment of estimated transaction expenses, the net
cash proceeds to the Company are estimated to be $48,800,000. Total
cash proceeds of approximately $36,000,000 are estimated to remain
after the redemption of Series A Preferred Stock and payment of
existing indebtedness and federal and state taxes arising from the
Transaction.
The Purchase Agreement also provides for a dollar for dollar
adjustment of the purchase price to the extent that the consolidated
net earnings of S.K. Wellman for April and May 1995 are less than
$200,000. The Company does not believe that any adjustment will
occur pursuant to this provision based on the net earnings of S.K.
Wellman through the date hereof. While the adjustment to the
purchase price potentially could have been significant if S. K.
Wellman suffered large losses during this period, the Company was
confident at the time of entering into the Purchase Agreement that
such adjustment would not be applicable. This was based on the
backlog of orders that S. K. Wellman held at the time the Purchase
Agreement was signed and the relatively predictable nature of the
business' short-term earnings. For these reasons, the Company
and DLJ assumed that this adjustment provision would have little or
no impact on the actual purchase price and it was therefore not a
significant factor in the Board's consideration of whether
to approve the Transaction or in DLJ's opinion regarding the fairness
of the consideration to be received in the Transaction.
Hawk shall deposit with Brown Brothers Harriman & Co. (the "Escrow
Agent") $4,000,000 (the "Escrow Fund") and an amount which is equal
to 85% of MLX's estimate of certain tax liabilities of S.K. Wellman
and its subsidiaries (the "Companies") that may arise from the sale
of the Shares (the "Tax Fund"), to be administered pursuant to the
Escrow Agreement described below. Hawk shall pay the remainder of
the purchase price (less the adjustments described above) to MLX at
Closing by wire transfer.
<PAGE>
Closing
The Closing will take place on the earlier of (i) July 14, 1995, and
(ii) the second business day on which all conditions to Closing have
been satisfied or waived or on such other date and time as MLX and
Hawk shall agree. Assuming that the Transaction is approved
by the Shareholders, the Closing will take place as soon as
practicable thereafter, which is expected to be June 29, 1995.
Representations and Warranties
The Purchase Agreement contains various representations and
warranties of MLX relating to, among other things: (a) organization
and similar corporate matters; (b) capital structure; (c)
authorization, execution, delivery, performance and enforceability of
the Purchase Agreement and the Escrow Agreement; (d) required
consents; (e) compliance with certain laws; (f) possession of
franchises and licenses; (g) securities filings and financial
statements; (h) absence of certain liabilities; (i) title and
condition of owned and leased tangible assets and personal property;
(j) title and condition of owned and leased real property; (k)
litigation; (l) taxes; (m) employees; (n) employee benefit plans and
matters relating to the Employee Retirement Income Security Act of
1974, as amended; (o) MLX's proxy statement; (p) environmental
matters; (q) intellectual property; (r) insurance; (s) customers,
suppliers and contracts; (t) government reports; (u) absence of
certain material changes; (v) completeness of representations and
warranties; and (w) inapplicability of the Hart-Scott-Rodino Act.
The Purchase Agreement contains various representations and
warranties of Hawk relating to, among other things, organization and
similar corporate matters, authorization, execution, delivery,
performance and enforceability of the Purchase Agreement, required
consents, and inapplicability of the Hart-Scott-Rodino Act.
Certain Agreements
Board of Directors. MLX has agreed to recommend that its
Shareholders approve the Purchase Agreement and the Transaction at
the Annual Meeting. MLX has also agreed to use its best efforts
to solicit proxies from its Shareholders in favor of, and to secure
their vote or consent to, the Transaction. Each member of the Board
and certain major shareholders have agreed to execute an
irrevocable proxy in favor of the Hawk Group with respect to all
shares of MLX's stock which such member or shareholder is entitled to
vote at the Annual Meeting. The Board may change its
recommendation regarding the Purchase Agreement, or recommend another
proposal, only if it determines, after consulting with its financial
advisor, that such change or recommendation is likely to result in a
superior financial transaction for MLX and its Shareholders, and
outside counsel has opined that failure to take such action would
create a substantial risk of liability for breach of the
Board's fiduciary duties or violation of applicable securities laws.
Non-Solicitation Agreement. MLX has agreed during the term of the
Purchase Agreement not to solicit or encourage any proposal or offer
to acquire all or any portion of the assets of, or any equity
interest in, MLX or any of the Companies, or to effect any
business combination with MLX or any of the Companies. MLX has also
agreed not to discuss or negotiate regarding, or to furnish
any information with respect to, any attempt to do any of the
foregoing, unless (i) the Board of Directors has determined, after
consulting with its financial advisor, that such discussions or
negotiations, or furnishing such information, may result in a
superior financial transaction for MLX and its Shareholders, and (ii)
outside counsel for MLX has opined that failure to take such action
would create a substantial risk of liability for breach of the
Board's fiduciary duties or violation of applicable securities laws.
Employee Benefit Plans. Hawk has agreed that for a period of at
least three months following the Closing the Companies will provide
their respective employees with benefits substantially similar to
those provided under the employee benefit plans currently provided by
or on behalf of the Companies.
<PAGE>
Intercompany Debt. The intercompany debt from MLX to S.K. Wellman,
which was approximately $2,200,000 on December 31, 1994, will be
forgiven in its entirety prior to the Closing.
Tax Matters. MLX and Hawk will jointly elect to treat the
acquisition of the Shares as an acquisition of S.K. Wellman's assets
effective as of the Closing Date, pursuant to Sections 338(g)
and 338(h)(10) of the Internal Revenue Code. MLX shall pay all taxes
of MLX and S.K. Wellman arising from such deemed sale of assets, and
any taxes with respect to the sale of the Shares if any government
does not deem such sale to be a sale of assets. Subject to certain
indemnification obligations of MLX described below, Hawk shall be
responsible for all taxes arising from the operation of the Companies
which are not due and payable prior to the Closing Date.
Non-Competition and Confidentiality Agreement. MLX has agreed, for
a period ending three years after the Closing Date, not to compete
with the current business of the Companies, nor to solicit orders
from any customer of the Companies for any product substantially
similar to those currently sold or distributed by them. MLX has also
agreed, for a period of five years after the Closing Date,
not to use or divulge any confidential information or trade secrets
received from Hawk and to return to Hawk, at the Closing or upon the
termination of the Purchase Agreement, all documents and other
written information furnished to MLX by or on behalf of Hawk which
contains or relates to any confidential information or trade secrets.
Conduct of the Companies' Business Pending Closing. MLX has agreed
that, from the date of the Purchase Agreement until the Closing Date,
except as otherwise provided in the Purchase Agreement, the Companies
shall conduct their businesses only in the ordinary and usual course,
and shall not incur any additional indebtedness for borrowed money.
Except as expressly provided in the Purchase Agreement, the Companies
shall not: (i) pay a dividend or make a distribution or
other payment to MLX, (ii) redeem, convert, exchange, retire,
purchase or make any other acquisition for value of any shares of
stock of the Companies now or hereafter outstanding, or (iii)
make any payment to retire, or to obtain the surrender of, any
outstanding warrants, options or other rights to acquire shares of
stock of the Companies now or hereafter outstanding. Notwithstanding
the foregoing, the Companies may (i) consistent with their past
practices, draw on certain existing lines of credit, (ii) declare and
pay dividends to S.K. Wellman or MLX to fund MLX's dividend
obligations with respect to outstanding shares of MLX Series
A Preferred Stock and interest obligations on MLX's outstanding
Variable Rate Subordinated Notes, (iii) make certain
planned capital expenditures, and (iv) contribute, consistent with
past practice, to certain employee benefit plans. S.K. Wellman may
also continue to pay MLX $100,000 monthly, from December
31, 1994, through the Closing Date, pursuant to the management
agreement between MLX and S.K. Wellman.
Conditions to the Purchase and Sale
The respective obligations of MLX and Hawk to consummate the
Transaction are subject to a number of conditions, including among
others: (a) the approval of the Purchase Agreement and the
Transaction by the requisite vote of the Shareholders; (b) that the
Transaction shall not have been restrained or enjoined by any
judicial or governmental order or decision or by any law then in
effect; (c) each party shall have performed all of its respective
obligations and covenants under the Purchase Agreement; (d) the
Companies shall, at the Closing, repay all indebtedness to Shawmut
Capital Corporation pursuant to the Shawmut Credit Agreement
including any penalties for prepayment, and Shawmut Capital
Corporation shall have released all of the Companies and MLX
from their obligations and all liens against the Companies, MLX or
any of their stock and assets; (e) all representations and warranties
of each party shall be true, complete and correct in all material
respects on and as of the date made and the Closing Date; (f) the
parties shall have delivered customary closing certificates from the
parties and governmental authorities and legal agencies; (g)
the parties shall have received all required governmental consents;
and (h) MLX shall have delivered to Hawk all required
non-governmental consents.
<PAGE>
Hawk's obligation to consummate the Transaction is not subject to its
ability to obtain financing. However, Hawk intends to fund the
purchase of the Shares with borrowed funds, and the Company believes
that Hawk has made satisfactory arrangements to obtain such funds.
If, for any reason, Hawk is unable to obtain such borrowed funds, its
ability to consummate the Transaction would be severely impaired.
Indemnification
The Purchase Agreement provides that MLX shall indemnify and hold
harmless the Hawk Group, its affiliates, and their respective
shareholders, officers, directors, agents and employees
(collectively, the "Indemnitees") from and against any losses,
damages, liabilities, costs and expenses, including
reasonable attorneys' fees and amounts paid in settlement
(collectively, the "Indemnified Losses") caused by: (a) any breach of
MLX's representations and warranties in the Purchase Agreement; (b)
any misrepresentation, inaccuracy or omission in any schedule
delivered by MLX pursuant to the Purchase Agreement; (c) any breach
or nonfulfillment of any covenant or agreement of MLX contained in
the Purchase Agreement or any schedule delivered pursuant thereto;
(d) any taxes due and payable prior to the Closing Date; and (e) any
third party claim alleging facts which, if true, would entitle the
Indemnitees to indemnification under the Purchase Agreement. MLX's
indemnification obligations with respect to certain tax-related
Indemnified Losses apply only to the extent such losses exceed
$50,000 in the aggregate. MLX's general indemnification obligations
apply only to the extent that such Indemnified Losses (including tax
related Indemnified Losses to the extent they exceed $50,000) exceed
$600,000 in the aggregate; provided, however, that Indemnified Losses
relating to MLX's ownership of the Shares are not subject to the
deductibles described above. MLX's maximum liability for
indemnification under the Purchase Agreement is $5,000,000. Except
as specifically provided in the Purchase Agreement, MLX's
representations, warranties and indemnities shall continue in full
force and effect for 15 months after the Closing.
Termination
The Purchase Agreement may be terminated at any time prior to the
Closing by (a) the mutual written consent of the Boards of Directors
of Hawk and MLX; (b) by either Hawk or MLX, if (i) the Closing has
not occurred on or before September 30, 1995; (ii) the Shareholders
fail to adopt and approve the Purchase Agreement and the Transaction;
(iii) any court or governmental body or agency has restrained,
enjoined or otherwise prohibited the Transaction and such action has
become final and non-appealable; or (iv) any law then in effect makes
the acquisition or holding of the Shares illegal or otherwise
prohibits the consummation of the purchase and sale; (c) by Hawk,
if (i) an adverse change in the financial condition, business or
results of operations of the Companies of $2,000,000 or more occurs,
or (ii) the Board has changed, in a manner adverse to Hawk, its
approval or recommendation of the Purchase Agreement and the sale of
the Shares to Hawk or has approved, recommended or endorsed the sale
of MLX, of the Shares or substantially all of the assets of MLX or
the Companies, other than as provided in the Purchase Agreement; or
(d) by the Board if, under certain circumstances, it changes, in a
manner adverse to Hawk, its approval or recommendation that the
Shareholders adopt and approve the Purchase Agreement and
the sale of the Shares to Hawk.
Termination Fee
MLX shall pay to Hawk a termination fee of $2,000,000 if the Purchase
Agreement is terminated; provided, that no such payment shall be made
if (i) Hawk has materially breached its obligations under the
Purchase Agreement; (ii) the Purchase Agreement is terminated by the
mutual written consent of the Boards of Directors of Hawk and MLX;
(iii) the Purchase Agreement is terminated because the Closing has
failed to occur on or before September 30, 1995, and such failure
does not result from MLX's non-fulfillment of any of its obligations
under the Purchase Agreement; or (iv) the Purchase Agreement is
terminated because of a restriction, injunction or prohibition
imposed by any court, governmental body or agency or law. If the
Purchase Agreement is terminated by Hawk because of the occurrence of
an adverse change in the financial condition,
<PAGE>
business or results of operations of the Companies of $2,000,000 or
more, MLX shall pay Hawk's actual expenses incurred in connection
with the negotiation of the Purchase Agreement and Hawk's efforts to
consummate the Transaction, up to a maximum of $600,000.
Hawk Corp. Guarantee
Pursuant to the Purchase Agreement, and subject to the conditions on
its obligations thereunder, Hawk Corp. has unconditionally and
irrevocably guaranteed to MLX all of the Hawk Group's obligations and
undertakings with respect to the payment of the purchase price for
the Shares.
Escrow Agreement
MLX, the Hawk Group and the Escrow Agent will execute an Escrow
Agreement at the Closing pursuant to which the Hawk Group will
deposit with the Escrow Agent the Escrow Fund and the Tax Fund.
During the term of the Escrow Agreement, the Hawk Group and MLX shall
pay the Escrow Agent's fees in equal proportions. The Escrow Agent
shall distribute to the Hawk Group, from the Tax Fund, an amount
equal to S.K. Wellman's state and local tax liabilities that may
arise from the Section 338(h)(10) election, as shown on a tax return
to be filed by the Hawk Group with the consent of MLX. Any funds
remaining in the Tax Fund shall be delivered to MLX no later than
June 30, 1996, although at this time MLX does not expect to receive
any such funds because the fund represents only 85% of MLX's estimate
of such state and local taxes. The Escrow Agent shall distribute the
Escrow Fund to satisfy allowed and settled claims against MLX
pursuant to MLX's indemnification obligations under the Purchase
Agreement. On the first business day following the end of the 15th
month after the date of the Closing, the Escrow Agent shall deliver
to MLX the Escrow Fund, less the amount of all allowed and settled
claims (both paid and unpaid) and of all asserted claims of which the
Escrow Agent has received notice but which have not yet been
allowed or settled. The Escrow Agreement shall terminate upon the
final payment by the Escrow Agent from the Escrow Fund and the Tax
Fund to MLX or the Indemnitees pursuant to the terms of the Escrow
Agreement.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information
is based on the historical consolidated financial statements of the
Company adjusted to give effect to the sale of S.K. Wellman, the
repayment of the Zero Coupon Bonds and the Variable Rate Subordinated
Notes and the redemption of the Series A Preferred Stock.
The unaudited pro forma condensed consolidated balance sheet as of
March 31, 1995 gives effect to the elimination of the disposed
business, as well as the repayment of the Zero Coupon Bonds
and the Variable Rate Subordinated Notes and the redemption of the
Series A Preferred Stock, assuming the disposition of the business,
the repayments and the redemption had taken place on March 31, 1995.
The unaudited pro forma consolidated statements of operations for the
year ended December 31, 1994 and the quarter ended March 31, 1995
give effect to the elimination of the disposed business, the
repayment of the Zero Coupon Bonds and the Variable Rate Subordinated
Notes, the redemption of the Series A Preferred Stock as well as
other adjustments, assuming all these transactions had taken place at
the beginning of the periods presented.
Management does not believe that this pro forma presentation is
indicative of the results of operations which would have occurred had
these transactions occurred on the date indicated in the
accompanying pro forma consolidated statement of operations because
no income from the investment of the net cash proceeds of the
Transaction has been assumed.
<PAGE>
<TABLE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In Thousands)
March 31, 1995
Disposition of
MLX Corp. S.K. Other
Historical (1) Wellman (2) Adjustments Pro Forma
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 646 $ 44,744 $(10,267)(3)(4) $35,135
Accounts receivable 12
Inventories 10,401 (10,401)
Prepaid expenses and other 9,232 (9,232)
assets 979 (979)
Total current assets 21,258 24,144 (10,267) 35,135
Property, plant and equipment, net 13,401 (13,397) 4
Intangible assets, net 2,155 (2,155)
Other assets - escrow fund 4,000 4,000
Other assets 509 (509)
Total Assets $37,323 $ 12,083 $(10,267) $39,139
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
other current liabilities $ 8,672 $ (8,093) $ (241)(4) $ 294
(44)(3)
Income taxes payable 819 1,665 2,484
Current portion of long-term debt 183 (183)
Total current liabilities 9,674 (6,611) (285) 2,778
Long-term debt 13,432 (10,957) (2,475)(3)
Other long-term liabilities 2,377 (2,377)
Shareholders' equity 11,840 32,028 (7,920)(4) 36,361
413(3)
Total Liabilities and Shareholders'
Equity $37,323 $ 12,083 $(10,267) $39,139
</TABLE>
<PAGE>
Notes to Pro Forma Condensed Consolidated Balance Sheet
March 31, 1995
The pro forma condensed consolidated balance sheet presents the
consolidated financial position of MLX Corp. as of March 31, 1995
after eliminating the business to be disposed of, S.K. Wellman,
and after giving effect to the other adjustments described below.
The adjustments made to this pro forma condensed balance sheet assume
that the disposition of S.K. Wellman and the other events reflected
in the adjustments had taken place on March 31, 1995.
(1) Represents the historical consolidated balance sheet for MLX
Corp. at March 31, 1995.
(2) Represents the proceeds from the sale of S.K. Wellman, net of
the historical balances of S.K. Wellman at March 31, 1995. The
estimated gain on the disposition is as follows:
Net cash proceeds (including $4,000,000*
to be held in an escrow fund) $49,237
Expenses of the Transaction (493)
$48,744
Federal alternative minimum income taxes and
state income taxes resulting from the disposition (2,410)
46,334
Investment in S.K. Wellman (14,306)
Gain on disposition $32,028
* MLX Corp. will also be required to deposit with the escrow
agent 85% of MLX's estimate of certain tax liabilities of
S.K. Wellman that may arise from the sale. Such amount has
not been determined and has not been included with this
amount.
(3) Represents the payment of Zero Coupon Bonds and Variable Rate
Subordinated Notes plus accrued interest and the recognition of
a gain on extinguishment of such bonds and notes.
(4) Represents the redemption, including a premium of $596,000, and
the payment of accumulated but unpaid dividends on the Series A
Preferred Stock.
<PAGE>
<TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(Unaudited)
(In thousands, except per share data)
Disposition of
MLX Corp. S.K. Other
Historical (1) Wellman (2) Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $ 60,858 $(60,858)
Costs and expenses:
Cost of products sold 46,365 (46,365)
Selling, general and
administrative expenses 7,825 (6,998) $ 2(3) $ 829
54,190 (53,363) 2 829
Operating earnings (loss) 6,668 (7,495) (2) (829)
Interest income (expense), net (1,553) 1,368 202(4) 17
Other income (expense) 20 (114) (94)
Earnings (loss) before income taxes 5,135 (6,241) 200 (906)
Provision for income taxes:
Federal taxes due and payable 80 (80)(5)
Charge in lieu of federal income
taxes 1,314 (1,314)
Foreign, state and local income
taxes 994 (994)
Net earnings (loss) 2,747 (3,933) 280 (906)
Dividends and accretion on
preferred stock 1,058 - (1,058)(6)
Earnings (loss) applicable to
common stock $ 1,689 $ (3,933) $ 1,338 $(906)
Net earnings (loss) per common
share $ .65 $(.35)
Average outstanding common
shares and dilutive options 2,613 2,613
</TABLE>
<PAGE>
Notes to Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1994
The pro forma statement of operations presents the consolidated
results of MLX Corp. for the year ended December 31, 1994 after
eliminating the operation to be disposed of, S.K. Wellman, and
after giving effect to the other adjustments described below.
The adjustments made to this pro forma statement of operations assume
that the disposition of S.K. Wellman and the related repayment of the
Zero Coupon Bonds and Variable Rate Subordinated Notes and the
redemption of the Series A Preferred Stock had taken place on January
1, 1994.
It is management's opinion that these pro forma results are not
necessarily indicative of the results that would have occurred had
the disposition and other payments been made on January 1, 1994.
(1) Represents the historical consolidated results of MLX Corp. for
the year ended December 31, 1994.
(2) Represents the historical results of S.K. Wellman for the year
ended December 31, 1994.
(3) Represents adjustment to recorded anticipated expenses for
insurance and other items that were previously provided by S.K.
Wellman ($63,000) and a reduction in the salary of the
Chairman, President and Chief Executive Officer from $125,000
per year to $12,000 per year.
(4) Represents adjustment to eliminate interest expenses and
accretion on the assumed repayment of the Zero Coupon Bonds and
Variable Rate Subordinated Notes.
(5) Adjustments to eliminate income tax amounts.
(6) Represents adjustments to eliminate dividends and accretion on
Series A Preferred Stock in connection with its assumed
redemption.
<PAGE>
<TABLE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Quarter Ended March 31, 1995
(Unaudited)
(In thousands, except per share data)
Disposition of
MLX Corp. S.K. Other
Historical (1) Wellman (2) Adjustments Pro Forma
<S> <C> <C> <C> <C>
Net sales $18,002 $(18,002)
Costs and expenses:
Cost of products sold 13,902 (13,902)
Selling, general and
administrative expenses 1,882 (1,682) $ 2(3) $ 202
15,784 (15,584) 2 202
Operating earnings (loss) 2,218 (2,418) (2) (202)
Interest income (expense), net (384) 336 57(4) 9
Other income (expense) (53) 53 -
Earnings (loss) before income taxes 1,781 (2,029) 55 (193)
Provision for income taxes:
Federal taxes due and payable 30 (30)(5)
Charge in lieu of federal income
taxes 492 (492)
Foreign, state and local income
taxes 265 (265)
Net earnings (loss) 994 (1,272) 85 (193)
Dividends and accretion on
preferred stock 300 - (300)(6)
Earnings (loss) applicable to
common stock $ 694 $ (1,272) $ 385 $ (193)
Net earnings (loss) per common
share $ .27 $ (.08)
Average outstanding common
shares and dilutive options 2,574 2,574
</TABLE>
<PAGE>
Notes to Pro Forma Consolidated Statement of Operations
Quarter Ended March 31, 1995
The pro forma statement of operations presents the consolidated
results of MLX Corp. for the quarter ended March 31, 1995 after
eliminating the operation to be disposed of, S.K. Wellman, and
after giving effect to the other adjustments described below.
The adjustments made to this pro forma statement of operations assume
that the disposition of S.K. Wellman and the related repayment of the
Zero Coupon Bonds and Variable Rate Subordinated Notes and the
redemption of the Series A Preferred Stock had taken place on January
1, 1995.
It is management's opinion that these pro forma results are not
necessarily indicative of the results that would have occurred had
the disposition and other payments been made on January 1, 1995.
(1) Represents the historical consolidated results of MLX Corp. for
the quarter ended March 31, 1995.
(2) Represents the historical results of S.K. Wellman for the
quarter ended March 31, 1995.
(3) Represents adjustment to recorded anticipated expenses for
insurance and other items that were previously provided by S.K.
Wellman ($17,000) and a reduction in the salary of the
Chairman, President and Chief Executive Officer from $125,000
per year to $12,000 per year.
(4) Represents adjustment to eliminate interest expenses and
accretion on the assumed repayment of the Zero Coupon Bonds and
Variable Rate Subordinated Notes.
(5) Adjustments to eliminate income tax amounts.
(6) Represents adjustments to eliminate dividends and accretion on
Series A Preferred Stock in connection with its assumed
redemption.
(7) In connection with this disposition, the Company expects to
record an estimated gain on the sale of approximately
$32,028,000 (sales proceeds, less estimated selling expenses
less the Company's basis in the disposed business). In
connection with the repayment of the Zero Coupon Bonds, the
Company expects to recognize a gain of $413,000. These
nonrecurring adjustments result directly from the Transaction
and will be included in the Company's results of operations in
the year ending December 31, 1995 less an applicable charge in
lieu of federal income taxes estimated to be approximately
$11,300,000. Accordingly, such amounts are not considered in the
accompanying pro forma consolidated statement of operations.
The estimated $11,3000,000 charge in lieu of federal income
taxes will reduce retained earnings but will be offset by a
corresponding increase to paid in capital. As a result, there
is no change in the shareholders equity line of the balance
sheet. Tax benefits resulting from the utilization of the
Company's federal net operating loss or other carryforwards
existing at December 11, 1984, the date of confirmation of the
Company's Plan of Reorganization, are excluded from operations
and credited to capital in excess of par value in the year such
tax benefits are realized.
OPERATIONS PRIOR TO THE SALE
Business
The Company, through S. K. Wellman, is engaged in the design and
manufacture of high-energy friction materials which are used
primarily in aircraft brakes and heavy equipment brakes, transmission
and clutches. The friction materials manufactured and sold by S. K.
Wellman are used in a variety of applications which require material
which will withstand and function under extreme conditions of high
energy and heat. These types of conditions exist in aircraft brakes
and heavy
<PAGE>
equipment brakes, transmissions and clutches. S. K. Wellman has
manufacturing facilities located in Brook Park, Ohio; LaVergne,
Tennessee; Concord, Ontario, Canada; and Orzinuovi, Italy. S. K.
Wellman also has administrative offices and research facilities
located in Solon, Ohio and sales and/or distribution offices in
Madison, Wisconsin; Peoria, Illinois; Detroit, Michigan; Cleveland,
Ohio; Akron, Ohio; Edmonton, Alberta, Canada; Vancouver, British
Columbia, Canada; Concord, Ontario, Canada; and Orzinuovi, Italy.
At December 31, 1994, S. K. Wellman had 558 employees. Approximately
247 of these employees were covered under collective bargaining
agreements which expire on April 25, 1997. MLX provides managerial
and administrative support to S. K. Wellman in the areas of strategic
management, income tax compliance, legal strategy and capital and
lending resources.
The friction materials manufactured by S. K. Wellman are made of a
variety of materials, including metallic (either copper or iron
based), graphitic, ceramic, and composite fiber (paper). These
friction materials are used in commercial, military and general
aviation aircraft brakes; friction disks for use in automatic and
power shift transmissions; and clutch buttons, which are used as the
main contact point between the engine and transmission. S. K.
Wellman also manufactures other types of clutch facings and opposing
disks to complement its clutch button business. Raw materials
used by S. K. Wellman are available from multiple sources.
S. K. Wellman's customers for the aircraft brake friction materials
are primarily aircraft wheel and brake manufacturers. S. K.
Wellman's principal customers for its friction disks are heavy
equipment manufacturers, such as Caterpillar Inc., John Deere &
Company, and the Allison Division of General Motors Corporation. The
principal customers for its clutch buttons are heavy equipment
component suppliers such as Dana Corporation. More than 80% of
friction disk and clutch button production is sold to original
equipment manufacturers with the balance sold to end users (under
the "Velvetouch" tradename) through distributors and equipment
rebuilders.
The Company believes that the domestic market for the products that
it manufactures is approximately $200 million and that the total
worldwide market approximates $300 million. The Company believes
that it is either the largest or the second largest manufacturer of
each of the products it sells, with market share ranging between 20%
and 60% of such markets. In each of its markets, the Company
competes with a number of companies; however, there are only one or
two competitors in each of its markets which are comparable in size
to the Company. Competition is primarily based upon the ability to
engineer a product which meets the customers' specifications,
consistent quality, price and delivery.
Research, product development and engineering are an important aspect
of S. K. Wellman's business. Each of S. K. Wellman's products are
specifically engineered to meet a customer's applications. The
Company believes that it has the most extensive research, development
and engineering capabilities and testing equipment in the industry.
Product research, development and engineering expenditures for S. K.
Wellman were approximately $3,374,000 in 1994, $3,365,000 in 1993,
and $3,164,000 in 1992.
<PAGE>
Properties
The Company and its consolidated subsidiaries utilize the following
properties.
<TABLE>
OWNED OR SQUARE
LOCATION LEASED FOOTAGE UTILIZATION
<S> <C> <C> <C>
Brook Park, Ohio Owned(1) 111,000 Manufacturing
Cleveland, Ohio Leased 14,300 Materials Storage
Akron, Ohio Leased 20,400 Distribution
Solon, Ohio Owned(1) 50,000 Administration & research
LaVergne, Tennessee Owned(1) 76,100 Manufacturing
Concord, Ontario, Canada Leased 15,200 Manufacturing
Orzinuovi, Italy Owned 65,000 Manufacturing & sales
Norcross, Georgia Leased 3,000 Executive & administrative
</TABLE>
(1) These facilities and equipment at these locations are a portion
of the collateral securing S. K. Wellman's senior lending
facility due in 1998.
Management believes that none of the leased facilities is critical to
its operations. The leases are generally for an initial term of five
years and generally contain one or more renewal option periods.
Management considers the properties to be suitable for their present
use.
OPERATIONS AFTER THE SALE
General
If the Transaction is approved and consummated, the Company expects
to have an estimated $36,000,000 in cash remaining from the
Transaction after payment of outstanding debt, preferred stock,
income tax obligations and transaction expenses, and to be free from
debt. The Company would then be a publicly-held holding company with
no operating subsidiaries. See "PROPOSAL TO SELL S.K. WELLMAN
LIMITED, INC. SUBSIDIARY - PRO FORMA FINANCIAL INFORMATION" above for
an indication of the nature of the Company's balance sheet after
receipt and application of the proceeds from the Transaction.
After the Transaction, the Company's executive officers will be Brian
R. Esher, Chairman, President and Chief Executive Officer, Thomas
Waggoner, Vice President and Chief Financial Officer, and Theodore
Kallgren, Vice President-Finance and Treasurer. Messrs. Esher and
Kallgren will devote a substantial portion of their time to
Pameco Corporation, See "ELECTION OF DIRECTORS - REMUNERATION OF
DIRECTORS AND EXECUTIVE OFFICERS - Employment Agreements with
Executive Officers". Mr. Waggoner will be the Company's only full-
time executive employee. The Company will continue to receive
certain administrative services from Pameco Corporation, for which it
will pay its allocable share, estimated to be $5,000 per month.
The Company believes that it can conduct itself after the
consummation of the Transaction in a manner that will cause it not to
meet the definition of an investment company under the Investment
Company Act of 1940. However, the uncertainty regarding its exact
activities following consummation of the Transaction makes it
possible that the Company may at some point after consummation of the
Transaction be deemed to be an investment company and, in such case,
it would be required to register under and be subject to the various
regulations contained in the Investment Company Act of 1940. Such
registration and regulation, if required, could add significant
additional administrative expense to the operations of the Company.
<PAGE>
Potential Strategies
The Board has considered the direction the Company should take to
optimize Shareholder value if the Transaction is approved by the
Shareholders and ultimately closed. The Company initially intends to
invest the cash proceeds from the Transaction in investment grade
marketable debt securities generally with a term of less than 3
years. The Board's primary focus has been (a) providing reasonable
safety to the Company's investment principal, (b) maximizing the use
of the Company's NOL carryforwards, and (c) providing cash
liquidity to enable the Company to capitalize on acquisition
opportunities. As a result of such considerations, the Board has
identified the following strategies as being potentially attractive
courses of action, although there can be no assurances that any of
them will be pursued.
1. The Company is considering utilizing some or all of the net
proceeds from the sale of S.K. Wellman to support the issuance of a
series of structured preferred securities, which program is described
in more detail under "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC.
SUBSIDIARY - OPERATIONS AFTER THE SALE - Market Auction Preferred
Stock Transaction" below.
2. With its substantial cash resources and no debt, the Company
would be in a position to pursue the acquisition of new businesses.
The Company believes that underperforming businesses will likely be
the most attractive acquisition candidates because of the expertise
of the Company's management team in addressing turnaround situations
and because of the greater likelihood that more attractive valuations
are available for such companies. In addition to Messrs. Esher's and
Waggoner's experience with the Company since 1991, Mr. Esher served
as Chairman, President and Chief Executive Officer of Environmental
Control Group, Inc., another turnaround situation, from September
1989 to January 1991. As of the date of this Proxy Statement,
no particular acquisition candidates have been identified and no
discussions are underway regarding an acquisition. Whether
acquisitions are pursued will depend upon the Company's ability to
identify companies that are available at reasonable prices.
3. The Board will also consider, from time to time, purchases of
shares of the Company's Common Stock on the open market or in
privately negotiated transactions. No decision to undertake any such
repurchase program has yet been made and pursuing this alternative
would depend upon the Board's future determination that such
repurchases would enhance Shareholder value.
There are numerous factors, conditions and circumstances that could
limit or eliminate the Company's ability to pursue one or more of
these strategies. For instance, the Company's ability to proceed
with the sale of structured preferred stock is dependent upon
receiving a favorable rating from an independent rating agency,
such as Moody's. Moreover, the Company's ability to issue the
preferred stock could be hampered by changes to the Internal Revenue
Code limiting the use of the Company's NOL carryforwards or the
dividends received deduction. In addition, the Company's ability to
complete acquisitions is dependent upon identifying attractive
targets at reasonable prices and the Company's ability to
obtain financing for such acquisitions. Some of these factors could
be outside of the control of the Company. The pursuit of one or more
of the above strategies could limit the Company's ability to pursue
other such strategies. It is possible that other opportunities may
be pursued by the Company which are not identifiable at this time,
and they could pre-empt some or all of the foregoing strategies.
The foregoing outline of potential strategies represents the Board's
current position on courses of action that may be advantageous for
the Company after the Closing of the Transaction. No determination
has been made to pursue any of such courses of action, and there can
be no assurance that any of them will ultimately be pursued, or will
be pursued in the manner described above.
Market Auction Preferred Stock Transaction
The Company has had preliminary discussions with several major
investment banks regarding the issuance by the Company of a series of
Preferred Stock referred to as "structured preferred stock," "market
auction preferred stock," or "MAPS." These privately issued
securities would be collateralized by commercial paper, U.S. Treasury
obligations or other specified investments purchased with the
proceeds of the issuance. Because this preferred stock requires
collateral (under the rules of the applicable rating agencies) in
amounts
<PAGE>
greater than the price paid for the preferred stock at issuance, it
would be necessary for some or all of the net proceeds of the Sale to
be used to fund this difference.
The preferred stock would have the following general characteristics:
. Redeemable at option of the Company
. Perpetual maturity
. Dividend rates set by periodic market auction (typically every
49 days)
. Shares can be redeemed and the program terminated on short
notice (typically 49 days)
. No voting or conversion rights
. Investment grade rating assigned by applicable rating agencies
The Company believes that its income from its investments collateralizing the
MAPS issuance would be sheltered from federal income taxes
except for Alternative Minimum Tax. The Company's financial statements
nevertheless would reflect a pro forma federal income tax
provision since the NOL being utilized to shelter the income comes from
pre-reorganization periods. This pro forma tax provision would
not be due or payable and would therefore not require cash payments. The
financial statement recognition of this non-cash charge would
still serve to reduce the reported income available to Common Stock
Shareholders under required accounting principles. As a result,
it is anticipated that the MAPS program would result in a negative
earnings per share available to common shareholders, but a positive
cash flow for the Company.
Establishment of the MAPS program would entail significant up front
expenses. For example, the placement fee is expected to be
approximately 1.25% of the face value of the preferred stock issued.
For an issue of $200,000,000 at par, this would require a payment of
$2,500,000, which would be amortized to earnings over the anticipated
life of the program. If the Company later chose to liquidate the
MAPS program (for example, to capitalize on an acquisition
opportunity), the value of the unamortized portion of these up-front
costs would be lost to the Company. This could impede the Company's
ability to pursue acquisitions of other businesses.
In connection with the MAPS proposal, Three Cities Research, Inc. has
agreed to provide certain research analyses, to pay up front legal
and rating agency costs (and to absorb such costs in the event the
initiative is abandoned), and to provide certain on-going
administrative assistance in connection with the program. The
Company expects to reimburse or otherwise compensate Three Cities
Research, Inc. for these services, although the details of this
arrangement have not been finalized. Three Cities Research, Inc. is
a subsidiary of Three Cities Holdings Limited. Mr. De Vogel, a
director of the Company, is President of Three Cities Research,
Inc., and Messrs. Uhrig and Wagner, directors of the Company, are
Managing Directors of Three Cities Research, Inc.
The MAPS approach, if utilized, would enable the Company to have
greater taxable income (and thus utilize more NOLs) than would be
achieved by investing only the proceeds of the Transaction. In
addition, the dividend reset auction dates, occurring every 49 days,
would permit the Company to terminate the MAPS program on short
notice and thereby make the Company's funds available for acquisition
opportunities.
While management believes this is a potentially promising alternative
that merits attention, substantial further study is required. No
assurance can be given that the Company will choose to utilize this
investment option or, if chosen that the Company will be successful
in gaining the necessary agency ratings to make this a financially
attractive alternative. Also, there may be other characteristics of
this option which are not today identified, which would make it
unattractive.
<PAGE>
INTERESTS OF CERTAIN OFFICERS AND DIRECTORS IN THE SALE
In considering the recommendation of the Board with respect to the
Sale, the Shareholders should be aware that certain members of the
management of MLX and its subsidiaries, and of the Board, have
interests in the Sale that differ from the interests of the
Shareholders generally. The Board was aware of these interests and
considered them, among other matters, in approving the Sale. Messrs.
Glancy, McMillan and Roberts, the Company's independent directors,
have no such competing interests and voted in favor of the
Transaction after paying particular attention to such competing
interests.
Management Employment Agreements
Mr. Esher, the Chairman, President and Chief Executive Officer of MLX
and a member of the Board since 1991, entered into an employment
agreement with the Company in February 1991, which was subsequently
amended in March 1993, January 1994 and January 1995. Pursuant to
the January 1995 amendment of the employment agreement, upon the
Closing of the Sale, Mr. Esher's base salary during the remainder of
the term of the employment agreement will be reduced from $125,000
per year to $12,000 per year, the annual bonus to which he is
entitled under the terms of the employment agreement will be
calculated on a pro-rata basis through the end of the calendar month
in which the Closing of the Sale occurs and Mr. Esher will no longer
be eligible for annual bonuses following the Closing of the Sale.
See "ELECTION OF DIRECTORS - REMUNERATION OF DIRECTORS AND EXECUTIVE
OFFICERS - Employment Agreements with Executive Officers."
Mr. Grambo, the President of S.K. Wellman, has entered into an
employment agreement with S.K. Wellman which will become effective
upon a change in control of S.K. Wellman and will provide Mr. Grambo
with a base salary and bonus incentives commensurate with what he
currently enjoys during the three years following such a change of
control. The Sale, if it is approved by the Shareholders of the
Company and consummated, will constitute a change of control as
defined in the employment agreement between Mr. Grambo and S.K.
Wellman and cause the term of the employment agreement to commence.
See "ELECTION OF DIRECTORS - REMUNERATION OF DIRECTORS AND EXECUTIVE
OFFICERS - Employment Agreements with Executive Officers."
Pursuant to Change of Ownership Severance Benefits Agreements entered
into between S.K. Wellman and five of its senior management
personnel, such senior management personnel will be entitled to
severance benefits for a total of twenty four weeks if they are
terminated without cause prior to January 1, 1996, following a
change of control of S.K. Wellman. The Sale, if it is approved by
the Shareholders of the Company and consummated, will constitute a
change of control as defined in the Change of Ownership Severance
Benefits Agreements.
MLX Series A Preferred Stock
In addition to serving as members of the Board, Mr. de Vogel is the
President, and Messrs. Uhrig and Wagner are each Managing Directors,
of Three Cities Research, Inc., which is a subsidiary of Three Cities
Holdings Limited, which possesses the sole power to vote and to
dispose of 851,456 shares of Common Stock, and whose affiliates are
the record holders of all of the 264,000 outstanding shares of MLX
Series A Preferred Stock. See "ELECTION OF DIRECTORS - SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - Principal Shareholders."
Assuming that the Sale is approved by the Shareholders and is
consummated, the Company intends to redeem the outstanding shares of
Series A Preferred Stock held by affiliates of Three Cities Holdings
Limited for the stated redemption price of approximately $7,920,000.
Additionally, assuming that the Sale is approved by the Shareholders
and is consummated and that the Company elects to issue MAPS, the
Company expects to reimburse or otherwise compensate Three Cities
Research, Inc. for the use of its proprietary information regarding
MAPS. See "PROPOSAL TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY -
OPERATIONS AFTER THE SALE - Market Auction Preferred Stock
Transaction."
<PAGE>
Variable Rate Subordinated Notes
The Equitable Life Assurance Society of the United States, which,
together with its wholly owned subsidiary, Equitable Variable Life
Insurance Company, owns 178,914 shares of Common Stock, is the holder
of record of Variable Rate Subordinated Notes issued by the Company
with a current redemption value of $1,443,803. See "ELECTION OF
DIRECTORS - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS -
Principal Shareholders." In accordance with the terms of the
Variable Rate Subordinated Notes, if the Sale is approved
by the Shareholders of the Company and is consummated, the Company
will be required to redeem $632,000 of outstanding Variable Rate
Subordinated Notes and intends to redeem all of such notes.
EXPENSES
Each party will pay its own expenses incurred in connection with the
Purchase Agreement and the transactions contemplated thereby. The
fees of the Company's financial advisor, DLJ, will be paid by S.K.
Wellman and thus will not be charged to the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SALE
The sale of the Shares will be a taxable transaction to MLX. MLX and
Hawk have agreed to elect to treat the sale as a sale of the assets
of S.K. Wellman for federal income tax purposes under Sections 338(g)
and 338(h)(10) of the Internal Revenue Code. MLX estimates that
state income taxes that may arise from the Transaction will be
approximately $1,800,000. Because of its NOL carryforwards, however,
MLX believes the Alternative Minimum Tax is the only federal tax
liability that will result from the Sale. There will be no tax
consequences to the Company's shareholders from the Sale.
ABSENCE OF APPRAISAL RIGHTS
Because the Common Stock is traded on a national securities exchange,
as defined under Section 14-2-140 of the Georgia Securities Act of
1973, Georgia law provides that the Shareholders will not have
appraisal rights.
ELECTION OF DIRECTORS
BOARD OF DIRECTORS:
The Bylaws of the Company provide for a Board of Directors consisting
of from six to ten directors. The Bylaws also provide that the
directors, by vote of a majority, have the power, within such limits,
to fix the number of directors that shall constitute the whole Board
and to fill vacancies for the unexpired term by an affirmative
majority vote. The current number of directors is set at seven.
The Board of Directors is responsible for the overall affairs of the
Company. To assist it in carrying out its duties, the Board has
delegated certain authority to standing Audit and Compensation
Committees. Members of each standing committee are normally elected
by the Board at its organizational meeting following the
Annual Meeting of Shareholders. The Board of Directors has no
nominating committee or other committee which performs a similar
function.
MEETINGS OF THE BOARD OF DIRECTORS:
There were four meetings of the Board of Directors in 1994. In
addition to the meetings of the Board of Directors and its committees
at which all formal actions are taken, additional time on the part of
the Company's directors is required to be expended in the frequent
review of Company matters and documents and in numerous
communications with the chairman and other executives during periods
between meetings.
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS:
The Audit Committee of the Board of Directors, which met two times
during 1994, has as its primary responsibilities the selection and
recommendation of an independent certified public accounting firm to
be appointed by the Board as the Company's independent auditors, to
review the scope and results of the audit, and to evaluate the
adequacy of and compliance with the Company's internal accounting
procedures and controls. The members of the Audit Committee are:
W. John Roberts-Chairman S. Sterling McMillan, III Alfred R.
Glancy III J. William Uhrig
The Compensation Committee of the Board of Directors, which met once
during 1994, has as its primary responsibilities the review of the
Company's salary administration program, the review of the salaries
of the officers of the Company, and recommendations with respect to
such salaries to the full Board, and the review and approval of any
recommendations made by management for awards under the Company's
Stock Option Plan. The members of the Compensation Committee are:
Alfred R. Glancy III-Chairman Willem F.P. de Vogel W. John
Roberts
During 1994, each of the nominees for director attended all of the
meetings of the Board and of the committees on which he served except
that Mr. Wagner and Mr. de Vogel did not attend the March 16, 1994
Board meeting.
NOMINEES FOR THE BOARD OF DIRECTORS:
Seven directors are to be elected at the Annual Meeting of
Shareholders to hold office until the next Annual Meeting of
Shareholders or until their successors are elected and qualified.
The nominees for election as directors who are named below are
willing to be elected and to serve. However, in the event that a
nominee at the time of election is unable to serve, or is otherwise
unavailable for election, the Board of Directors may select a
substitute nominee. Information concerning the business experience
of the nominees appears in the following section. The nominees for
directors are:
Brian R. Esher Alfred R. Glancy III S. Sterling McMillan, III
J. William Uhrig W. John Roberts H. Whitney Wagner Willem
F.P. de Vogel
IT IS INTENDED THAT PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL
BE VOTED FOR (UNLESS OTHERWISE DIRECTED) THE ELECTION OF THE SEVEN
NOMINEES NAMED ABOVE.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Principal Shareholders. The following table lists the Shareholders
known to the Company to be the beneficial owners of more than five
percent of the Common Stock of the Company as of April 30, 1995.
Since this date, each of the MLX directors and certain major
shareholders have granted an irrevocable proxy to the Hawk
Group to vote approximately 39.1% of the outstanding shares of Common
Stock in favor of the Sale Proposal. "SUMMARY - REQUIRED VOTE." The
information concerning beneficial ownership was obtained from the
Company's records or from filings with the Securities and Exchange
Commission on Forms 13D or 13G.
<PAGE>
<TABLE>
Names and Addresses of Beneficial Owners Beneficial Ownership Class
<S> <C> <C>
Three Cities Holdings Limited 851,456(1) 33.53%
c/o Craigmuir Chambers
P.O. Box 71; Road Town
Tortola
British Virgin Islands
The Equitable Life Assurance Society of the United 178,914(2) 7.05%
States
1285 Avenue of the Americas
New York, New York, 10019
Teribe Limited 136,722(3) 5.38%
c/o Craigmuir Chambers
P.O. Box 71; Road Town
Tortola
British Virgin Islands
</TABLE>
(1) Three Cities Holdings Limited has sole and irrevocable power to
vote and dispose of 851,456 shares of Common Stock that are
owned of record by the following group of investors (the
"Investor Group"): Terbem Limited (374,244 shares -- 14.7%),
Mitvest Limited (47,107 shares -- 1.9%), Tinvest Limited
(201,286 shares -- 7.9%), Bobst Investment Corp. (59,961 shares
-- 2.4%), and TCR International Partners, LP (168,858 shares --
6.7%). Each member of the Investor Group is an investment
vehicle established for the purpose of investing in securities
of other enterprises in various parts of the world, and the
Investor Group acquired the shares of Common Stock as
participants in an equity portfolio fund managed by Three Cities
Holdings Limited. Three Cities Holdings Limited is the parent
company of Three Cities Research, Inc. and an affiliate of
Teribe Limited. Shares owned by Teribe Limited are not
included in Three Cities Holdings Limited's beneficial
ownership. Mr. Willem F.P. de Vogel, a director of the Company,
is President of Three Cities Research, Inc., and Messrs. Uhrig
and Wagner, directors of the Company, are Managing Directors of
Three Cities Research, Inc. See Notes 5 and 6 under "ELECTION
OF DIRECTORS - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- Directors and Officers."
(2) Included in the Equitable Life Assurance Society of the United
States' ("Equitable") beneficial ownership are 107,348 shares
owned directly by Equitable and 71,566 shares owned by its
wholly-owned subsidiary Equitable Variable Life Insurance
Company.
(3) Teribe Limited is an indirectly owned investment subsidiary of
Enterprises Quilmes S.A., a Luxembourg holding company whose
shares are listed and traded on the Paris and Luxembourg Stock
Exchanges. One of the members of the Investor Group described
in Note 1 above, Tinvest Limited, is a subsidiary of Teribe
Limited and is also an affiliate of Three Cities Research, Inc.
Teribe Limited disclaims beneficial ownership of the shares
owned by Tinvest Limited.
<PAGE>
Directors and Officers. The following information concerning
beneficial ownership of the Common Stock of the Company at April 30,
1995, by directors, executive officers and by directors and executive
officers as a group was furnished by the respective directors or
officers or obtained from the records of the Company.
<TABLE>
Exercisable Percent of
Stock Common
Name or Group Options(1) Other Total Stock
<S> <C> <C> <C> <C>
Brian R. Esher 190,400 - 190,400 7.0%
Alfred R. Glancy III 1,000 3,300(2) 4,300 (7)
S. Sterling McMillan, III 1,000 13,726(3) 14,726 (7)
W. John Roberts 1,000 600(4) 1,600 (7)
Willem F.P. de Vogel - 1,950(5) 1,950 (7)
J. William Uhrig - (6) - (7)
H. Whitney Wagner - (6) - (7)
Thomas C. Waggoner 14,167 - 14,167 (7)
Ronald E. Grambo 20,000 1,948 21,948 (7)
Theodore R. Kallgren 2,000 124 2,124 (7)
All directors and executive officers,
including those names above (10
persons) 229,567 21,648 251,215 8.9%
</TABLE>
(1) Includes shares subject to options which are exercisable within
sixty days of April 30, 1995.
(2) Included in the other amount shown for Mr. Glancy are 3,000
shares in which he has sole voting and investment power, 100
shares owned by his wife and 200 shares owned by his children in
which he has no voting or investment power.
(3) Included in the other amount shown for Mr. McMillan are 6,526
shares in which he has sole voting and investment power, 600
shares which are owned by his wife in which he has no voting or
investment power, 1,150 shares which are owned by his children
in which he has no voting or investment power, 1,898 shares held
by trusts in which Mr. McMillan as trustee has sole or shared
voting and investment power, and 3,552 shares held by a trust in
which Mr. McMillan is a possible beneficiary over which he has
only advisory voting and investment power. Excluded from the
table are 43,190 shares for which Mr. McMillan is an investment
advisor and/or trustee with discretionary investing and/or
voting power in which Mr. McMillan disclaims any beneficial
interest.
(4) The shares indicated for Mr. Roberts are owned jointly with his
wife.
(5) Mr. de Vogel is President of Three Cities Research, Inc., a
wholly owned subsidiary of Three Cities Holdings Limited and an
affiliate of Enterprises Quilmes S.A., which indirectly owns
Teribe Limited (see Note 3 under "ELECTION OF DIRECTORS -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS - Principal
Shareholders"). None of the shares beneficially owned by Three
Cities Holdings Limited and Teribe Limited is included in Mr. de
Vogel's beneficial ownership.
(6) Messrs. Uhrig and Wagner are both Managing Directors of Three
Cities Research, Inc. None of the shares owned by Three Cities
Holdings Limited and Teribe Limited is included in the
beneficial ownership of Messrs. Uhrig and Wagner.
(7) Less than 1%
<PAGE>
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS
The following information with respect to business experience has
been furnished by the respective officer, director or nominee for
director.
Brian R. Esher, age 46. Chairman, President & Chief Executive
Officer of the Company. Director of the Company since February 1991.
Mr. Esher joined the Company as Chairman, President & Chief Executive
Officer in February 1991. He was previously employed by
Environmental Control Group, Inc., a full service publicly traded
hazardous materials abatement consulting, insurance, contracting and
product distribution services firm, as its Chairman, President
& Chief Executive Officer from September 1989 to January 1991.
Previously, Mr. Esher served as Executive Vice President of A.B. Dick
Company, a manufacturer and distributor of printing and graphic arts
equipment and supplies from August 1988 to March 1989. Prior to this
position, he was employed as Senior Vice President of Itek Graphix
Corp. from 1985 until its acquisition by A.B. Dick in August 1988.
He is also currently employed as Chairman, President and Chief
Executive Officer of Pameco Holdings, Inc. See "ELECTION OF
DIRECTORS - COMPENSATION COMMITTEE INTERLOCKS AND RELATED
TRANSACTIONS."
Alfred R. Glancy III, age 57. Chairman, President and Chief
Executive Officer of MCN Corporation, a holding company with
subsidiaries engaged in natural gas distribution, transmission,
storage and technology development and computer operations services.
Director of the Company since 1985.
Mr. Glancy joined Michigan Consolidated Gas Company, a subsidiary of
MCN, in 1962 and has held the position of Chairman since 1984 and
Chief Executive Officer from 1984 until September 1992. In 1988,
through a corporate reorganization, Michigan Consolidated Gas Company
became a subsidiary of MCN Corporation. Mr. Glancy has been Chairman
and Chief Executive Officer since the reorganization. Mr. Glancy
is also a director of NBD Bancorp, Inc. and NBD Bank.
Ronald E. Grambo, age 59. President of S.K. Wellman.
Mr. Grambo joined the Company in 1958 and has held various positions
in its engineering and product development areas. In September 1985,
Mr. Grambo assumed the position of Vice President and General
Manager of The S.K. Wellman Corp. In September 1986, Mr. Grambo
assumed the position of President of S.K. Wellman.
S. Sterling McMillan, III, age 56. Vice Chairman of Greenleaf
Capital Management, an investment management company. Director of
the Company since 1985.
Mr. McMillan has held his current position since 1986. Prior to
joining Greenleaf, Mr. McMillan was employed by Cleveland-Cliffs Inc.
as Vice President-Finance (1983-1986).
W. John Roberts, age 63. Retired Senior Vice President-Finance and
Treasurer of the Amerisure Companies, a group of affiliated companies
providing multi-line property, casualty and life insurance. Director
of the Company since 1985.
Mr. Roberts joined Michigan Mutual Insurance Company, the parent
organization for the Amerisure Companies, as Vice President-Finance
in 1982 and was Senior Vice President-Finance and Treasurer from 1985
until his retirement in March 1991.
<PAGE>
J. William Uhrig, age 33. Managing Director of Three Cities
Research, Inc., a firm engaged in the investment and management of
private capital. Director of the Company since 1993. Mr. Uhrig
joined Three Cities in 1984. Prior to December 1991, Mr. Uhrig was
the Managing Director of TCR Europe Ltd. Mr. Uhrig has been
nominated at the behest of the Investor Group pursuant to the terms
of a Nomination Agreement between the Investor Group and the Company.
See "ELECTION OF DIRECTORS - COMPENSATION COMMITTEE INTERLOCKS AND
RELATED TRANSACTIONS."
Mr. Uhrig received his Master of Business Administration from the
University of Chicago in 1984, and graduated from Purdue University
in 1982.
Willem F.P. de Vogel, age 44. President of Three Cities Research,
Inc., a firm engaged in the investment and management of private
capital. Director of the Company since 1986.
Mr. de Vogel joined Three Cities in 1977 and has been the President
of Three Cities since 1982. Mr. de Vogel also serves as a director
of Computer Associates International.
Thomas C. Waggoner, age 50. Vice President and Chief Financial
Officer of the Company. Mr. Waggoner joined the Company in March 1991
as its Vice President and Chief Financial Officer. He was previously
employed by Forstmann & Company from 1986 to 1990 as its Vice
President and Chief Financial Officer. Prior to that position, he
was employed during 1984 and 1985 by Breneman Company as its Vice
President of Finance and Administration. From 1971 to 1983 he was
employed by Deloitte, Haskins & Sells.
H. Whitney Wagner, age 39. Managing Director of Three Cities
Research, Inc., a firm engaged in the investment and management of
private capital. Director of the Company since 1993. Mr. Wagner
joined Three Cities in 1983. Mr. Wagner has been nominated at the
behest of the Investor Group pursuant to the terms of a Nomination
Agreement between the Investor Group and the Company. See "ELECTION
OF DIRECTORS - COMPENSATION COMMITTEE INTERLOCKS AND RELATED
TRANSACTIONS."
Mr. Wagner was employed as a Corporate Banking Officer with Chemical
Bank prior to joining Three Cities (1978-1983).
Theodore R. Kallgren, age 33. Vice President of Finance and
Treasurer of the Company. Mr. Kallgren joined the Company in May 1988
and has served as its Vice President of Finance and Treasurer
since June 1991. He was previously employed by Ernst & Whinney from
1984 to 1988. He is also currently employed as Chief Financial
Officer for Pameco Holdings, Inc. See "ELECTION OF DIRECTORS -
COMPENSATION COMMITTEE INTERLOCKS AND RELATED TRANSACTIONS."
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation Summary
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to
or on behalf of the Company's Chief Executive Officer and the other
two most highly compensated executive officers of the Company, who
are the only executive officers whose compensation, including salary
and bonus, exceeded $100,000 (determined as of the end of the last
fiscal year), for the last three fiscal years of the Company:
<PAGE>
<TABLE>
Summary Compensation Table
Annual Compensation Long-Term Compensation
Awards Payouts
Other Restricted
annual stock LTIP All other
compen- award(s) Options/ payouts compen-
Name and Principal Position Year Salary ($) Bonus ($) sation ($) SARs (#) ($) sation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brian R. Esher
Chairman, 1994 $125,000 $ 75,000 -0- -0- -0- -0- -0-
President and 1993 106,089 425,000 -0- -0- -0- -0-
Chief Executive 1992 120,329 301,823 -0- -0- -0- -0-
Officer
Thomas C. Waggoner 1994 $135,000 $ 70,000 -0- -0- 125,000 -0- -0-
Vice President 1993 126,666 60,000 -0- -0- 7,500 -0- -0-
and Chief 1992 125,000 47,500 27,921(1) -0- 5,000(2) -0- -0-
Financial Officer
Ronald E. Grambo 1994 $111,999 $ 75,000 -0- -0- -0- -0- 10,476(3)
President S.K. 1993 107,226 75,000 -0- -0- -0- -0- 15,243(3)
Wellman 1992 102,485 65,000 -0- -0- 20,000(2) -0-
</TABLE>
(1) In 1992, Mr. Waggoner was reimbursed by the Company for the
costs associated with the relocation of his family, sale of his
home, and moving of household goods to Atlanta.
(2) Messrs. Waggoner and Grambo were issued stock options with
respect to 5,000 and 6,350 shares, respectively (as adjusted to
account for the 1993 reverse stock split), in 1992 after the
completion of the sale of the Refrigeration & Air Conditioning
Group, which replaced options for the same number of shares that
were granted in 1991. The stock options were reissued with an
exercise price at the then market price of the Common Stock.
(3) In 1992, 1993 and 1994, the Company paid $900 for life insurance
benefits on Mr. Grambo's behalf. Also, pursuant to the profit
sharing element of the Company's Defined Contribution Plan, Mr.
Grambo received $9,576 in 1994, $14,343 in 1993 and $3,118 in
1992.
Compensation Committee Report on Executive Compensation
President & CEO Compensation
Decisions on compensation and bonus for the President and Chief
Executive Officer are made by the three member Compensation Committee
of the Board of Directors, each of whom is a non-employee Director.
The compensation provided for in Mr. Esher's initial Employment
Agreement, the material terms of which are described in the Summary
Compensation Table and in "ELECTION OF DIRECTORS - REMUNERATION OF
DIRECTORS AND EXECUTIVE OFFICERS - Employment Agreements with
Executive Officers", was based on the Company's tenuous financial
condition at the time Mr. Esher was hired and Mr. Esher's background
and experience with respect to correcting similarly situated
companies. The Board believed that the compensation package
negotiated was comparable with similar companies experiencing
financial difficulties, and was the result of arm's length
negotiations with Mr. Esher. The initial Employment Agreement was
amended on February 11, 1992 in light of the decreased size of the
Company following the sale of the Company's Refrigeration and Air
Conditioning Group and to reflect the responsibilities Mr. Esher
acquired as Chief Executive Officer of Pameco Holdings, Inc. The
Employment Agreement was again amended, effective January 1,
1994, and January 1, 1995, and extended on terms reflective of MLX's
current financial condition and size. Pursuant to the January 1,
1995 amendment of the Employment Agreement, if the Sale
is approved by the Shareholders and consummated, then Mr. Esher's
salary and incentive
<PAGE>
compensation will be reduced. See "ELECTION OF DIRECTORS -
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS - Employment
Agreements with Executive Officers."
General
The Company's compensation programs have been designed to enable the
Company to attract, motivate and retain senior managers and key
employees by providing a total compensation opportunity based upon
individual and unit performance. The Company's compensation program
provides for competitive base salaries, annual incentive bonus
opportunities, competitive benefits (health, life, disability,
vacation, and defined contribution retirement) with employee
contributions, long term stock options, and participation in Company
sponsored profit sharing based upon achievement of operating
objectives. This compensation program aligns the interest of the
Company's management and its Shareholders to build long term value
and improve the return to the Company's Shareholders. It is the
Company's policy to structure its compensation programs so
that all compensation is deductible by the Company pursuant to
Section 162(m) of the Internal Revenue Code.
Salaries
Only the President and CEO of MLX and the President of the S.K.
Wellman are subject to employment agreements, and the employment
agreement of the President of S.K. Wellman becomes effective only
upon a change in control of S.K. Wellman, such as will occur upon
consummation of the Sale. All other officers are employed as
employees at will. Salaries of the two other executive officers are
determined by the President and CEO (subject to approval by the
Compensation Committee) and are based upon salary grades assigned to
positions and the relative experience and performance of the
individual. Salary grades are reviewed annually and compared
to industry and geographic wage and salary surveys conducted by
several independent trade associations, which include data gathered
from thousands of employers. The identity of the employers included
in such surveys is typically not of significance to the Company (one
survey does not even identify the participants); rather, the size and
geographic location of groups of employers are the most significant
factors considered. The Company generally attempts to set its
salaries near the midpoint of the salary ranges of comparably sized
employers.
Typically, individual executives are reviewed annually and their
performance evaluated against their objectives for the period of
evaluation. Such objectives include measurements of revenue
generation, operating profit, asset management, cash flows, cost
improvements, quality and customer service, depending upon the
responsibilities of the executive. Evaluation of these factors
is subjective, and no fixed, relative weights are assigned to the
criteria considered. For 1994, these objectives were determined to
have been met or exceeded, resulting in the salary increases
reflected in the Summary Compensation Table above.
Bonus Compensation
All executive officers other than the President and CEO are granted
bonus opportunities under the Company's Senior Management
Discretionary Bonus Plan, which defines the administration and
goal measurements of each key position. This plan is updated
annually and target bonus opportunities assigned to qualifying
managers. Payments are granted annually based upon
achievement of goals which are also established annually. For Mr.
Waggoner, these goals include profitability, lender matters, common
stock and NASDAQ matters, financial reporting and income
tax compliance, and mergers and acquisitions. For Mr. Grambo, these
goals include sales, profitability, product quality, research and
development, and asset management. Each goal is assigned a relative
weight of between 10% and 25%, and in each case, these targets were
substantially met in 1994.
Option Grants
The Company uses grants of stock options to its key employees and
executive officers to closely align the interests of such employees
and officers with the interests of its Shareholders. The
Company's Stock Option Plan is administered by the Compensation
Committee, which determines the persons eligible, the number of
shares subject to each grant, the exercise price thereof and the
other terms and conditions of the option. Options granted under the
Stock Option Plan have an exercise price equal to at least 100% of
the market price of the Common Stock on the date that the option is
granted, and the term of any option granted cannot exceed five (5)
years. Option grants typically vest over a three year period,
subject to continued employment.
The Company has made an effort to offer options to key employees and
all levels of management, including first line supervisors, in an
effort to give them an ownership opportunity to align their
goals with those of the Company's Shareholders. In determining the
size of various option grants, the Compensation Committee considers
the amount of options already outstanding and the number
of options held by individual grantees.
The Company's Stock Option Plan will expire on August 28, 1995.
Therefore, in order to continue to use grants of stock options to
provide incentives to key employees and executive officers of the
Company and its subsidiaries, the Board has approved, subject to
Shareholder approval, the adoption of the MLX Corp. Stock Option and
Incentive Award Plan. Assuming that the plan is approved by the
Company's Shareholders, it will permit the Company to use grants of
stock options, restricted stock and stock awards for incentive
purposes. See "PROPOSAL TO ADOPT THE MLX CORP. STOCK OPTION AND
INCENTIVE AWARD PLAN."
Profit Sharing
The Company offers its Defined Contribution Plan (known as a 401(k)
Plan) to the employees of S.K. Wellman with a matching contribution
of 10% of the first 6% of the employee's salary contributed to the
plan. The Company added a profit sharing contribution to its 401(k)
Plan in 1992 to offset the termination of the S.K. Wellman Defined
Benefit Retirement Plan. This change focused all plan participants
on achieving the Company's Annual Operating Plan which is the basis
for determining funding of the profit sharing contribution. Based
upon achievement of their operating plans, the Boards of Directors of
the S.K. Wellman subsidiaries vote to fund the plan from 0-5% of each
employee's annual gross compensation. In 1994 and 1993 the Board
voted to fund the program at 4% and 5%, respectively, based upon the
group's exceeding its Annual Operating Plans. This amounted to
$371,000 in 1994 and $417,000 in 1993.
MLX executive officers, including the President and CEO, are not
eligible to participate in the profit sharing contribution portion of
the Defined Contribution Plan.
The Compensation Committee
Alfred R. Glancy III, Chairman
Willem F.P. de Vogel
W. John Roberts
Five-Year Shareholder Return Comparison
Set forth below is a line graph comparing for the five-year period
ending December 31, 1994, the cumulative total Shareholder return
(stock price increase plus dividends, divided by beginning stock
price) on the Company's Common Stock with that of (i) all U.S.
companies quoted on NASDAQ and (ii) non-financial companies quoted on
NASDAQ. The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
<PAGE>
Comparison of Five Year Cumulative Total Return
Among the Company, The NASDAQ Stock Market and NASDAQ Non-Financial
Stocks
<TABLE>
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock Market 100.00 89.918 136.277 158.579 180.933 176.916
Nasdaq Non-Financial 100.00 88.034 141.730 154.916 177.606 170.297
MLX Common Stock 100.00 35.200 22.480 40.000 42.000 36.000
</TABLE>
Option Grants
The following table sets forth information with respect to grants of
stock options under the Company's Stock Option Plan during the last
fiscal year to the Company's Chief Executive Officer and the other
executive officers named in the Summary Compensation Table above. No
stock appreciation rights were granted during the last fiscal year.
In addition, in accordance with Securities and Exchange Commission
Rules, the hypothetical gains or "option spreads" that would
exist for the respective options, based on assumed rates of annual
compound stock appreciation of 5% and 10% from the date the options
were granted over the full option term, are also reflected:
<PAGE>
<TABLE>
Option Grants in Last Fiscal Year
Individual Grants
Potential realizable value
at assumed annual rates of
stock price appreciation for
option term (1)
Number of Percet of
securities total options
underlying granted to Exercise or
options employees base price Expiration
Name granted in fiscal ($/Sh) date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Brian R. Esher -0- -0- -0- --- --- ---
Thomas C. Waggoner 12,500(2) 87% $4.00 12/29/99 $13,175 $30,500
Ronald E. Grambo -0- -0- -0- -0- --- ---
</TABLE>
(1) These amounts represent assumed rates of appreciation only.
Actual gains, if any, on stock option exercises and holdings of
Common Stock are dependent upon the future performance of
the Common Stock and overall market conditions. There can be no
assurance that the amounts reflected in this table will be
achieved.
(2) The options are exercisable in one-third increments on December
29, 1994, 1995, and 1996.
Option Exercises and Fiscal Year-End Values
The following table shows for the Company's Chief Executive Officer
and the other executive officers named in the Summary Compensation
Table above the number of shares covered by both exercisable and
non-exercisable stock options as of December 31, 1994, and the values
for "in-the-money" options, based on the positive spread between the
exercise price of any such existing stock options and the year-end
price of the Company's Common Stock.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
Number of unexercised Value of unexercised
options at December 31, in-the-money options at
1994 (No. of shares) December 31, 1994(1)
Shares Value
Acquired on Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Brian R. Esher -0- -0- 190,400 -0- -0- -0-
Thomas C. Waggoner -0- -0- 14,167 10,833 $13,333 $4,791
Ronald E. Grambo -0- -0- 20,000 -0- $40,000 -0-
</TABLE>
(1) Based on closing stock price of $4.50 on December 31, 1994.
Retirement Plans
In 1987, the Board adopted the MLX Corp., SinterMet Corporation (now
known as S.K. Wellman Limited, Inc.) and The S.K. Wellman Corp.
Retirement Plan for Salaried Employees (the "Retirement
Plan"). The Retirement Plan covered all employees of S.K. Wellman
Limited, Inc., S.K. Wellman Corp. (both of which are subsidiaries of
MLX) and MLX, excluding employees who are members of a collective
bargaining unit. It provided for annual retirement benefits based on
the employee's final average salary and on the number of years of
employment by one of the companies.
<PAGE>
On September 30, 1992, the Company terminated the Retirement Plan for
salaried employees. Upon settlement of the Retirement Plan in June
1993, the Company purchased annuities to fund the obligations of the
participants or funded a rollover into the participants 401(k)
account. Of the executive officers identified on the Summary
Compensation Table above, only Mr. Grambo was a participant in the
Retirement Plan. The amount rolled over into the 401(k) account of
Mr. Grambo was $234,818.
Directors Fees
Directors who are not employees of the Company receive a quarterly
retainer of $2,500 and a meeting fee of $400 per meeting attended.
Employment Agreements with Executive Officers
Effective as of February 11, 1991, the Company and Brian R. Esher
entered into an employment agreement wherein Mr. Esher agreed to be
employed as the Chairman, President & Chief Executive
Officer of MLX for a period for three years, subject to earlier
termination for cause as provided in the agreement. Mr. Esher's
employment agreement was amended as of February 11, 1992, as a
result of the substantial change in the Company resulting from the
sale of its Refrigeration & Air Conditioning Group (the "RAC Group").
The Amendment acknowledged the other duties that Mr. Esher now has as
the Chief Executive Officer of the new Refrigeration & Air
Conditioning group company, Pameco Holdings, Inc. See "ELECTION OF
DIRECTORS - COMPENSATION COMMITTEE INTERLOCKS AND RELATED
TRANSACTIONS."
Based on a review of Mr. Esher's employment agreement, the Company
and Mr. Esher have amended his employment agreement effective as of
January 1, 1994, and as of January 1, 1995, in each case to extend
the term until the end of the calendar year. Under the terms of the
amended agreement, Mr. Esher will receive a base salary of $125,000
per year. Mr. Esher will also receive an annual bonus based upon the
Company's performance versus its budgeted pre-tax operating income.
If the Company earns 90% of its budgeted pre-tax operating income,
Mr. Esher will receive a bonus of $25,000. For every percentage
point by which the Company exceeds 90% of its budgeted pre-tax
operating income, Mr. Esher will receive an additional $2,500 in
bonus payments, up to a maximum of $75,000 if the Company earns 110%
or more of its budgeted pre-tax operating income. Pursuant to the
January 1995 amendment of the employment agreement, upon the Closing
of the Sale, Mr. Esher's base salary during the remainder of the term
of the employment agreement will be reduced from $125,000 per year to
$12,000 per year, the annual bonus to which he is entitled under the
terms of the employment agreement will be calculated on a
pro-rata basis through the end of the calendar month in which the
Closing of the Sale occurs and Mr. Esher will no longer be eligible
for annual bonuses following the Closing of the Sale.
Under the terms of his original 1991 employment agreement, Mr. Esher
has received an option to purchase 190,400 shares of Common Stock, at
a price of $5.00 per share, exercisable (subject to vesting schedules
which have been satisfied) at any time or from time to time prior to
February 10, 1998. In the event that any existing or new Shareholder
increases their percentage ownership interest of the Company's Common
Stock by 5% or more, then simultaneously with such acquisition, the
options held by Mr. Esher will be converted to a stock appreciation
right ("SAR") which will have substantially identical economic
results to Mr. Esher. Any SAR held by Mr. Esher may be reconverted
into an option having the same terms and conditions as the original
option by the vote of a disinterested majority of the Board and any
such option will once again be subject to conversion into an SAR, as
provided above. Conversion of Mr. Esher's options to an SAR and back
to options will have no economic impact upon other option holders.
Under Mr. Esher's amended employment agreement, if MLX or S.K.
Wellman files for protection under the bankruptcy code, Mr. Esher
will receive his base salary for the remainder of the agreement, but
he will be free of any continuing obligation to perform any duties
under the agreement.
<PAGE>
Ronald E. Grambo and S.K. Wellman have entered into an employment
agreement which will become effective upon any "change in control" of
S.K. Wellman and will govern the terms of Mr. Grambo's employment
during the three years following such change in control. For
purposes of Mr. Grambo's employment agreement, a change in control
means the acquisition by any person of securities having eighty
percent or more of the voting power with respect to S.K. Wellman or
all or substantially all of its assets. During the term of this
employment agreement, Mr. Grambo will be entitled to receive a base
salary commensurate with what he received prior to such change in
control and to participate in the Company's Senior Management Bonus
Program, or any applicable successor program following such change in
control which guarantees performance incentives equal to at least 50%
of those available under the Company's Senior Management Bonus
Program, provided that Mr. Grambo is performing his duties in a
satisfactory manner. Prior to any such change in control of S.K.
Wellman, Mr. Grambo will continue to provide services to S.K. Wellman
as an employee at will. The proposal to sell S.K. Wellman, if
approved by the Shareholders, and consummated, as described herein,
will constitute a change in control as defined in the employment
agreement between Mr. Grambo and S.K. Wellman and cause
the term of such employment agreement to commence. See "PROPOSAL TO
SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY."
COMPENSATION COMMITTEE INTERLOCKS AND RELATED TRANSACTIONS
Messrs. de Vogel, Glancy, and Roberts served on the Compensation
Committee of the Board of Directors for the past fiscal year. None
of the members of the committee served as an officer of the Company
or any of its subsidiaries during the preceding fiscal year.
On March 19, 1992, the Company consummated a sale of its RAC Group
and a restructuring of the Company's and its subsidiaries' debt
obligations to its senior lenders (such sale and debt restructuring
are referred to collectively herein as the "1992 Restructuring").
Following its sale of the RAC Group, the Company entered into a
Management Services Agreement, dated March 19, 1992 (the "Management
Services Agreement"), with Pameco Holdings, Inc., the purchaser of
the RAC Group, pursuant to which the Company provided management,
operational and administrative services to the RAC Group for a fee of
$30,000 per month. In 1993, this agreement was amended
to provide for the transfer of certain employees to Pameco Holdings
and for the Company to pay a monthly fee of $5,000 to Pameco Holdings
for shared expenses, including the lease of common office space and
for the services of the transferred employees. Under the Management
Services Agreement, Pameco Holdings paid the Company $81,500 in fees
(net of amounts paid by the Company to Pameco Holdings under the
post-amendment version of the Management Services Agreement) during
1993 and $69,000 during 1994.
As an integral part of the 1992 Restructuring, Brian R. Esher and
Pameco Holdings entered into an employment agreement providing that
in addition to his duties as the Chairman, President and Chief
Executive Officer of the Company, Mr. Esher will perform other duties
as the Chairman, President and Chief Executive Officer of Pameco
Holdings. Mr. Esher's agreement with Pameco Holdings also required
him to acquire an 8.5% equity interest in the common stock of Pameco
Holdings and to make certain other investments in Pameco Holdings.
See "Employment Agreements with Executive Officers" under the caption
"ELECTION OF DIRECTORS - REMUNERATION OF DIRECTORS AND EXECUTIVE
OFFICERS" above for additional details concerning Mr. Esher's
employment arrangements with the Company. Mr. Kallgren, also an
executive officer of the Company, is also an employee of Pameco
Holdings.
The Investment Group that purchased the assets of the RAC Group was
led by Three Cities Research, Inc., a firm engaged in the investment
and management of private capital. Willem F. P. de Vogel, a member
of the Board since 1986 and a member of the Company's Compensation
Committee, is the President of Three Cities Research, Inc. Messrs.
Uhrig and Wagner, directors of the Company, are both Managing
Directors of Three Cities Research, Inc.
<PAGE>
In connection with the Investor Group's acquisition of the Company's
outstanding zero coupon bonds and shares of Common Stock from certain
of the Company's lenders, the Company entered into a Nomination
Agreement with the Investor Group, dated December 15, 1992, whereby
the Investor Group may nominate up to three directors to the Board.
In 1993, 1994 and 1995, Messrs. Uhrig and Wagner have been nominated
by the Investor Group pursuant to the Nomination Agreement.
A number of transactions between the Company and certain persons or
entities with an interest in the Company may occur, or become
effective, upon consummation of the Sale. See "PROPOSAL
TO SELL S.K. WELLMAN LIMITED, INC. SUBSIDIARY - INTERESTS OF CERTAIN
OFFICERS AND DIRECTORS IN THE SALE."
PROPOSAL TO ADOPT THE MLX CORP.
STOCK OPTION AND INCENTIVE AWARD PLAN
Subject to the approval of the Company's Shareholders, the Board of
Directors approved the adoption of the MLX Corp. Stock Option and
Incentive Award Plan (the "Incentive Compensation Plan") effective as
of the date that the Incentive Compensation Plan is approved by the
Company's Shareholders. Shareholder approval of the Incentive
Compensation Plan is sought (i) to qualify the Incentive Compensation
Plan pursuant to Rule 16b-3 under the Securities Exchange Act of
1934, as amended (the "Act"), and thereby render certain transactions
under the Incentive Compensation Plan exempt from certain provisions
of Section 16 of the Act, and (ii) to qualify the Incentive
Compensation Plan under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and thereby allow the Company to
deduct for Federal income tax purposes compensation paid to Named
Executive Officers (as defined in regulations promulgated under
Section 162(m) of the Code) under the Incentive Compensation Plan,
and (iii) to comply with the Company's obligations under its listing
agreement with The Nasdaq Stock Market for the Common Stock.
The following summary of certain features of the Incentive
Compensation Plan is qualified in its entirety by reference to the
full text of the Incentive Compensation Plan, which is set forth in
Exhibit C attached hereto.
GENERAL
All officers, directors who are also employees, and other key
employees of the Company (including its subsidiaries) and persons
(including consultants, independent contractors and other service
providers) whose efforts contribute or may be expected to contribute
materially to the successful performance of the Company or its
subsidiaries, are eligible to participate in the Incentive
Compensation Plan. The Incentive Compensation Plan will be
administered by the Compensation Committee of the Board, or any other
committee appointed by the Board of Directors consisting of
not less than three directors eligible to administer the Incentive
Compensation Plan under the "disinterested administration" provision
of Rule 16b-3 under the Act (in any such case, the "Committee").
The Incentive Compensation Plan is a flexible plan that will provide
the Committee with broad discretion to fashion the terms of the
awards to provide eligible participants with stock-based
incentives as the Committee deems appropriate. It will permit the
issuance of awards in a variety of forms, including: (i)
non-qualified and incentive stock options (collectively, "options"),
(ii) restricted stock, and (iii) outright stock awards.
The Incentive Compensation Plan provides for the grant of up to
125,000 shares of Common Stock, or an amount equal to approximately
4.9% of the number of shares of Common Stock of the Company
outstanding on May 9, 1995. Under certain circumstances,
shares subject to an award that remain unissued upon termination of
the award will become available for additional
<PAGE>
awards under the Incentive Compensation Plan. In the event of a
stock dividend, stock split, recapitalization or similar event, the
Committee will equitably adjust the aggregate number of shares
subject to the Incentive Compensation Plan and the number, class and
price of shares subject to outstanding awards.
The Incentive Compensation Plan may be amended, modified or
terminated by the Board of Directors, subject to Shareholder approval
if required by applicable law. No amendment may be made in any
manner which fails to comply with Rule 16b-3(c)(iii)(B) under the
Act. The Committee shall have no authority to cancel outstanding
awards and issue replacement awards without the written consent of
the holder of such award.
At all times when the Committee determines that it is desirable to
satisfy the conditions of Section 162(m) of the Code, all awards
granted under the Incentive Compensation Plan shall comply with
such conditions. In addition, if changes are made to Section 162(m)
of the Code to permit greater flexibility with respect to any awards
available under the Incentive Compensation Plan, the Committee may,
subject to the restrictions set forth in the preceding paragraph on
amendment of the Incentive Compensation Plan, make any adjustments it
deems appropriate.
Unless earlier terminated by the Board of Directors or Shareholders,
the Incentive Compensation Plan will terminate on June 27, 2005.
AWARDS UNDER THE INCENTIVE COMPENSATION PLAN
Stock Options. Subject to the terms and conditions set forth in the
Incentive Compensation Plan, the Committee shall determine, in its
discretion, the number of shares of Common Stock subject to
stock options to be granted to each Incentive Compensation Plan
participant; provided, however, (i) that Named Executive Officers may
not be granted more than 75,000 options during any 12 month
period, and (ii) that in the case of incentive stock options, only
employees of the Company may receive such grants, and the aggregate
Fair Market Value (as defined in the Incentive Compensation
Plan) of the shares of Common Stock subject to incentive stock
options and exercisable by the participant for the first time during
any calendar year shall not, when combined with all other options
held by such participant under all other plans of the Company
and its subsidiaries, exceed $100,000. The Committee may grant
nonqualified stock options, incentive stock options or a
combination thereof to the participants. Incentive stock options
granted under the Incentive Compensation Plan will provide for the
purchase of Common Stock at prices not less than 100% of the Fair
Market Value thereof on the date the option is granted;
provided, however that no participant possessing more than 10% of the
total combined voting power of the Common Stock (a "Significant
Shareholder") shall be eligible to receive an incentive
stock option for the purchase of Common Stock at an option price less
than 110% of the Fair Market Value thereof on the date the
option is granted. Except as permitted by the Internal Revenue
Service, nonqualified options granted under the Incentive
Compensation Plan will provide for the purchase of Common Stock at
prices not less than 85% of the Fair Market Value thereof on the date
the option is granted. No option granted shall be exercisable later
than the tenth anniversary date of its grant and no option
granted to a Significant Shareholder shall be exercisable later than
the fifth anniversary date of its grant.
Options granted under the Incentive Compensation Plan shall be
exercisable at such times and subject to such restrictions and
conditions as the Committee shall approve and include in the award
agreement to be entered into between the Company and each Incentive
Compensation Plan participant. Options may only be transferred to,
or for the benefit of, the participant's Immediate Family (as defined
in the Incentive Compensation Plan), under the laws of descent and
distribution, or by will, and shall be exercisable only by the
participant, or member of the participant's Immediate Family, during
such participant's lifetime. The option exercise price is payable in
cash or, if approved by the Committee, in shares of Common Stock
having a Fair Market Value equal to the exercise price, or in a
combination of cash and such shares. The Committee may also allow,
<PAGE>
along with other means of exercise, cashless exercises as permitted
under the Federal Reserve Board's Regulation T, subject to applicable
securities laws.
Upon termination of a participant's employment due to death,
disability or retirement, all options outstanding shall immediately
vest and shall be exercisable for the shorter of their remaining term
or one year after termination of employment in the case of death or
disability, and three months after termination of employment in the
case of retirement. If a participant's employment has
terminated due to disability or retirement and such participant dies
during the exercise period after termination, then the remaining
exercise period under outstanding options shall be the longer of one
year after death or the remaining portion of the exercise period
triggered by the employment termination. Upon termination of
employment of a participant, other than for a reason set forth
above, all options held by the participant which are not vested as of
the effective date of termination shall be forfeited (the Committee
may, however, in its sole discretion, immediately vest all or a
portion of such options). In the case of termination of employment
at the request of the Company without cause, the participant may
exercise any vested options during the shorter of the remaining
portion of the exercise period of such options, or three months. In
the case of termination of employment by the Company for cause, or
voluntary termination by the participant, the option rights under any
vested and outstanding options shall terminate immediately upon the
termination of employment.
Restricted Stock and Stock Awards. The Committee may, from time to
time, in its discretion, grant awards of shares of Common Stock
("Stock Awards") or restricted shares of Common Stock
("Restricted Stock") to employees of the Company. The Committee
shall determine the terms and conditions of, and the amount of
payment, if any, to be made by the employee for such Restricted
Stock (such payment may be below the Fair Market Value thereof).
Each award of Restricted Stock shall be evidenced by an award
agreement between the Company and the recipient of the
Restricted Stock, which agreement shall contain such terms, not
inconsistent with the terms of the Incentive Compensation Plan, as
are determined by the Committee in its discretion.
At the time of grant of an award of Restricted Stock the Committee
shall establish a period, or periods, of time applicable to such
grant (such period or periods, as the case may be, being
collectively referred to herein as the "Restricted Period") and
following the end of any such Restricted Period, restrictions placed
by the Committee on the Restricted Stock shall lapse and the
Restricted Stock shall vest in the recipient thereof. Unless the
Committee provides otherwise, the Restricted Period applicable to any
grant of Restricted Stock shall not be less than one year. The
Committee shall also retain discretion to cause certain restrictions
placed on the Restricted Stock to lapse prior to other such
restrictions and to tie the lapse, or lapses, of restrictions on
Restricted Stock to the occurrence of conditions other than the
expiration of the applicable Restricted Period (such conditions may,
but need not, include the death or retirement of the recipient of the
Restricted Stock or a change in control of the Company). The
Committee shall also retain discretion to shorten or terminate any
Restricted Period and to waive any conditions for the lapse
or expiration of any restrictions placed upon Restricted Stock.
Following the award of Restricted Stock, the recipient thereof shall
have the rights and privileges of a Shareholder with respect to the
shares of Common Stock underlying such award, including the
right to vote and to receive dividends (in such form as the Committee
shall determine) with respect to such shares. The recipient of
Restricted Stock shall not, however, prior to the lapse or
termination of the restrictions applicable to such Restricted Stock
(i) receive a certificate with respect to such shares, (ii) sell,
assign, transfer, pledge or otherwise encumber or dispose of such
shares (other than by will or the laws of descent and distribution),
or (iii) retain an interest in any such shares of Restricted Stock
which have not previously vested if such recipient ceases to be a
full time employee of the Company, or one of its subsidiaries. Any
shares of Common Stock which fail to vest in the recipient of an
award of Restricted Stock may, subject to certain limitations
described in the Incentive Compensation Plan, be made available once
again for grant under the Incentive Compensation Plan.
<PAGE>
CHANGES IN CONTROL
Upon the occurrence of a Change in Control (as defined in the
Incentive Compensation Plan), (i) all options outstanding shall
become fully vested and immediately exercisable; (ii) to the extent
provided by the Committee in the applicable award agreement, all
restrictions on a grant of Restricted Stock shall lapse; provided,
however, that there shall not be an accelerated delivery with
respect to Restricted Stock which was granted less than six (6)
months prior to the effective date of the Change in Control, and
(iii) the Committee may, in its discretion and subject to the
restrictions on amendment and modification of the Incentive
Compensation Plan described therein, make any other modifications to
any awards as determined by the Committee to be deemed appropriate
before the effective date of such Change in Control.
DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES
The following summary of tax consequences with respect to the stock
option, restricted stock and stock award components of the Incentive
Compensation Plan is not comprehensive and is based upon laws and
regulations in effect on the date hereof. Such laws and regulations
are subject to change.
There are generally no Federal tax consequences either to the
optionee or to the Company upon the grant of an option. On exercise
of an incentive stock option, the optionee will not recognize any
income and the Company will not be entitled to a deduction for tax
purposes, although such exercise may give rise to a liability for the
optionee under the alterative minimum tax provisions of the Internal
Revenue Code. Generally, if the optionee disposes of shares acquired
upon exercise of an incentive stock option within two years of the
date of grant or one year of the date of exercise, the optionee will
recognize compensation income and the Company will be entitled to a
deduction for tax purposes in the amount of the excess of the fair
market value of the shares of Common Stock on the date of exercise
over the option exercise price (or the gain on sale, if less).
Otherwise, the Company will not be entitled to any deduction for tax
purposes upon disposition of such shares, and the entire gain for the
optionee will be treated as a capital gain. On exercise of a
non-qualified stock option, the amount by which the fair market value
of the Common Stock on the date of exercise exceeds the option
exercise price will generally be taxable to the optionee as
compensation income and will generally be deductible for tax purposes
by the Company. The disposition of shares of Common Stock acquired
upon exercise of a non-qualified stock option will generally result
in a capital gain or loss for the optionee, but will have no tax
consequences for the Company.
The Company is of the opinion that the participant will realize
compensation income in an amount equal to the fair market value of
the Restricted Stock (whether received as a grant or as a
dividend), less any amount paid for such Restricted Stock, at the
time when the participant's rights with respect to such Restricted
Stock are no longer subject to a substantial risk of forfeiture,
unless the participant elected, pursuant to a special election
provided in the Code, to be taxed on the Restricted Stock at the time
it was granted or received as a dividend, as the case may be.
Dividends paid to the participant during the Restricted Period will
be taxable as compensation income, rather than as dividend income,
unless the election referred to above was made. The Company is also
of the opinion that it will be entitled to a deduction under the
Internal Revenue Code in the amount and at the time that compensation
income is realized by the recipient thereof.
The amount of income realized by each participant and the amount of
the deduction available to the Company may be affected by a change
(if any) in the market price of the Company's stock during the
limitation period.
<PAGE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Ernst & Young has served as the Company's independent accountants for
many years, including the year ended December 31, 1994. The
selection of independent accountants is subject to annual
review and recommendation by the Audit Committee and final decision
by the Board of Directors. The selection of independent accountants
for 1995 has not yet been made. The Company's Bylaws do not require
that the Shareholders approve the selection of independent
accountants. A representative of Ernst & Young is expected to be at
the Annual Meeting and will have the opportunity to make a statement
if he desires to do so and will be available to respond to
appropriate questions.
MISCELLANEOUS
SHAREHOLDER PROPOSALS
Pursuant to the general rules under the Securities Exchange Act of
1934, proposals of Shareholders intended to be presented at the 1996
Annual Meeting of Shareholders must be received by management of the
Company at its executive offices on or before December 31, 1995.
OTHER MATTERS
It is not expected that any other matters are likely to be brought
before the meeting.
By Order of the Board of Directors,
Thomas C. Waggoner, Secretary
[Letterhead of Donaldson, Lufkin & Jenrette]
Board of Directors
MLX Corp.
1000 Center Place
Norcross, GA 30093
Dear Sirs:
MLX Corp., a Georgia corporation (the "Company"), and
The Hawk Group of Companies, an Ohio Corporation, and Hawk
Corporation, a Delaware corporation ("Hawk"), propose to enter
into a stock purchase agreement (the "Agreement"), pursuant to
which Hawk would acquire all of the outstanding capital stock of
the Company's wholly-owned subsidiary S.K. Wellman Limited, Inc.,
a Michigan corporation ("S.K. Wellman"), for $60.0 million in
cash, which includes certain adjustments related to the repayment
of debt or assumption of liabilities by Hawk, less certain
amounts as specified in the Agreement (the "Consideration"). The
Agreement contemplates that $4.0 million of the Consideration
will be placed in escrow in accordance with the terms of the
Agreement and that Hawk will provide S.K. Wellman with funds
sufficient to repay certain outstanding indebtedness of S.K.
Wellman.
You have asked us whether, in our opinion, the
Consideration to be received by the Company pursuant to the
Agreement is fair to the Company from a financial point of view.
In arriving at our opinion, we have reviewed a draft of
the Agreement dated April 7, 1995. We also have reviewed
financial and other information regarding the Company and S.K.
Wellman that was publicly available or furnished to us by the
Company and S.K. Wellman including information provided during
discussions with their respective managements. Included in the
information provided during discussions with the respective
managements were certain financial projections of S.K. Wellman
for the period beginning January 1, 1995 and ending December 31,
1999 prepared by the respective managements of the Company and
S.K. Wellman. In addition, we have compared certain financial
and securities data of S.K. Wellman with various other companies
whose securities are traded in public markets, reviewed prices
paid in other business combinations and conducted such other
financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and
assumed the accuracy and completeness of all of the financial and
other information that was available to us from public sources,
that was provided to us by the Company and S.K. Wellman or its
representatives, or that was otherwise supplied to us. With
respect to the financial projections supplied to us by the
Company and S.K. Wellman, we have assumed that they have been
reasonably prepared and reflect the best currently available
estimates and judgments of the managements of the Company and of
S.K. Wellman as to the expected future operating and financial
performance of S.K. Wellman. We have not assumed any
responsibility for making an independent evaluation of S.K.
Wellman's assets or liabilities or for making any independent
verification of any of the information supplied to or reviewed by
us. We have relied as to all legal matters on advice of counsel
to the Company.
Our opinion is necessarily based on economic, market,
financial and other conditions as they exist on, and on the
information made available to us as of, the date of this letter.
It should be understood that, although subsequent developments
may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not constitute
a recommendation to any shareholder as to how such shareholder
should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation, as
part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of
listed and unlisted securities, private placements and valuations
for estate, corporate and other purposes.
Based upon the foregoing and such other factors as we
deem relevant, we are of the opinion that the Consideration to be
received by the Company pursuant to the Agreement is fair to the
Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
Herald L. Ritch
Managing Director
AGREEMENT FOR PURCHASE AND SALE OF
THE CAPITAL STOCK OF
S.K. WELLMAN LIMITED, INC.
THIS AGREEMENT ("Agreement") is made and entered into as
of the 10th day of April, 1995, by and among HAWK CORPORATION, a
Delaware corporation (the "Parent"), THE HAWK GROUP OF COMPANIES,
INC., an Ohio corporation and a subsidiary of the Parent (the
"Purchaser"), and MLX CORP., a Georgia corporation (the "Seller").
W I T N E S S E T H:
WHEREAS, the total authorized capital stock of S.K.
Wellman Limited, Inc., a Michigan corporation ("S.K. Wellman"),
consists of 250,000 shares of common stock, par value $1.00 per
share, of which 246,250 shares are presently issued and outstanding
(collectively, the "Shares"); and
WHEREAS, the Seller is the record and beneficial owner of
all of the Shares; and
WHEREAS, in reliance on and subject to the terms and
conditions contained herein, the Purchaser desires to purchase the
Shares from the Seller, and, after due consideration by its Board
of Directors, the Seller desires to sell the Shares to the
Purchaser;
NOW, THEREFORE, for and in consideration of the premises
and the mutual covenants and agreements contained herein, and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. PURCHASE AND SALE
1.1. Agreement to Purchase and Sell the Shares. At the
Closing (such term and other capitalized terms used herein are
defined for purposes hereof as provided in Paragraph 12.1), the
Seller shall sell, assign, transfer and convey unto the Purchaser,
and in reliance on and subject to the terms and conditions
contained herein, the Purchaser shall purchase and acquire from the
Seller, all (but not less than all) of the Shares, free and clear
of any and all Liens for a purchase price (the "Purchase Price")
equal to (a) FORTY NINE MILLION NINE HUNDRED THOUSAND DOLLARS (US
$49,900,000), less (i) the amount of any penalties, premiums or
other amounts payable to Barclays Business Credit, Inc. as a result
of the prepayment of loans outstanding under the Barclays Credit
Agreement as contemplated hereunder, (ii) the amount necessary to
repay the outstanding amount as of Closing of the Italian Credit
Facility, (iii) the amount by which consolidated net earnings of
the Companies for the two month period ending on May 31, 1995,
calculated by the Seller in accordance with past practice and in
good faith, are less than $200,000, and (iv) the capitalized amount
of the Italian Capital Leases as of March 31, 1995, converted into
U.S. dollars at the rate of 1,704.5 Italian Lira to 1.00 U.S.
dollar, plus (b) all indebtedness to Barclays Business Credit, Inc.
pursuant to the Barclays Credit Agreement (other than amounts
specified in clause (a)(i) above). The Purchase Price shall be
payable in immediately available funds at Closing as described in
Paragraph 1.2.
1.2. Purchase Price; Barclays Payment; and Delivery. At
the Closing, (a) the Purchaser shall pay to the Seller the portion
of the Purchase Price for the Shares described in Paragraph 1.1(a)
in the following manner: (i) the Escrow Fund shall be deposited
with the Escrow Agent, and (ii) the remainder of the Purchase Price
shall be paid to the Seller by wire transfer to the bank account
designated in writing by the Seller to the Purchaser at least three
Business Days prior to the Closing Date, and (b) the Companies
(with funds provided by the Purchaser) shall pay all indebtedness
to Barclays Business Credit, Inc. pursuant to the Barclays Credit
Agreement including, without limitation, any penalties, premiums or
other amounts payable as a result of the prepayment of the loans
outstanding under the Barclays Credit Agreement. At the Closing,
the Seller shall deliver to the Purchaser certificates representing
the Shares to be sold by the Seller, duly endorsed for transfer,
with all required stock transfer stamps, if any, affixed, all in
form and substance satisfactory to the Purchaser.
1.3. Closing.
(a) The consummation of the transactions con-
templated in this Agreement (the "Closing") shall take place at the
offices of Kohrman Jackson & Krantz, One Cleveland Center, 20th
Floor, 1375 East Ninth Street, Cleveland, Ohio 44114, on the
earlier of (i) July 14, 1995, and (ii) the second Business Day
after the date on which all conditions to closing contained in
Article 6 have been satisfied or waived, other than conditions
which by their terms are to be satisfied at the Closing, or on such
other date and time as the Seller and the Purchaser shall agree
(the "Closing Date").
(b) All deliveries, payments and other transactions
and documents relating to the Closing shall be interdependent and
none shall be effective unless and until all are effective (except
to the extent that the party entitled to the benefit thereof has
waived satisfaction or performance thereof as a condition precedent
to Closing).
(c) From time to time and at any time, at the
Purchaser's request, whether on or after the Closing Date, and
without further consideration, the Seller shall, at its expense,
execute and deliver such further documents and instruments of
conveyance, assignment, and transfer and shall take such further
reasonable actions as may be necessary or desirable, in the opinion
of the Purchaser, to transfer and convey to the Purchaser all
right, title and interest in and to the Shares, free and clear of
any and all Liens or as may otherwise be necessary or desirable to
carry out the intent of this Agreement.
2. ADDITIONAL AGREEMENTS
2.1. Purchaser's Access and Inspection.
(a) The Seller shall cause S.K. Wellman to provide
the Purchaser and its Representatives with access at mutually
agreed upon times and during normal business hours from and after
the date hereof to all of S.K. Wellman's and the Subsidiaries'
(collectively, the "Companies") assets, properties, contracts,
commitments, and books and records, and shall furnish such
information and copies of documents concerning the business and
affairs of the Companies as may be reasonably requested. The
Seller shall cause the Companies and their respective Representa-
tives to assist the Purchaser and its Representatives in their
continuing investigation of the Companies and shall cause its and
the Companies' Representatives to be reasonably available to the
Purchaser and its Representatives in connection with its continuing
investigation.
(b) If the transactions contemplated herein are not
consummated, then (i) the Purchaser shall return to the Seller all
documents and other written information furnished by or on behalf
of the Seller or the Companies to the Purchaser, and (ii) all
information provided or made available to the Purchaser and its
Representatives pursuant to this Paragraph 2.1 shall continue to be
subject to the terms and conditions of that certain Confidentiality
Agreement, dated January 6, 1995, between the Purchaser and
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ").
2.2. Cooperation. The parties shall cooperate fully with
each other and with their respective Representatives in connection
with any steps required to be taken as part of their respective
obligations under this Agreement, and each party shall use its best
reasonable efforts to consummate the transactions contemplated
herein in a timely manner, to fulfill its obligations hereunder,
and to satisfy all conditions to Closing which such party is
obligated to satisfy pursuant hereto.
2.3. Expenses. Except as otherwise provided herein, all
expenses incurred by the Purchaser and the Parent in connection
with the negotiation, authorization, preparation, execution and
performance of this Agreement and the transactions contemplated
herein shall be paid by the Purchaser and the Parent. Except as
otherwise provided herein, all expenses incurred by the Seller and
the Companies in connection with the negotiation, authorization,
preparation, execution and performance of this Agreement and the
transactions contemplated hereby shall be paid by the Seller and
shall not be paid from any of the assets of the Companies.
2.4. Brokers. Except for DLJ, who has acted on behalf of
the Companies and who shall be paid by S.K. Wellman, and for Bowles
Hollowell Conner & Co., who has acted on behalf of the Purchaser
and who shall be paid by the Purchaser, each party represents and
warrants to the other that no broker or finder has acted on its
behalf in connection with this Agreement or the transactions
contemplated herein and agrees to indemnify the other party from
and against any and all claims or demands for commissions or other
compensation by any broker, finder or similar agent claiming to
have been employed by or on behalf of such party.
2.5. Publicity. All press releases and other public
announcements respecting the subject matter hereof shall be made
only with the mutual agreement of the parties hereto, except as may
be required by law or any listing agreement with a national
securities exchange or quotation system in which event the press
release or other announcement shall, if the circumstances permit,
be made available, reasonably in advance of its public distribu-
tion, to the party not required to make the release or other
announcement.
2.6. Employment Agreements. Prior to the Closing or the
termination of this Agreement, the Purchaser shall be entitled to
discuss with all members of each Company's management team matters
relating to such persons' ongoing employment with the Companies
following the consummation of the transactions contemplated by this
Agreement. If this Agreement is terminated, the Purchaser shall
immediately suspend all such discussions, and for a period of one
year from and after the date of termination of this Agreement for
any reason, neither the Purchaser nor the Seller shall, and neither
shall permit its respective Representatives to, directly or
indirectly, solicit or induce to leave employment with the other
party or, in the case of the Purchaser, any of the Companies,
anyone who is or was, at any time during the period from the date
of this Agreement to the date of termination of this Agreement, an
employee of the other party or, in the case of the Purchaser, any
of the Companies, whether or not such employment is at will.
2.7. Actions by the Seller.
(a) The Seller represents and warrants that (i) its
Board of Directors has, by resolution duly adopted by the unanimous
vote of all directors present at a meeting duly held, (A) approved
and adopted this Agreement and the transactions contemplated
hereby, (B) resolved, subject to the exercise of its fiduciary
duties, to recommend at all times prior to and including the
Seller's Meeting that the Seller's shareholders approve the sale of
the Companies and adopt this Agreement and the transactions
contemplated hereby, and (C) determined that this Agreement and the
transactions contemplated hereby are in the best interest of the
Seller and its shareholders, and (ii) DLJ has rendered to the Board
of Directors of the Seller its written opinion, dated as of the
date hereof, to the effect that the Purchase Price is fair to the
Seller from a financial point of view. The Board of Directors,
acting on behalf of the Seller, may withdraw, modify or change its
recommendation regarding this Agreement, or recommend any other
offer or proposal, only if (i) the Board determines in good faith,
after consulting with its financial advisor, that such withdrawal,
modification, change or recommendation is likely to result in a
superior financial transaction for the Seller and its shareholders
and (ii) outside counsel for the Seller provides a written opinion
to the Board of Directors to the effect that the failure to take
such actions would subject the Seller's directors to a substantial
risk of liability for breach of their fiduciary duties or for
failure to conform to the requirements of the securities laws.
(b) As promptly as practicable, the Seller shall
prepare and file a preliminary proxy statement with the SEC
containing the recommendation of the Board of Directors of the
Seller, use all reasonable efforts to have such proxy statement
cleared by the SEC, and disseminate a final proxy statement (the
"Proxy Statement") containing such recommendation as required by
Rule 14a-3 promulgated under the Exchange Act. The Seller and the
Purchaser agree to correct promptly any information provided by
either of them for use in the Proxy Statement that shall have
become false or misleading.
(c) The Seller shall promptly take all action
necessary in accordance with Georgia law and its Articles of
Incorporation and Bylaws to convene a meeting of its shareholders
(the "Seller's Meeting") to consider and vote upon the approval and
adoption of this Agreement and the sale of the Shares. The
Seller's Meeting shall be scheduled for a date no later than
July 14, 1995, which date may be postponed so long as the Seller is
in compliance with its obligations in Paragraph 2.7(b) above.
Except in accordance with the standards set forth in Paragraph
2.7(a), the Seller shall use its best efforts to solicit from its
shareholders proxies in favor of the sale of the Shares, and shall
take all other action necessary or advisable to secure the vote or
consent of shareholders required by Georgia law to effect the sale
of the Shares.
(d) The Seller shall cause each member of its Board
of Directors to execute and deliver to the Purchaser as promptly as
practicable an irrevocable proxy in favor of the Purchaser with
respect to all shares of Seller stock which such member is entitled
to vote at the Seller's Meeting. The Purchaser agrees to vote all
such shares of Seller stock in favor of any matters presented at
the Seller's Meeting that are recommended by the Seller's Board of
Directors, except that the Purchaser shall not be required to vote
such shares in favor of any transaction competing with the
transaction contemplated herein.
2.8. Employee Benefit Plans. Except as may be required
by Law or as may be deemed to be in the best interest of the
Companies, as determined in good faith by the Board of Directors of
the Purchaser, based on all relevant information that is reasonably
available, the Purchaser shall assure that the Companies continue
for at least three months after the Closing to provide employees
thereof with benefits which are substantially the same or similar
to those provided under the employee benefits plans, programs, and
similar arrangements of the Companies as listed in Schedules
3.14(a) and (d).
2.9. No Solicitation or Transactions. The Seller shall
not, directly or indirectly, through any Representative or
otherwise, solicit or encourage the submission of proposals or
offers from any Person relating to any acquisition or purchase of
all or (other than in the ordinary course of business) any portion
of the assets of, or any equity interest in, the Seller or any of
the Companies or any business combination with the Seller or any of
the Companies, or participate in any discussions or negotiations
regarding, or furnish to any other Person any information with
respect to, any effort by any other Person to attempt to do or seek
to do any of the foregoing, unless and only if the Board determines
in good faith, after consulting with its financial adviser, that
participating in such discussions or negotiations or furnishing
information to any Person may result in a superior financial
transaction for the Seller and its shareholders and outside counsel
for the Seller provides a written opinion to the Board of Directors
to the effect that the failure to take such actions would subject
the Seller's directors to a substantial risk of liability for
breach of their fiduciary duties or for failure to conform to the
requirements of the securities laws. The Seller shall immediately
notify the Purchaser of any communication from any Person with
respect to any of the foregoing. The Seller shall immediately
cease any existing discussions or negotiations with any parties
conducted prior to the date hereof with respect to any of the
foregoing.
2.10. Intentionally Omitted.
2.11. Termination Fee. Anything herein to the contrary
notwithstanding, if this Agreement is terminated, then the Seller
shall pay to the Purchaser a termination fee of Two Million U.S.
Dollars (U.S. $2,000,000)in consideration of the costs and expenses
incurred by the Purchaser in connection with the transactions
contemplated by this Agreement; provided, however, that no payment
shall be made to the Purchaser pursuant to this Paragraph 2.11 if
(i) the Purchaser shall have breached in any material respect or
failed to perform in any material respect any obligation or
covenant contained in this Agreement, (ii) the Agreement is
terminated pursuant to Paragraph 10.1(a), (iii) the Agreement is
terminated pursuant to Paragraph 10.1(b) when the Seller has not
failed to fulfill any obligation hereunder which is the cause of,
or results in the failure of, the Closing to occur on or before
September 30, 1995, or (iv) the Agreement is terminated pursuant to
Paragraph 10.1(d) unless such termination arises as a result of or
is caused by the Board of Directors of the Seller having withdrawn
or modified its approval or recommendation that the shareholders of
the Seller adopt and approve this Agreement and the sale of the
Shares; and provided, further if this Agreement is terminated by
the Purchaser pursuant to Paragraph 10.1(e), then the Seller shall
pay to the Purchaser the actual expenses of the Purchaser up to SIX
HUNDRED THOUSAND DOLLARS ($600,000). For purposes hereof, "actual
expenses" shall include all reasonable legal, accounting, environ-
mental engineering, financing commitment, travel and other out-of-
pocket expenses, in each case that are actually incurred in
connection with the negotiation of this Agreement or any efforts to
consummate the transactions contemplated hereby and for which
invoices or other substantiating documentation reasonably satisfac-
tory to the Seller has been provided to the Seller upon request by
the Seller.
2.12. Intercompany Receivable. The Seller and the
Purchaser each acknowledge and agree that the intercompany
receivable shown on S.K. Wellman's December 31, 1994 Balance Sheet
will either be forgiven by S.K. Wellman in its entirety or repaid
(regardless of the then current balance) prior to the Closing, so
that on the Closing Date there will be no intercompany receivable
or debt between the Seller and S.K. Wellman.
2.13. Tax Matters.
(a) Each of the Seller and the Purchaser shall
cooperate with the other in making a joint election pursuant to
Sections 338(g) and 338(h)(10) of the Code (the "Section 338(h)(10)
Election") to treat the acquisition of the Shares as an acquisition
of S.K. Wellman's assets effective as of the Closing Date. The
Purchaser and the Seller shall cooperate in the timely preparation
and filing of Internal Revenue Service Forms 8023 and 8023-A, and
any similar requirements imposed by any state or local government
to give effect to the foregoing election for state or local income
tax purposes. Each party shall also provide the other with any
assistance reasonably requested by the other in making the
Section 338(h)(10) Election.
(b) The Seller shall pay all Taxes of the Seller
and S.K. Wellman arising directly from the deemed sale of assets
pursuant to Section 338(h)(10) of the Code. The Seller shall also
pay all Taxes with respect to the sale of the Shares pursuant to
this Agreement in the event that any Government (i) does not
provide or recognize the Section 338(h)(10) Election, or (ii) does
not apply its provisions corresponding to Section 338(h)(10) of the
Code to the sale of the Shares. The Purchaser shall not, nor shall
it permit any of the Companies to, file any Tax return affecting
the Seller's obligation pursuant to this Paragraph 2.13(b) without
the prior written consent of the Seller, which shall not be
unreasonably withheld or delayed.
(c) The Purchaser acknowledges and agrees that it
shall be solely responsible for all Taxes arising from the
operation of the Companies' business, including, without limita-
tion, all foreign, state and local income Taxes with respect to
calendar year 1995 which are not due and payable prior to the
Closing Date; provided, however, that anything herein to the
contrary notwithstanding, the Purchaser shall not be responsible
for any Taxes which constitute Indemnified Losses pursuant to a
breach of any representation or warranty contained herein.
(d) The Purchaser and the Seller agree to furnish
or cause to be furnished to each other, upon request, as promptly
as practicable, such information (including access to books,
records, computer files and personnel) and assistance relating to
the Companies as is reasonably necessary for the filing of any
return, for the preparation for any audit, or for the prosecution
or defense of any Action with respect to Taxes. The Seller and the
Purchaser agree to retain or cause to be retained all books,
records and computer files pertinent to the Companies until the
applicable period for assessment under all applicable Law (giving
effect to any and all extensions or waivers) has expired, and to
abide by or cause the abidance with all record retention agreements
entered into with any Government. For a period of eight years
after the Closing Date, the Purchaser shall, and shall cause the
Companies to, give the Seller reasonable notice prior to transfer-
ring, discarding or destroying any such books, records or computer
files relating to Tax matters, and if the Seller so requests, the
Purchaser shall, or shall cause the Companies to, allow the Seller
to take possession of such books, records and computer files. The
Purchaser and the Seller shall cooperate with each other in the
conduct of any audit or other proceeding involving the Companies
for any Tax purpose and shall each execute and deliver such powers
of attorney and other documents as are necessary to carry out the
intent of this Paragraph 2.13(d).
(e) After the Closing Date, upon the request of the
Seller, the Purchaser shall, and shall cause the Companies to,
assist the Seller in preparing any financial statements with
respect to the Companies.
(f) Without the prior written consent of the
Seller, the Purchaser shall not file any amended Tax return
increasing liability for any Taxes to the extent that such
increased liability would increase the Seller's obligations under
Article 7.
(g) At the Closing, the Seller shall deliver to the
Purchaser an estimated consolidated Balance Sheet of the Companies
as of the Closing Date. The Seller and the Purchaser shall
mutually agree on an allocation of the Purchase Price among the
Companies' assets as soon as possible after the Closing Date, but
in no event later than thirty (30) days thereafter. The parties
agree that the allocation shall be used by them and respected for
all tax purposes.
2.14. Noncompete and Confidentiality.
(a) For a period ending three years after the
Closing Date, the Seller shall not, without the prior written
consent of the Purchaser, engage in a business which competes with
the current business of the Companies, directly or indirectly, as
an owner, consultant, manager, associate, partner, agent or
otherwise, or by means of any corporate or other device; nor shall
the Seller for such period solicit orders, directly or indirectly,
from any customer of the Companies for any product substantially
similar to those currently sold or distributed by the Companies, as
an owner, consultant, manager, associate, partner, agent or
otherwise, or by means of any corporate or other device.
(b) The Seller acknowledges that it, the Companies
and their respective Representatives have had access to confiden-
tial information of the Purchaser. The Seller covenants and agrees
that for the period ending five years after the Closing Date, it
shall not, and shall cause the Companies and the respective
Representatives of the Seller and the Companies not to, use for
their own behalf or divulge to any third party any confidential
information or trade secrets of the Purchaser. As used herein,
confidential information or trade secrets of the Purchaser shall
consist of all information, knowledge or data relating to the
Purchaser (including without limitation all information, financial
or otherwise, relating to the Purchaser and its subsidiaries and
Affiliates, customer lists, prices, manufacturing processes and
trade practices) which is not in the public domain or otherwise
published or publicly available. Either at the Closing or if the
transactions contemplated herein are not consummated, the Seller
shall return to the Purchaser all documents and other written
information (and all copies thereof) furnished by or on behalf of
the Purchaser to the Seller, the Companies and their respective
Representatives which contain or relate to any such confidential
information or trade secrets.
(c) The Seller acknowledges that the restrictions
contained in this Paragraph 2.14 are reasonable and necessary to
protect the legitimate interests of the Purchaser, do not cause the
Seller undue hardship, and that any violations of any provision of
this Paragraph 2.14 will result in irreparable injury to the
Purchaser and that, therefore, the Purchaser shall be entitled to
preliminary and permanent injunctive relief in any court of
competent jurisdiction and to an equitable accounting of all
earnings, profits and other benefits arising from such violation,
which rights shall be cumulative and in addition to any other
rights or remedies to which the Purchaser may be entitled.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER
To induce the Purchaser and the Parent to enter into and
perform this Agreement, the Seller represents and warrants to the
Purchaser and the Parent as follows:
3.1. Organization and Qualification; Subsidiaries.
(a) S.K. Wellman is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation. S.K. Wellman has full corporate
power and authority to own or hold under lease its Assets and Real
Property and to carry on its business as it is now being conducted.
S.K. Wellman is duly qualified or licensed as a foreign corporation
in the jurisdictions listed in Schedule 3.1(a), which are all
jurisdictions where such qualification or license is necessary,
except where such failure would not have a Material Adverse Effect.
(b) Schedule 3.1(b) contains a correct and complete
list of each of S.K. Wellman's subsidiaries (the "Subsidiaries"),
together with the jurisdiction of incorporation of each such
Subsidiary, the authorized capital stock of each Subsidiary, the
amount of such capital stock presently issued and outstanding, and
the percentage of each Subsidiary's outstanding capital stock owned
by S.K. Wellman or another Subsidiary. Each Subsidiary is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each
Subsidiary has full corporate power and authority to own or hold
under lease its properties and assets and to carry on its business
as it is now being conducted. Each Subsidiary is duly qualified or
licensed as a foreign corporation in the jurisdictions listed in
Schedule 3.1(b), which are all jurisdictions where such qualifica-
tion or license is necessary, except where such failure would not
have a Material Adverse Effect.
(c) The Seller has previously furnished the
Purchaser with correct and complete copies of the certificate of
incorporation and bylaws (or other governing document) of each
Company, as amended to date. The minute books of each Company
contain an accurate record of all meetings and actions by written
consent of the shareholders and board of directors (and committees
thereof) of such Company since January 1, 1990.
3.2. Ownership of Shares.
(a) S.K. Wellman has an authorized capital stock of
250,000 common shares, par value $1.00 per share, of which 246,250
shares are presently issued and outstanding and are owned of record
and beneficially by the Seller. All such issued Shares are duly
authorized, validly issued, fully paid and nonassessable. There
are no outstanding securities convertible into the capital stock or
rights to subscribe for or to purchase (including, without
limitation, preemptive rights), or any options for the purchase of,
or any agreements or arrangements providing for the issuance
(contingent or otherwise) of, or any Actions relating to, the
capital stock of S.K. Wellman or any of the Subsidiaries.
(b) Except for the Subsidiaries, none of the
Companies has any interest, direct or indirect, or any commitment
to purchase or otherwise acquire any capital stock or other equity
interest, direct or indirect, in, or to make any loan or other
investment in, any other Person.
(c) The Seller is the sole owner of the Shares free
and clear of any and all Liens of any kind whatsoever. There are
no outstanding contracts, demands, commitments, or other agreements
or arrangements under which the Seller is or may become obligated
to sell, transfer or assign any of the Shares.
(d) Except as set forth in Schedule 3.2, the shares
of the Subsidiaries are owned by S.K. Wellman, directly or
indirectly, free and clear of any and all Liens of any kind
whatsoever. All issued shares of the Subsidiaries are duly
authorized, validly issued, fully paid and nonassessable.
3.3. Capacity; Inconsistent Obligations.
(a) The Seller has the full corporate power and
authority to execute and deliver this Agreement and the Escrow
Agreement and to consummate the transactions contemplated herein
and therein in accordance with their respective terms. The
execution and delivery of this Agreement and the Escrow Agreement
by the Seller and the consummation by the Seller of the transac-
tions contemplated herein and therein have been duly authorized by
all necessary corporate action on the part of the Seller, subject
to the approval of the sale of the Shares and the adoption of this
Agreement by the Seller's shareholders. This Agreement and the
Escrow Agreement constitute the valid and legally binding obliga-
tions of the Seller, subject to general equity principles,
enforceable in accordance with their respective terms, except as
the same may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance or similar laws affecting the rights of
creditors generally.
(b) Except as set forth on Schedule 3.3(b), neither
the execution and delivery of this Agreement and the Escrow
Agreement nor the consummation of the transactions contemplated
herein and therein will (i) result in a violation of the articles
of incorporation or bylaws (or other governing document) of the
Seller or any of the Companies, or any Law or Order, or (ii) result
in a breach of, conflict with or default under any term or
provision of any indenture, note, mortgage, bond, security
agreement, loan agreement, guaranty, pledge, lease, license,
contract or other instrument or document, to which the Seller or
any of the Companies is a party or by which any of them or any of
their respective assets and properties, including, without
limitation, the Shares, is subject or bound; nor will such actions
result in (w) the creation of any Lien on any of the Shares or any
of the Companies' assets or properties, (x) the acceleration or
creation of any debt or other obligation of any of the Companies,
(y) the forfeiture of any material right or privilege of any of the
Companies, or (z) the forfeiture of any material right or privilege
of the Seller which may affect the Seller's ability to perform
under this Agreement.
3.4. Consents. The execution and delivery of this
Agreement by the Seller, the consummation of the transactions
contemplated herein and the performance by the Seller hereunder
does not require the consent, approval or action of, or any filing
with or notice to, any Government or other Person, except:
(a) pursuant to the Securities Act and the Exchange Act,
(b) approval by the Seller's common and preferred shareholders in
accordance with Georgia law, (c) as set forth on Schedule 3.4, and
(d) where the failure to obtain such consent, approval or action,
or to make any filing or notice, would not prevent or materially
delay consummation of the transactions contemplated herein or
otherwise prevent the Seller from performing its obligations under
this Agreement, and would not have a Material Adverse Effect.
3.5. Compliance with Laws. Except as set forth on
Schedule 3.5, the Companies' respective operations have been
conducted in accordance with all applicable Laws the violation of
which could have a Material Adverse Effect. Except as set forth on
Schedule 3.5, none of the Companies has received any notification
of any asserted past or present failure by any Company to comply
with any Law or Order, which failure could have a Material Adverse
Effect.
3.6. Possession of Franchises, Licenses, Etc. Except as
set forth on Schedule 3.6, each Company possesses all franchises,
certificates, licenses, permits and other authorizations from
Governments and self-regulatory organizations that are necessary
for the ownership, maintenance and operation of its properties and
assets and the conduct of such Company's business, except for such
franchises, certificates, licenses, permits and other authoriza-
tions the absence of which would not have a Material Adverse
Effect.
3.7. SEC Filings; Financial Statements.
(a) The Seller has filed all forms, reports and
documents required to be filed with the SEC through the date hereof
since January 1, 1990 (the "SEC Reports"), all of which were
prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, on their respective filing
dates, and did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The
representations and warranties set forth in this Paragraph 3.7(a)
shall not apply to any noncompliances, nonfilings, misstatements or
omissions which are not in the aggregate material to the financial
condition, results of operations or business of the Companies taken
as a whole but which will not prevent or delay in any material
respect the confirmation of the transactions contemplated hereby.
None of the Companies is required to file any reports, statements,
forms or other documents with the SEC.
(b) Prior to the date hereof, the Seller has
delivered to the Purchaser copies of S.K. Wellman's Balance Sheet
as of December 31, 1994, 1993 and 1992, and Statements of Income,
Retained Earnings and Cash Flows for the fiscal years then ended,
together with the audit report thereon of Ernst & Young, L.L.P.,
independent certified public accountants. All of such financial
statements (including any related notes and schedules thereto) have
been or shall be prepared in accordance with GAAP throughout the
periods involved (except as otherwise indicated in the notes
thereto), and each does or shall fairly present either, as the case
may be, the consolidated financial position of the Companies as of
the respective dates thereof or the consolidated results of their
operations or changes in financial position for the period
indicated. As soon as available, the Seller shall deliver to the
Purchaser copies of S.K. Wellman's unaudited Balance Sheets as of
the end of each month from the date hereof through the Closing Date
and unaudited Statements of Income, Retained Earnings and Cash
Flows for the periods then ended, in the form that such financial
statements are prepared in the ordinary course of the Companies'
business, which statements shall be prepared in accordance with
past practice and shall fairly present the consolidated financial
position of the Companies as of the respective dates thereof or the
consolidated results of their operations for the period indicated,
subject to year-end audit adjustments.
3.8. Liabilities. To the knowledge of the Executive
Officers, none of the Companies has any material Liability, except
(i) those reflected or reserved against in the Seller's Balance
Sheet for the year ended December 31, 1994, which has previously
been furnished to the Purchaser, or in the Balance Sheet of
S.K. Wellman as of December 31, 1994, which has previously been
furnished to the Purchaser, (ii) liabilities with respect to the
transactions contemplated hereby, and (iii) liabilities incurred in
the ordinary course of business since December 31, 1994.
3.9. Assets.
(a) Each of the Companies has good and marketable
title to all of its tangible assets and personal properties
(collectively, the "Owned Assets") except for those tangible assets
and personal properties that are leased by it (collectively, the
"Leased Assets" and together with the Owned Assets, the "Assets"),
free and clear of all Liens except for: (i) those set forth on
Schedule 3.9, (ii) imperfections of title, if any, that do not
materially detract from the value of the Asset subject thereto, or
materially interfere with the manner in which such Asset is
currently being used by the Companies, and (iii) taxes and general
and special assessments not in default and payable without penalty
and interest. All of the Assets are located in or on the Real
Property.
(b) Except as disclosed in Schedule 3.9, the Assets
used in the ordinary course of the Business are, ordinary wear and
tear excepted, in working condition consistent with the past
practice at each facility of the Business.
3.10. Real Property.
(a) Schedule 3.10(a)(i) identifies each parcel or
tract of real property by location and legal description which is
owned by the Companies, whether or not used by the Companies
(collectively, the "Owned Real Property"). Schedule 3.10(a)(ii)
identifies each parcel or tract of real property by address leased
by the Companies (whether or not used by the Companies) from any
other Person (collectively, the "Leased Real Property" and together
with the Owned Real Property, the "Real Property"). The Real
Property constitutes all of the real property necessary to conduct
the Companies' business as currently being conducted.
(b) The Companies have good and marketable title to
all of the Owned Real Property, free and clear of all Liens, except
for (i) those items set forth on Schedule 3.10(b), (ii) imperfec-
tions of title, if any, that do not materially detract from the
value of the property subject thereto, or materially interfere with
the manner in which such property is being used by the Companies,
and (iii) taxes and general and special assessments not in default
and payable without penalty and interest.
(c) All agreements with respect to leases,
easements, rights of way, and other non-fee simple interests
granted to the Companies in the Leased Real Property (collectively,
the "Real Property Leases") are listed in Schedule 3.10(c). The
interest of each Company in and under each of the Real Property
Leases is free and clear of any defects, claims or Liens and
subject to no present Action or threatened Action. True and
correct copies of each of the Real Property Leases have been
provided by the Companies to the Purchaser.
(d) Each Company is lawfully in possession of all
of its Leased Real Property which is the subject of a Real Property
Lease and with respect to which such Company is a tenant or lessee
or has been granted a possessory interest in such Leased Real
Property, and all conditions precedent to the obligation of such
Company to take possession and continue to occupy all Leased Real
Property have been fulfilled.
(e) Except as set forth on Schedule 3.10(e), to the
knowledge of the Executive Officers, there is no defect in the
condition of any building, structure or improvement located on the
Real Property, including but not limited to, defects or water
leakage or damage in the buildings, defects in any fixtures and
appliances, heating and air-conditioning systems and septic tanks
or defects in other improvements, other than defects that do not or
would not cause a Material Adverse Effect.
(f) No notice has been received by the Seller or
any of the Companies of (i) any violation or claimed violation of
any building, zoning or other Laws relating to ownership or use of
the Real Property, (ii) any pending or threatened condemnation or
similar proceedings affecting the Real Property or (iii) of special
real estate Tax assessments.
3.11. Litigation. Except as set forth in the SEC
Reports or in Schedule 3.11, there are no Actions pending or, to
the knowledge of the Executive Officers, threatened against any of
the Companies or against the Seller with respect to any of the
Companies. None of the Companies is subject to any outstanding
Order.
3.12. Taxes.
(a) Except as disclosed in Schedule 3.12, all Taxes
due and payable by the Seller and the Companies with respect to all
periods prior to and through the Closing Date have been or will be
duly and properly computed, reported, fully paid and discharged and
there are not and will not be any unpaid Taxes, with respect to any
period prior to and through the Closing Date, which are or could
become a lien on the Shares, the Real Property or the Assets,
except for current Taxes not yet due and payable. Such current
Taxes not yet due and payable shall be accrued on S.K. Wellman's
balance sheet through the Closing Date in accordance with past
practice.
(b) Schedule 3.12 lists all federal, state,
provincial, local and foreign income Tax returns filed by the
Seller and the Companies for the three tax years ending
December 31, 1993, indicates those income Tax returns that have
been examined by the appropriate Government, and indicates those
income Tax returns that are currently the subject of examination by
the appropriate Government. The Seller has delivered to the
Purchaser (i) copies of all income Tax returns filed by the
Companies for the three tax years ending December 31, 1993, and
(ii) examination reports, statements of deficiency, and similar
reports issued by the appropriate Government with respect to such
tax years.
(c) Except as disclosed in Schedule 3.12, none of
the Companies or the Seller has agreed to any extension of time
with respect to the assessment of any Taxes. Except as disclosed
in Schedule 3.12, none of the Companies or the Seller is a party to
any income Tax allocation or sharing agreement. Except as
disclosed in Schedule 3.12, none of the Companies has been a member
of an affiliated group (as defined in Code Section 1504) filing a
consolidated federal income Tax return (other than an affiliated
group the common parent of which was the Seller).
(d) The Seller is not a nonresident alien, individ-
ual, foreign person or foreign corporation for purposes of the
provisions of Code Sections 871, 882 or 1445. On or before the
Closing Date, the Seller shall execute and deliver to the Purchaser
a "qualifying statement" as defined in Code Section 1445(b)(4) or
an affidavit of non-foreign status described in Code Section
1445(b)(2).
3.13. Employment and Labor Matters. Except as set forth
on Schedule 3.13, (i) none of the Companies is a party to any
collective bargaining agreement or agreement of any kind with any
union or labor organization, (ii) no union or other collective
bargaining unit has been certified or recognized by any of the
Companies as representing any employee, nor, to the knowledge of
the Executive Officers, is any organizing activity involving the
Companies pending or threatened by any labor organization or group
of employees of the Companies, (iii) there are no controversies
pending or, to the knowledge of the Executive Officers, threatened
between any of the Companies and any labor union or collective
bargaining unit representing, or seeking to represent, any of their
respective employees, (iv) there are no strikes, work stoppages,
slowdowns, or lockouts, or any matters relating to the Companies
pending before the National Labor Relations Board or foreign
Government, and (v) no Company has received a notice that there has
been an attempt by any union or other labor organization to
organize any of such Company's employees at any time since January
1, 1990. Except as set forth on Schedule 3.13, none of the Com-
panies has failed to comply with any applicable Laws relating to
wages, hours, health and safety (including, without limitation, the
Occupational Safety and Health Act of 1978, as amended), payment of
social security withholding and other taxes, maintenance of
workers' compensation insurance, labor and employment relations and
employment discrimination.
3.14. Employee Benefit Matters.
(a) Schedule 3.14(a) lists all plans, programs,
payroll practices and similar arrangements (including, without
limitation, severance pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation,
bonus or other incentive compensation, stock purchase arrangements
or policies) maintained by or on behalf of the Seller or any of the
Companies since January 1, 1992 that provide benefits or compensa-
tion to, or for the benefit of, current or former employees of the
Companies ("Plan" or "Plans"). Correct and complete copies of each
Plan document, summary plan description, related trust agreements
or annuity contracts (or any other funding instruments) listed in
Schedule 3.14(a), the most recent determination letter issued by
the Internal Revenue Service with respect to each Qualified Plan,
each IRS Form 5500 series annual filing required to be filed with
any governmental agency for each Plan for the three most recent
plan years and all actuarial reports prepared for the last three
plan years of each Plan, other than an "individual account plan,"
have heretofore been delivered by the Seller to the Purchaser.
(b) With respect to each Plan (other than a
Multiemployer Plan), to the knowledge of the Executive Officers,
except as set forth on Schedule 3.14(b): (i) no Action is pending
or threatened involving such Plan; (ii) such Plan has been
administered and operated substantially in compliance with, and has
been amended to comply with all applicable Laws; (iii) such Plan
has been administered and operated only in the ordinary and usual
course and substantially in accordance with its terms; (iv) as
regards Plans which are still in existence, each of the Plans which
are employee pension benefit plans within the meaning of Section
3(2) of ERISA are intended to qualify under Section 401 of the Code
("Qualified Plans") and nothing concerning the qualification of any
such Qualified Plan has occurred with respect to the plan operation
which could cause the loss of such qualification or the imposition
of any liability, penalty, or tax under ERISA or the Code; (v) as
regards any Plan which has been terminated, each of the Plans which
are employee pension benefit plans within the meaning of Section
3(2) of ERISA are intended to qualify under Section 401 of the Code
and nothing substantial concerning the qualification of any such
Plan has occurred with respect to the plan operation which could
cause the loss of such qualification or the imposition of any
liability, penalty, or tax under ERISA or the Code; and (vi) all
reports required by any governmental agency with respect to each
Plan have been timely filed.
(c) With respect to each Plan which is subject to
ERISA (other than any Multiemployer Plan), to the knowledge of the
Executive Officers, such Plan has not at any time been involved in
a transaction which would constitute a "prohibited transaction"
within the meaning of Section 406 of ERISA or a class or adminis-
trative exemption issued by the Department of Labor, and has not
been involved in a breach of fiduciary duty under Section 404 of
ERISA.
(d) Each Plan which covers, or is intended
primarily to cover, only employees who are located in a country
other than the United States (each such Plan being referred to
herein as a "Foreign Plan") is listed on Schedule 3.14(d) and, to
the knowledge of the Executive Officers, each Foreign Plan has been
funded, administered, and operated substantially in compliance with
the Laws of the jurisdiction(s) to which it is subject.
(e) To the knowledge of the Executive Officers,
neither the Companies nor any member of the controlled group of
corporations or businesses of which they are part have taken, or
intend to take, any action and no event has occurred which has
resulted or could reasonably be expected to result in assessment of
withdrawal liability under Title IV of ERISA.
(f) The Companies have paid all premiums (and
interest charges and penalties for late payment, if applicable) due
the Pension Benefit Guaranty Corporation ("PBGC") with respect to
each Plan and each plan year thereof for which such premiums are
required. To the knowledge of the Executive Officers, there has
been no "reportable event" (as defined in Section 4043(b) of ERISA
and the regulations of the PBGC under that section) with respect to
any Plan subject to Title IV of ERISA. No liability to the PBGC
has been incurred by the Seller or any ERISA Affiliate on account
of any termination of a Plan subject to Title IV of ERISA. Except
as disclosed on Schedule 3.14(f), no filing has been made by the
Seller (or any ERISA Affiliate) with the PBGC (and no proceeding
has been commenced by the PBGC) to terminate any Plan subject to
Title IV of ERISA maintained, or wholly or partially funded, by the
Seller (or any ERISA Affiliate). Neither the Seller nor any ERISA
Affiliate has (i) ceased operations at a facility so as to become
subject to the provisions of Section 4062(e) of ERISA, (ii)
withdrawn as a substantial employer so as to become subject to the
provisions of Section 4063 of ERISA, or (iii) ceased making
contribution on or before the date of the Closing to any Plan
subject to Section 4064(a) of ERISA to which the Seller (or any
ERISA Affiliate) made contributions during the five years prior to
the date of the Closing.
(g) Except as disclosed on Schedule 3.14(g),
neither the Seller nor any other trade or business (whether or not
incorporated) which is under common control with the Seller or is
treated as a single employer with the Seller under Section 414(b),
(c) or (m) of the Code ("ERISA Affiliate") has maintained,
contributed to or has been obligated to contribute to any defined
benefit pension plans subject to the provision of Title IV of
ERISA, other than multiemployer plans (as defined in ERISA Section
3(37)) ("Multiemployer Plans") which Multiemployer Plans are
clearly identified in separate categories on Schedule 3.14(g).
(h) The most recent IRS Form 5500 series annual
filing for each Qualified Plan subject to Title IV of ERISA
contains an accurate description of the financial status of each
such Qualified Plan and there have been no adverse changes since
the most recent forms provided with respect to each such Qualified
Plan.
(i) All contributions and premiums required by Law
or by the terms of any Plan or any agreement relating thereto have
been timely made.
3.15. Proxy Statement. The Proxy Statement will comply
in all material respects as to form with the requirements of the
Exchange Act and the rules and regulations thereunder, and will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they are made, not misleading; except that no representation
is made by the Seller with respect to any information supplied by
the Purchaser or any Affiliate of the Purchaser in writing to the
Seller specifically for inclusion in the Proxy Statement.
3.16. Environmental Matters.
(a) Except as disclosed by the environmental audits
and reports listed on Schedule 3.16(a)(i), true and complete copies
of which have been delivered to the Purchaser, or as otherwise set
forth on Schedule 3.16(a)(ii), to the knowledge of the Executive
Officers, the Companies have been and continue to be in substantial
compliance with all applicable Environmental Laws, including
without limitation all Environmental Laws requiring the obtaining
of, and complying with, permits, licenses, approvals and authoriza-
tions. Schedule 3.16(a)(i) identifies, with respect to the Real
Property: (i) all environmental audits, assessments or occupational
health studies, of which the Seller or any of the Companies has a
copy, undertaken by, or at the direction of, the Seller, any of the
Companies, any Government or any predecessor in interest since
January 1, 1990; (ii) the results of the most recent analyses of
water (including groundwater analyses), soil, air or asbestos
samples, of which the Seller or any of the Companies has a copy,
where non-compliance or contamination is indicated; and (iii) the
most recent inspection of each of the Companies' operating
facilities by the Environmental Protection Agency or other relevant
environmental authority. The Seller has previously furnished the
Purchaser with correct and complete copies of all written communi-
cations with environmental agencies relating to issues of noncom-
pliance.
(b) Except as set forth on Schedule 3.16(b), there
are no pending or, to the knowledge of the Executive Officers,
threatened Actions or any outstanding Orders against or involving
any of the Companies relating to Hazardous Materials, any Release,
any Environmental Law or any permits, licenses, approvals or
operating authorizations under any Environmental Law. All Actions
and Orders against or involving any of the Companies which occurred
during such Company's ownership or operation of the Real Property
relating to any Environmental Law, Release or Hazardous Materials
are described in Schedule 3.16(b).
(c) Except as set forth on Schedule 3.16(c), to the
knowledge of the Executive Officers, no underground storage tanks
or above ground storage tanks are or at any time have been located
on or in the Real Property.
(d) Except as disclosed on Schedule 3.16(d), where
required by an applicable Environmental Law, the Companies have, to
the knowledge of the Executive Officers, reported promptly to the
appropriate authority or authorities each unauthorized Release of
any Hazardous Substance at any of the Real Property, or to the
actual knowledge of the Executive Officers, any facility leased,
owned, used or operated by any of the Companies' predecessors in
interest. Each such reported unauthorized Release of any Hazardous
Substance is also disclosed in Schedule 3.16(d).
(e) Except as disclosed in Schedule 3.16(e), to the
knowledge of the Executive Officers, neither the Companies nor, to
the actual knowledge of the Executive Officers, any predecessor in
interest has disposed, treated, or arranged for the storage,
disposal or treatment of, any Hazardous Substance or other waste at
a site or location or has leased, used, or owned a site or location
which, pursuant to any Environmental Law: (i) has been placed on
the National Priorities List (as such list is available on Westlaw
as of the date hereof) or its state or foreign equivalent; (ii) the
Environmental Protection Agency or relevant state or foreign
authority has proposed, or is proposing, to place on the National
Priorities List or state or foreign equivalent; or (iii) is on any
state Comprehensive Environmental Response Compensation Liability
Information System List. Except as disclosed in Schedule 3.16(e),
to the knowledge of the Executive Officers, neither the Companies
nor, to the actual knowledge of the Executive Officers, any
predecessor in interest is on notice of, or subject to a claim,
administrative order or other demand either to take "removal" or
"remedial" action as those terms are defined by any applicable
Environmental Law or to reimburse any person who has taken
"removal" or "remedial" action in connection with any site. Except
as disclosed in Schedule 3.16(e), to the knowledge of the Executive
Officers, neither the Companies nor, to the actual knowledge of the
Executive Officers, any predecessor in interest has leased, used or
owned a site or location which, pursuant to any Environmental Law,
has filed with the appropriate governmental authority (or has had
filed with respect to it) notification of hazardous waste generator
activities. Except as disclosed in Schedule 3.16(e), to the actual
knowledge of the Executive Officers, neither the Companies nor any
predecessor in interest has disposed, treated, or arranged for the
storage, disposal or treatment of any Hazardous Substance or other
waste at a site or location which, pursuant to any Environmental
Law, has filed with the appropriate governmental authority (or has
had filed with respect to it) notification of hazardous waste
generator activities.
(f) All representations and warranties made by the
Seller relating to environmental matters, including, without
limitation, compliance with all Environmental Laws, obtaining and
complying with all permits, licenses, approvals, and operating
authorizations regarding environmental matters; Actions and Orders
regarding environmental matters; Hazardous Materials, Hazardous
Substances, and Releases; and the presence of underground storage
tanks are made solely and exclusively in this Paragraph 3.16.
3.17. Intellectual Property Rights.
(a) Schedule 3.17 contains a correct and complete
list of all trademarks, service marks, trade names, trade secrets,
inventions, devices, computer programs (other than off-the-shelf
and shrinkwrap software), patents, patent applications, and
copyrights and all improvements thereof and all registrations and
applications thereof (collectively, the "Intellectual Property")
currently used, owned or licensed to or by any of the Companies
which is valuable in the operation of the Companies' business and,
with respect to each (i) patent or patent application, identifies
the date(s) and jurisdiction(s) in which the patent was granted or
applied for and the number of such patent or application, (ii) non-
patented invention, device or computer program, indicates whether
any of the Companies has sought any advice as to the patentability
of the same (in each such case, summarizing such advice), and
(iii) trade secret, indicates the measures which have been taken to
protect the secrecy of the item. The Seller has provided the
Purchaser with true and complete copies of the documents evidencing
the Intellectual Property. The Companies have the means, rights
and information required to manufacture, sell, offer for sale and
use the items and perform the services as presently being manufac-
tured, sold, offered for sale, used or performed by the Companies,
and have the right to do the foregoing without incurring any
liability for license fees or royalties (except as disclosed on
Schedule 3.17) or any claims of infringement of patents, trade
secrets, copyrights, trademarks, service marks, or other propri-
etary rights of any Person. None of the Companies is a party to,
either as licensor or licensee, and is not bound by or subject to,
any license agreement for any Intellectual Property, except as
described in Schedule 3.17. True and correct copies of each such
agreement have been provided by the Companies to the Purchaser. To
the knowledge of the Executive Officers, there are no rights of
third parties, or rights claimed by third Persons to exist, with
respect to any Intellectual Property which would have a Material
Adverse Effect.
(b) To the knowledge of the Executive Officers, the
Companies have not interfered with, infringed upon or misappro-
priated any intellectual property rights of any other Person, and
none of the Companies has ever received any charge, complaint,
claim, demand or notice alleging any such interference, infringe-
ment or misappropriation. To the knowledge of the Executive
Officers, no Person has interfered with, infringed upon or
misappropriated any of the Intellectual Property.
3.18. Insurance. Schedule 3.18 contains a correct and
complete list and description of all policies of insurance
currently maintained by the Companies, all of which are, and will
be maintained through the Closing Date, in full force and effect.
The Companies have delivered to the Purchaser a correct and
complete copy of each such insurance policy. All premiums due
thereon have been paid, and the Companies have not received any
notice of cancellation with respect thereto. Schedule 3.18 also
lists and describes all occurrences which may form the basis for a
claim in excess of $50,000 by or on behalf of the Companies under
any such policy; and, to the knowledge of the Executive Officers,
the Companies have timely given notice of all such occurrences to
the appropriate insurer and have not waived (either intentionally
or inadvertently) their right to make the related claim under any
such policy.
3.19. Customers and Suppliers; Company Contracts.
(a) Schedule 3.19(a)(i) sets forth the names and
addresses of any suppliers of significant goods or services to each
Company (other than public utilities) with respect to which
practical alternative sources of supply are not readily available
or from which any facility owned or used by one of the Companies
purchased at least One Hundred Thousand United States Dollars (U.S.
$100,000) (or the equivalent in any other currency) in goods or
services in calendar year 1994 (collectively, the "Significant
Suppliers"), and Schedule 3.19(a)(ii) sets forth the names and
addresses of each customer of each Company that purchased at least
Two Hundred Fifty Thousand United States Dollars (U.S. $250,000)
(or the equivalent in any other currency) in goods or services from
such Company in calendar year 1994 (collectively, the "Significant
Customers"). Except as disclosed in Schedule 3.19(a)(iii), the
Executive Officers are not aware that (i) any Significant Supplier
or Significant Customer intends to discontinue or substantially
diminish or substantially adversely change its relationship with
the Companies or the terms thereof, or (ii) any Significant
Supplier has notified any of the Companies of any pending increase
in prices or charges for goods or services presently supplied.
Neither the Seller nor any of the Companies is required to provide
bonding or any other security agreements in connection with any
transactions with any of the current customers or suppliers of any
of the Companies.
(b) Schedule 3.19(b) identifies each of the written
or, to the knowledge of the Executive Officers, oral contracts,
agreements and commitments (collectively, the "Company Contracts"):
(i) with each Significant Supplier and Significant Customer; (ii)
for the employment of any officer or employee of the Companies;
(iii) providing for the services of dealers, distributors, sales
representatives or similar representatives in connection with the
business of the Companies; (iv) containing any covenants by or
binding any of the Companies not to compete or to abide by any
confidentiality agreement; or (v) that is material to the business
of the Companies taken as a whole. The Seller has heretofore
delivered a true and complete copy of each of the written Company
Contracts to the Purchaser; provided, that all pricing information
has been redacted from all Company Contracts with Significant
Suppliers and Significant Customers.
(c) All of the Company Contracts have been entered
into in the ordinary course of the Companies' business, are valid
and enforceable in all material respects in accordance with their
terms, are in full force and effect, and, assuming all consents to
assignment thereof that are described in Schedule 3.4 are received,
will continue to be valid and enforceable and in full force and
effect on identical terms following the consummation of the
transactions contemplated herein. There are no existing defaults,
events of default or events which, with the giving of notice or
lapse of time or both, would constitute a default or event of
default by any Company under any Company Contract or Real Property
Lease and, to the knowledge of the Executive Officers, the other
party to each Company Contract is not in default thereunder and
there exists no event of default or event which, with the giving of
notice or lapse of time or both, would constitute a default or
event of default by such party under any Company Contract.
3.20. Government Reports. Schedule 3.20 contains a
correct and complete list, and the Companies have previously
furnished the Purchaser with correct and complete copies of, all
material reports (other than Tax returns and SEC Reports), if any,
filed since January 1, 1993, by the Companies with any Government
or self-regulatory organization.
3.21. Agreements and Transactions with Affiliates.
Except as set forth in Schedule 3.21, none of the Companies are
directly or indirectly a party to any contract, agreement or lease
with, or any other commitment to, the Seller or any Affiliate of
the Seller. Other than the Companies, the Seller has no direct or
indirect interest in any Person involved in any business which is
competitive with the business of the Companies.
3.22. Absence of Changes. Except as expressly provided
for in this Agreement or as set forth in Schedule 3.22, since
December 31, 1994:
(a) there has been no Material Adverse Effect;
(b) the business of each Company has been operated
in the ordinary course and consistent with its prior practices;
(c) the books, accounts and records of each Company
have been maintained in the usual, regular and ordinary manner on
a basis consistent with prior years and in accordance with GAAP;
and, except as required by GAAP, there has been no change by any
Company in accounting methods, principles or practices;
(d) there has been no declaration, setting aside or
payment of any dividend or other distribution on or in respect of
the capital stock of any Company, nor has there been any direct or
indirect redemption, retirement, purchase or other acquisition of
any of the capital stock or other securities of any Company;
(e) there have been no amendments or other
corporate actions either having the effect of an amendment
increasing past or future contributions of any kind whatsoever to
any Plan of any Company or increasing past or future benefit
obligations of any kind whatsoever under any Plan of any Company;
(f) none of the Companies has entered into any
agreement, contract, lease or license outside the ordinary course
of business; and
(g) there has been no any cancellation of any debts
or receivables owed to or claims held by the Seller or any of the
Companies with respect to any of the Companies.
3.23. Warranties. A description or copies of the forms
of all express written warranties and disclaimers of warranties
used during the past three years with respect to products or
services of the Companies are set forth in Schedule 3.23.
3.24. Inapplicability of Hart-Scott-Rodino Act. The
total assets and annual net sales of the ultimate parent entity in
which the Seller is included do not exceed $100,000,000, all as
determined pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, the rules promulgated thereunder, and the
Federal Trade Commission staff's formal and informal interpreta-
tions thereof.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND THE PARENT
As an inducement to the Seller to enter into and perform
this Agreement, the Parent and the Purchaser hereby represent and
warrant to the Seller as follows:
4.1. Organization. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Ohio. The Parent is a corporation organized, validly
existing and in good standing under the laws of the State of
Delaware.
4.2. Authorization; No Inconsistent Agreements.
(a) The Purchaser has full corporate power and
authority to execute and deliver this Agreement and the Escrow
Agreement and to perform and comply with this Agreement and the
Escrow Agreement in accordance with their respective terms. All
corporate proceedings required to be taken by the Purchaser to
authorize the execution, delivery and performance of this Agreement
and the Escrow Agreement have been properly taken, and this
Agreement and the Escrow Agreement constitute the valid and legally
binding obligations of the Purchaser, subject to general equity
principles, enforceable in accordance with their respective terms,
except as the same may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting the
rights of creditors generally. Neither the execution and delivery
of this Agreement and the Escrow Agreement, nor the consummation of
the transactions contemplated herein or therein will (i) result in
a violation of the articles of incorporation or code of regulations
(or other governing document) of the Purchaser or any applicable
Law or Order, or (ii) result in a breach of, conflict with or
default under any contract or other instrument to which the
Purchaser is a party or by which any of the assets of the Purchaser
is subject or bound, or will result in the creation of any Lien on
any of the assets of the Purchaser or acceleration of any debt,
except as contemplated by the Secured Credit Agreement among the
Purchaser, Friction Products Co., Logan Metal Stampings, Inc., and
Household Commercial Financial Services, Inc., dated March 14,
1989, as amended through the date hereof, and all agreements
related thereto.
(b) The Parent has full corporate power and
authority to execute and deliver this Agreement and to perform and
comply with this Agreement in accordance with its terms. All
corporate proceedings required to be taken by the Parent to
authorize the execution, delivery and performance of this Agreement
have been properly taken, and this Agreement constitutes the valid
and legally binding obligation of the Parent, subject to general
equity principles, enforceable in accordance with its terms, except
as the same may be limited by bankruptcy, insolvency, reorganiza-
tion, fraudulent conveyance or similar laws affecting the rights of
creditors generally. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated
herein will (i) result in a violation of the certificate of
incorporation or bylaws of the Parent or any applicable Law or
Order, or (ii) result in a breach of, conflict with or default
under any contract or other instrument to which the Parent is a
party or by which any of the assets of the Parent are subject or
bound, or will result in the creation of any Lien on any of the
assets of the Parent or acceleration of any debt, except as
contemplated by the Secured Credit Agreement among the Purchaser,
Friction Products Co., Logan Metal Stampings, Inc. and Household
Commercial Financial Services, Inc. dated March 14, 1989, as
amended through the date hereof, and all agreements related
thereto.
4.3. Consents.
(a) The execution and delivery of this Agreement
and the Escrow Agreement by the Purchaser, the consummation of the
transactions contemplated herein and therein and the performance by
the Purchaser hereunder and thereunder does not require the
consent, approval or action of, or any filing with or notice to,
any Government or other Person, except: (i) as set forth on
Schedule 4.3; and (ii) where the failure to obtain such consent,
approval or action, or to make any filing or notice, would not
prevent or materially delay consummation of the transactions
contemplated herein or otherwise prevent the Purchaser from
performing its obligations under this Agreement.
(b) The execution and delivery of this Agreement by
the Parent, the consummation of the transactions contemplated
herein and the performance by the Parent hereunder does not require
the consent, approval or action of, or any filing with or notice
to, any Government or other Person, except: (i) as set forth on
Schedule 4.3; and (ii) where the failure to obtain such consent,
approval or action, or to make any filing or notice, would not
prevent or materially delay consummation of the transactions
contemplated herein or otherwise prevent the Parent from performing
its obligations under this Agreement.
4.4. Inapplicability of Hart-Scott-Rodino Act. The total
assets and annual net sales of the ultimate parent entity in which
the Purchaser is included do not exceed $100,000,000, all as
determined pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, the rules promulgated thereunder, and the
Federal Trade Commission staff's formal and informal interpreta-
tions thereof.
5. CONDUCT OF THE COMPANIES' BUSINESS PENDING CLOSING
The Seller covenants and agrees that, except as otherwise
provided herein, without the prior written consent of the Purchas-
er, between the date hereof and the Closing Date:
5.1. Business in the Ordinary Course. The Companies'
businesses shall be conducted only in the ordinary and usual course
and consistent with prior practices, without the creation of any
additional indebtedness for borrowed money, provided that (a) the
Companies may each continue to draw on their existing line of
credit with Barclays Business Credit, Inc. and the Italian Credit
Facility in a manner consistent with their past practices, (b) the
Companies may declare and pay dividends to S.K. Wellman or the
Seller, as the case may be, in amounts sufficient to fund the
Seller's dividend obligations on its currently outstanding shares
of Series A Preferred Stock, par value $30.00 per share and
interest obligations on the Seller's outstanding Variable Rate
Subordinated Bonds, (c) the Companies may continue to make capital
expenditures pursuant to plans set forth in Schedule 5.1, and (d)
the Companies may contribute, in accordance with past practice, to
the Plans and Foreign Plans identified on Schedules 3.14(a) and
(d), respectively. Other than as provided in the foregoing
Paragraph 5.1(b) and pursuant to a management agreement between the
Seller and S.K. Wellman which provides for monthly payments of
$100,000 from S.K. Wellman to the Seller, from December 31, 1994,
through the Closing Date, the Companies shall not (i) make any
dividend, distribution or other payment, direct or indirect, to the
Seller, (ii) redeem, convert, exchange, retire, purchase, or make
any other acquisition for value, direct or indirect, of any shares
of any class of stock of the Companies now or hereafter outstand-
ing, or (iii) make any payment to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of stock of the Companies now or
hereafter outstanding. Each of the representations and warranties
of the Seller contained in this Agreement and in any Schedule
delivered by or on behalf of the Seller pursuant to this Agreement
shall be true, complete and correct on the Closing Date. The
Seller shall, and shall cause the Companies to, use their best
efforts to preserve the Companies' businesses, to keep available
the services of the Companies' present employees, to preserve the
goodwill of the Companies' suppliers, customers and others having
business relations with the Companies, and to assist the Purchaser
in retaining the services of the Companies' employees after the
Closing Date on terms satisfactory to the Purchaser. The Companies
shall not enter into any contract nor effect any transaction with
any Affiliate that is not described in Paragraph 3.21.
5.2. No Material Changes. No action shall be taken by
the Companies or the Seller which shall materially alter the
organization, capitalization, financial structure, practices or
operations of the Companies. Without limiting the generality of
the foregoing, none of the Companies shall engage in any practice,
take any action or enter into any transaction described in
Paragraph 3.21.
5.3. Supplements to Schedules. From time to time prior
to the Closing Date, the Seller shall promptly supplement or amend
any Schedules provided for in this Agreement: (i) if any matter
arises hereafter which, if existing or occurring at or prior to the
date of this Agreement, would have been required to be set forth or
described in any such Schedule; or (ii) if it becomes necessary to
correct any information in any such Schedule which has become
inaccurate; provided, however, that no such supplement or amendment
to any Schedule shall be considered in determining satisfaction of
the conditions set forth in Paragraph 6.2(a); and provided,
further, that, if after such supplement or amendment, the Purchaser
consummates the transactions contemplated herein, it shall
automatically waive any and all claims it may have with respect to
the Seller's failure to disclose on the date hereof the information
contained in such supplement or amendment; provided, however, that
such waiver shall not be construed as a waiver of any and all
claims based on any misrepresentation or inaccuracy contained in
such supplement or amendment.
5.4. Consents to Assignment. The Seller shall use its
best efforts to obtain consents to assignment for all Company
Contracts which require consent to assignment and which are being
transferred to the Purchaser hereunder, whether or not the
Purchaser has agreed to waive such consents as a condition to
Closing, including but not limited to those consents described in
Paragraph 3.4.
6. CONDITIONS TO OBLIGATIONS OF THE PARTIES
6.1. Conditions to each Party's Obligation to Consummate
the Purchase and Sale. The respective obligations of each party
under this Agreement to consummate the transactions contemplated
herein at the Closing is subject to the fulfillment and satisfac-
tion of each and every of the following conditions on or prior to
the Closing, any or all of which may be waived in whole or in part:
(a) the Agreement and the sale of the Shares shall
have been approved and adopted by the requisite vote of the
shareholders of the Seller in accordance with the requirements of
applicable Law;
(b) no Forum shall have issued any Order or taken
any other action restraining, enjoining, or otherwise prohibiting
the transactions contemplated herein which Order has become final
and nonappealable, and no Law shall be in effect which shall make
the acquisition or holding by the Purchaser of the Shares illegal
or otherwise prohibit the consummation of the purchase and sale of
the Shares hereunder;
(c) the Seller, the Purchaser and the Parent shall
have performed in all material respects all of their respective
obligations and covenants required to be performed and complied
with by each of them under this Agreement; and
(d) The Companies shall (with funds provided by the
Purchaser), at the Closing, repay all indebtedness to Barclays
Business Credit, Inc. pursuant to the Barclays Credit Agreement
including, without limitation, any penalties, premiums or other
amounts payable as a result of the prepayment of the loans
outstanding under the Barclays Credit Agreement, and Barclays
Business Credit, Inc. shall have released all the Companies and the
Seller from all obligations to Barclays Business Credit, Inc. and
all Liens against the Companies or the Seller or any of their
capital stock and Assets, pursuant to documentation that is in form
and substance reasonably satisfactory to the Seller and the
Purchaser.
6.2. Conditions to Obligations of the Purchaser. The
obligation of the Purchaser and the Parent under this Agreement to
consummate the transactions contemplated herein at the Closing is
subject to the fulfillment and satisfaction of each and every of
the following conditions on or prior to the Closing, any or all of
which may be waived in whole or in part by the Purchaser and the
Parent:
(a) the representations and warranties contained in
this Agreement and in any Schedule delivered by or on behalf of the
Seller pursuant to this Agreement shall be true, complete and
correct in all material respects as of the date when made and at
and as of the Closing Date, except to the extent made as of a
specific date;
(b) the Seller shall have delivered to the
Purchaser a certificate executed by the Seller, dated as of the
Closing Date, certifying that: (i) all of the representations and
warranties made by it under this Agreement and the Schedules
hereto, and in all other documents given or delivered by or on
behalf of it to the Purchaser and the Parent pursuant hereto, are
true, complete and correct in all material respects; and (ii) all
of the covenants, obligations and conditions to be performed as of
the Closing on the part of the Seller under this Agreement have
been duly performed in all material respects;
(c) the Seller shall have delivered to the
Purchaser certificates of good standing dated within fifteen (15)
days of the Closing Date with respect to the Seller and each of the
Companies (other than S.K. Wellman S.p.A.) from the secretaries of
state of their respective jurisdictions of incorporation and each
jurisdiction where they are qualified to do business;
(d) the Seller shall have delivered to the
Purchaser certified copies of the certificates of incorporation and
bylaws (or other governing documents) of the Seller and each of the
Companies;
(e) the Purchaser shall have received all authori-
zations, consents and approvals of any Government necessary or
desirable for the execution, delivery and performance of this
Agreement and the Escrow Agreement, all such authorizations,
consents and approvals shall be in full force and effect, and all
notices required to be given to Governments shall have been given
and all applicable waiting periods shall have expired;
(f) the Seller shall have delivered to the
Purchaser as soon as practicable and in no event later than the
Closing Date, all authorizations, consents and approvals described
in Paragraph 3.4;
(g) the Purchaser shall have received from
Kilpatrick & Cody, counsel to the Seller, an opinion of such
counsel, dated the Closing Date, in form and substance reasonably
satisfactory to the Purchaser; and
(h) the Seller shall have delivered to the
Purchaser the following items relating to the Owned Real Property:
(A) all original owner's policies of title insurance in the
Seller's possession, and (B) all original certified plats of survey
in the Seller's possession.
6.3. Conditions to Obligations of the Seller. The
obligation of the Seller under this Agreement to consummate the
transactions contemplated herein at the Closing is subject to the
fulfillment and satisfaction of each and every of the following
conditions on or prior to the Closing, any or all of which may be
waived in whole or in part by the Seller:
(a) the representations and warranties contained in
this Agreement and in any Schedule delivered by or on behalf of the
Purchaser and the Parent pursuant to this Agreement shall be true,
complete and correct in all material respects on and as of the
Closing Date;
(b) each of the Purchaser and the Parent shall have
delivered to the Seller a certificate, dated the Closing Date,
certifying that: (i) all of the representations and warranties
made by it under this Agreement and the Schedules hereto, and in
all other documents given or delivered by or on behalf of it to the
Seller pursuant hereto, are true, complete and correct in all
material respects; and (ii) all of the covenants, obligations and
conditions to be performed as of the Closing on the part of the
Purchaser and the Parent, respectively, under this Agreement have
been duly performed in all material respects;
(c) the Purchaser shall have delivered to the
Seller a certificate of good standing dated within fifteen (15)
days of the Closing Date with respect to the Purchaser from the
Secretary of State of the State of Ohio, and the Parent shall have
delivered to the Seller a certificate of good standing dated within
fifteen (15) days of the Closing Date with respect to the Parent
from the Secretary of State of Delaware;
(d) the Purchaser shall have delivered to the
Seller a certified copy of the articles of incorporation and code
of regulations (or other governing documents) of the Purchaser;
(e) the Seller shall have received all authoriza-
tions, consents and approvals of any Government necessary or
desirable for the execution, delivery and performance of this
Agreement and the Escrow Agreement, all such authorizations,
consents and approvals shall be in full force and effect, and all
notices required to be given to Governments shall have been given
and all applicable waiting periods shall have expired; and
(f) the Seller shall have received from Kohrman
Jackson & Krantz, counsel to the Purchaser and the Parent, an
opinion of such counsel, dated the Closing Date, in form and
substance reasonably satisfactory to the Seller.
7. INDEMNITIES
th n Indemnification of the Purchaser. In accordance
with and subject to the provisions of this Article 7, the Seller
shall indemnify and hold harmless the Purchaser, its Affiliates,
and the shareholders, officers, directors, agents and employees of
the Purchaser and its Affiliates (collectively, the "Indemnitees")
from and against and in respect of any and all losses, damages,
liabilities, costs and expenses, including reasonable attorneys'
fees and amounts paid in settlement (collectively, the "Indemnified
Losses"), suffered or incurred by any one or more of the In-
demnitees by reason of, or arising out of:
(a) any misrepresentation or inaccuracy in any
representation, or any breach of any warranty by, the Seller
contained in this Agreement;
(b) any misrepresentation, inaccuracy or omission
in any Schedule delivered by or on behalf of the Seller pursuant to
this Agreement;
(c) any breach or nonfulfillment of any covenant or
agreement of the Seller contained in this Agreement or in any
Schedule delivered to the Purchaser by or on behalf of the Seller
pursuant to this Agreement;
(d) any Taxes due and payable prior to and through
the Closing Date; and
(e) any claim made by a third party alleging facts
which, if true, would entitle the Purchaser to indemnification
hereunder.
7.2. Calculation of Indemnified Loss.
(a) Any Indemnified Loss not incurred in U.S.
dollars shall be converted into U.S. dollars at the rate quoted in
The Wall Street Journal, Eastern Edition, in its "Key Currency
Cross Rates" column (or any successor thereto selected by the
Seller in its sole and reasonable discretion) on the date on which
the Indemnified Loss is incurred, or if no issue of The Wall Street
Journal was published on such date, on the Business Day immediately
prior to such date.
(b) The parties shall cooperate with each other to
maximize the availability of insurance coverage for any Action
brought by a third party, and, if any insurance carrier for either
party or the Companies agrees to defend any such third party
Action, such defense shall be tendered to such insurance carrier
and the rights of the parties between themselves regarding the
assumption and control of such defense shall be subject to the
reasonable requirements of such insurance carrier. The amount of
any Indemnified Loss otherwise payable to an Indemnitee hereunder
shall be reduced by the amount of any insurance proceeds received
by such Indemnitee as compensation for the damage or loss caused by
the act, omission, fact or circumstance giving rise to such loss.
7.3. Defense of Claims.
(a) No claim shall be brought by any Indemnitee
under this Article 7, and no Indemnitee shall be entitled to
receive any payment with respect thereto, unless such Indemnitee,
at any time prior to the expiration of the Survival Period, gives
the Seller written notice of the existence of such claim specifying
in reasonable detail the basis therefore. Failure to so provide
notice shall not relieve the Seller from liability except to the
extent of damages or prejudice that results from such failure. The
rights of the Indemnitees to indemnification under this Article 7
shall be their sole and exclusive remedy under this Agreement and
shall preclude the assertion of any other right or remedy against
the Seller or any of its Affiliates by any Indemnitee arising from
or in connection with this Agreement or any other document referred
to herein or executed and delivered in connection herewith, other
than actions for specific performance or injunctive relief.
(b) If any Action by a third party arises after the
Closing Date for which the Seller may be liable under the terms of
this Agreement, then the Indemnitees shall notify the Seller within
a reasonable time after such Action arises and is known to the
Indemnitees, and shall give the Seller a reasonable opportunity:
(i) to conduct any proceedings or negotiations in connection
therewith and necessary or appropriate to defend the Indemnitees;
(ii) to take all other required steps or proceedings to settle or
defend any Action; and (iii) to employ counsel acceptable to the
Indemnitees to contest any such Action in the name of the In-
demnitees or otherwise. The expenses of all such Actions shall be
borne by the Seller and shall constitute Indemnified Losses
hereunder. If the Seller wishes to assume the defense of any such
Action, then it shall give written notice to the Indemnitees within
30 days after notice from the Indemnitees of such Action (unless
the Action reasonably requires a response in less than 30 days
after the notice is given to the Seller, in which event it shall
notify the Indemnitees at least 10 days prior to such response
date), and the Seller shall thereafter assume the defense of any
such Action, through counsel reasonably satisfactory to the
Indemnitees; provided, that the Indemnitees may participate in such
defense and employ their own counsel at their own expense.
Notwithstanding the foregoing, if (i) the employment of such
counsel shall have been authorized in writing by the Seller, (ii)
the Seller shall not have employed counsel reasonably satisfactory
to such Indemnitees to have charge of the defense of such action
within a reasonable time after notice of commencement of the
Action, or (iii) such Indemnitees shall have reasonably concluded
that there may be defenses available to it which are different from
or additional to those available to the Seller (in which case the
Seller shall not have the right to direct the defense of such
action on behalf of the Indemnitee with respect to such defenses),
the fees and expenses of one additional counsel shall be borne by
the Seller and shall constitute Indemnified Losses hereunder.
(c) If the Seller does not assume the defense of,
or if after so assuming the Seller fails to defend, any such
Action, then the Indemnitees may defend against such Action in such
manner as they may deem appropriate; provided that the Seller may
participate in such defense at its own expense, and provided,
further that the Indemnitees may not settle such Action without the
Seller's prior written consent. If no settlement of such Action is
made, the Seller shall satisfy any Order rendered with respect to
such Action, before the Indemnitees are required to do so, and pay
all expenses, legal or otherwise, reasonably incurred by the
Indemnitees in the defense of such Action, and the Seller shall
promptly reimburse the Indemnitees for the amount of all expenses,
legal and otherwise, reasonably incurred by the Indemnitees in
connection with the defense against and approved settlement of such
Action.
7.4. Limitation on Liability.
(a) The Indemnitees shall not be entitled to any
payments from the Seller pursuant to the provisions of any of
Paragraphs 7.1, 7.2 and 7.3 hereof with respect to the reporting,
payment or liability for Taxes for any period prior to the Closing
Date or for a breach of the representations and warranties in
Paragraph 3.12 (collectively, "Special Indemnified Losses"),
unless, until and only to the extent that the aggregate of all
Special Indemnified Losses exceeds Fifty Thousand United States
Dollars (U.S. $50,000) (the "Tax Deductible").
(b) The Indemnitees shall not be entitled to any
payment from the Seller pursuant to the provisions of any of
Paragraphs 7.1, 7.2 and 7.3 hereof unless, until and only to the
extent that Indemnified Losses (including Special Indemnified
Losses, but only to the extent that such Losses exceed the Tax
Deductible) exceed Six Hundred Thousand United States Dollars (U.S.
$600,000) in the aggregate; provided, however, that such deductible
shall not apply to any Indemnified Loss suffered as a result of a
breach of any representation or warranty contained in Paragraph
3.2, which shall be paid by the Seller from the first dollar of
Indemnified Loss.
(c) The maximum liability of the Seller pursuant to
this Article 7 is limited to Five Million United States Dollars
(U.S. $5,000,000).
7.5. No Liability or Contribution by the Companies. The
Companies shall not have any liability to the Seller as a result of
any misrepresentation or breach of representation or warranty
contained in this Agreement or any Schedule delivered by or on
behalf of the Seller pursuant to this Agreement, or breach of any
covenant or agreement of the Seller contained in this Agreement or
in any Schedule delivered to the Purchaser by or on behalf of
Seller pursuant to this Agreement.
8. SURVIVAL OF REPRESENTATIONS AND OTHER PROVISIONS
8.1. Survival. The representations, warranties and
indemnities of the Seller contained in this Agreement or in any
Schedule, delivered by or on behalf of the Seller pursuant to this
Agreement shall survive any investigation heretofore or hereafter
made by the Purchaser or its Representatives and the consummation
of the transactions contemplated herein and shall continue in full
force and effect for a period of fifteen months following the
Closing Date (the "Survival Period") and shall thereafter be of no
further force and effect; provided that the Survival Period with
respect to the representations, warranties and indemnities set
forth in or relating to (i) Paragraph 3.12 shall terminate only
upon the expiration of the applicable statute of limitations
periods, (ii) Paragraphs 3.14 and 3.16 shall terminate upon the
second anniversary of the Closing, and (iii) Paragraph 3.2 shall
continue in full force and effect indefinitely. Anything herein to
the contrary notwithstanding, the Survival Period shall be extended
automatically to include any time period necessary to resolve a
claim for indemnification which was made before expiration of the
Survival Period but not resolved prior to its expiration, and any
such extension shall apply only as to claims asserted and not so
resolved within the Survival Period. Liability for any such item
shall continue until such claim shall have been finally settled,
decided or adjudicated.
9. ESCROW
9.1. Escrow Fund. To partially secure the obligations of
the Seller under Article 7 and Paragraph 2.13(b) hereof, the
Purchaser will, in accordance with the provisions of Paragraph 1.2
hereof, deposit , for a period of at least fifteen (15) months, an
amount equal to (i) $4,000,000, plus (ii) eighty five percent (85%)
of the Seller's good faith estimate of the Taxes that may arise
from the deemed sale of assets pursuant to Section 338(h)(10) of
the Code and that may be payable to any state or local taxing
authority that does not allow the Seller to file a tax return for
the portion of 1995 ending on the Closing Date (the "Escrow Fund"),
with Brown Brothers Harriman & Co., or such other Person mutually
agreed to by the parties (the "Escrow Agent"), to be administered
in accordance with the terms and provisions of an escrow agreement
in substantially the form attached hereto as Exhibit A (the "Escrow
Agreement").
10. TERMINATION
10.1. Termination for Certain Causes. This Agreement
may be terminated at any time prior to the Closing by the Seller
upon written notice to the Purchaser, or by the Purchaser upon
written notice to the Seller, as follows:
(a) by the mutual written consent of the Boards of
Directors of the Purchaser and the Seller;
(b) by either the Purchaser or the Seller, if the
Closing has not occurred on or before September 30, 1995; provided,
however, that the right to terminate this Agreement pursuant to
this Paragraph 10.1(b) shall not be available to any party whose
failure to fulfill any obligation hereunder has been the cause of,
or resulted in the failure of, the Closing to occur on or before
such date;
(c) by either the Purchaser or the Seller, if the
Seller's shareholders fail to adopt and approve this Agreement and
the sale of the Shares as required by applicable Law;
(d) by either the Purchaser or the Seller, if (i)
any Forum shall have issued any Order or taken any other action
restraining, enjoining or otherwise prohibiting the transactions
contemplated herein and such Order shall have become final and
nonappealable, or (ii) any Law shall be in effect which shall make
the acquisition or holding of the Shares illegal or otherwise
prohibit the consummation of the purchase and sale of the Shares;
(e) by the Purchaser, if there is or has been, in
the reasonable judgment of the Purchaser, a Material Adverse
Effect;
(f) by the Purchaser, if the Board of Directors of
the Seller shall have (i) withdrawn, modified or amended, in a
manner adverse to the Purchaser, its approval or recommendation of
this Agreement and the sale of the Shares to the Purchaser, or
(ii) approved, recommended or endorsed any proposal for the sale of
the Seller, sale of the Shares, or substantially all of the assets
of the Seller or Companies, other than as provided in this
Agreement;
(g) by the Board of Directors of the Seller acting
on behalf of the Seller, if prior to the Closing and in accordance
with the procedures set forth in Paragraph 2.7(a) the Board of
Directors shall have withdrawn or modified, in a manner adverse to
the Purchaser, its approval or recommendation that the shareholders
of the Seller adopt and approve this Agreement and sale of the
Shares in order to permit the Seller to execute a definitive
agreement providing for the acquisition of the Seller or in order
to approve an offer for any or all of the Shares or substantially
all of the assets of the Companies (or to permit S.K. Wellman or
the other Companies to enter into an agreement to sell substantial-
ly all of their assets), in either case, as determined by the Board
of Directors of the Seller, to be on terms more favorable to the
Seller than the terms and conditions of this Agreement; or
(h) by the Purchaser on or before April 30, 1995,
if the Purchaser receives Phase I environmental assessments
regarding the Real Property from Woodward-Clyde Consultants, Solon,
Ohio and such reports disclose matters that were not disclosed on
the audits and reports identified on Schedule 3.16(a)(i) pertaining
to the Brookpark, Solon and LaVergne Real Property, which matters
require remediation with a total cost, as estimated by Woodward-
Clyde, of $200,000 or more; provided that the Seller may elect to
cause such remediation to be effected at its sole expense at or
prior to the Closing or on such other schedule as is mutually
satisfactory to the Purchaser and the Seller; and provided,
further, that any such remediation must be completed in a manner
reasonably satisfactory to the Purchaser.
10.2. Procedure on and Effect of Termination. Pursuant
to Paragraph 10.1 hereof, written notice of termination shall be
given to each other party by the party electing to terminate, and
this Agreement shall terminate upon the giving of such notice,
without further action by any of the parties hereto. If this
Agreement is terminated as provided herein, the obligations to
consummate the transactions contemplated herein shall terminate and
there shall be no liability or continuing obligation on the part of
any party hereto or their respective Representatives other than as
stated above in this Paragraph 10.2, provided that nothing herein
shall relieve any party from any liability under the terms and
conditions of this Agreement for any willful breach thereof prior
to any such termination. Notwithstanding the foregoing, the
obligations of the parties pursuant to Paragraphs 2.1(b), 2.3, 2.4,
2.5, 2.6 and 2.11 shall survive any such termination.
11. MISCELLANEOUS
11.1. Notices.
(a) All notices or other communications required or
permitted to be given or made hereunder shall be in writing and
delivered personally or sent by pre-paid, first class, certified or
registered air mail (or the functional equivalent in any foreign
country), return receipt requested, or by facsimile transmission to
the intended recipient thereof at its address or facsimile number
set out below. Any such notice or communication shall be deemed to
have been duly given immediately (if given or made by facsimile
confirmed by mailing a copy thereof to the recipient in accordance
with this Paragraph 11.1 on the date of such facsimile), or three
days after mailing (if given or made by letter addressed to a
location within the country in which it is posted) or seven days
after mailing (if made or given by letter addressed to a location
outside the country in which it is posted), and in proving same it
shall be sufficient to show that the envelope containing the same
was duly addressed, stamped and posted, or that receipt of a
facsimile was confirmed by the recipient as provided above. The
addresses and facsimile numbers of the parties for purposes of this
Agreement are:
(i) If to the Parent
or the Purchaser: Hawk Corporation
200 Public Square, Suite 29-2500
Cleveland, Ohio 44114-2301
Attn: Ronald E. Weinberg
Facsimile No.: (216) 861-4546
With a copy to: Kohrman Jackson & Krantz
One Cleveland Center, 20th Floor
Cleveland, Ohio 44114
Attn: Byron S. Krantz, Esq.
Facsimile No.: (216) 621-6536
(ii) If to the Seller: MLX Corp.
1000 Center Place
Norcross, Georgia 30093
Attn: Brian R. Esher
Facsimile No.: (404) 798-0633
With a copy to: Kilpatrick & Cody
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Attn: David A. Stockton, Esq.
Facsimile No.: (404) 815-6555
(b) Any party may change the address to which
notices or other communications to such party shall be delivered by
giving notice thereof to the other party hereto in the manner
provided herein.
11.2. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the
same instrument.
11.3. Entire Agreement. Except for the Confidentiality
Agreement referenced in Paragraph 2.1(b) and the Escrow Agreement,
this Agreement supersedes all prior discussions and agreements
between the parties with respect to the subject matter hereof, and
this Agreement contains the sole and entire agreement among the
parties with respect to the matters covered hereby. This Agreement
shall not be altered or amended except by an instrument in writing
signed by or on behalf of the party entitled to the benefit of the
provision against whom enforcement is sought.
11.4. Governing Law. The validity and effect of this
Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware, without regard
to its principles of conflicts of laws rules.
11.5. Dispute Resolution.
(a) Any and all disputes arising out of or in
connection with the negotiation, execution, interpretation,
performance, nonperformance or breach of this Agreement and the
transactions contemplated herein shall be solely and finally
settled by arbitration, which shall be conducted in Cleveland,
Ohio, in accordance with the Commercial Arbitration Rules, as now
or hereafter amended (the "Rules"), of the American Arbitration
Association by a panel of three arbitrators selected in accordance
with the Rules (the "Arbitrators"). Each of the Arbitrators shall
be a lawyer experienced in corporate transactions and shall not
have been employed or affiliated with any of the parties or their
Affiliates. Except as qualified in the immediately preceding
sentence, the parties hereby renounce all recourse to litigation
and agree that the award of the Arbitrators shall be final and
subject to no judicial review. The Arbitrators shall decide the
issues submitted to them in accordance with: (i) the provisions
and commercial purposes of this Agreement; and (ii) the laws of the
State of Delaware (without regard to its principles of conflicts of
laws).
(b) The parties agree to facilitate the arbitration
by: (i) making available to one another and to the Arbitrators for
examination, inspection and extraction all documents, books,
records and personnel under their control if determined by the
Arbitrators to be relevant to the dispute; (ii) conducting
arbitration hearings to the greatest extent possible on successive
days; and (iii) observing strictly the time periods established by
the Rules or by the Arbitrators for submission of evidence or
briefs.
(c) The decision of two Arbitrators shall be
required to bind the parties to the arbitration. The Arbitrators
shall render their final award within 120 days after the date when
the arbitration commences.
(d) Judgment on the award of the Arbitrators may be
entered in any court having jurisdiction over the party against
which enforcement of the award is being sought. The Arbitrators
shall divide all costs (other than fees of counsel, except to the
extent the same constitute Indemnified Losses under Article 7)
incurred in conducting the arbitration in their final award in
accordance with what they deem just and equitable under the
circumstances.
(e) Notwithstanding any provision of this Para-
graph 11.5 to the contrary, each party shall be entitled to seek
injunctive and other equitable relief in any court of competent
jurisdiction to enforce the provisions of this Agreement.
11.6. Parent Guarantee. Subject to the provisions of
Paragraphs 6.1 and 6.2 of this Agreement, the Parent hereby
unconditionally and irrevocably guarantees to the Seller all of the
Purchaser's obligations and undertakings under Paragraphs 1.1, 1.2
and 1.3 of this Agreement.
11.7. Successors and Assigns; Assignment. This
Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted
assigns; provided, however, that none of the rights of any of the
parties hereto may be assigned without the prior written consent of
the other party hereto, which consent shall not be unreasonably
withheld; and provided further, however, that the Purchaser (i) may
assign all of its rights and may delegate all of its obligations
under this Agreement to an Affiliate of the Purchaser, and (ii) may
collaterally assign all of its rights under this Agreement to its
senior lender, in each case without the prior written consent of
the Seller.
11.8. Partial Invalidity and Severability. All rights
and restrictions contained herein may be exercised and shall be
applicable and binding only to the extent that they do not violate
any applicable Laws and are intended to be limited to the extent
necessary to render this Agreement legal, valid and enforceable.
If any term of this Agreement, or part thereof, not essential to
the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a Forum of competent juris-
diction, it is the intention of the parties that the remaining
terms hereof, or part thereof, shall constitute their agreement
with respect to the subject matter hereof and all such remaining
terms, or parts thereof, shall remain in full force and effect. To
the extent legally permissible, any illegal, invalid or unenforce-
able provision of this Agreement shall be replaced by a valid
provision which will implement the commercial purpose of the
illegal, invalid or unenforceable provision.
11.9. Waiver. Any term or condition of this Agreement
may be waived at any time by the party which is entitled to the
benefit thereof, but only if such waiver is evidenced by a writing
signed by such party. No failure on the part of any party hereto
to exercise, and no delay in exercising any right, power or remedy
created hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or remedy by any
such party preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. No waiver by any
party hereto of any breach of or default in any term or condition
of this Agreement shall constitute a waiver of or assent to any
succeeding breach of or default in the same or any other term or
condition hereof.
11.10. Headings. The headings of particular provisions
of this Agreement are inserted for convenience only and shall not
be construed as a part of this Agreement or serve as a limitation
or expansion on the scope of any term or provision of this
Agreement.
11.11. Number and Gender. Where the context requires,
the use of the singular form herein shall include the plural, the
use of the plural shall include the singular, and the use of any
gender shall include any and all genders.
11.12. No Third Party Beneficiaries. Nothing in this
Agreement is intended nor shall it be construed to give any person,
firm, corporation or other entity, other than the parties hereto
and their respective successors and permitted assigns, any right,
remedy or claim under or in respect of this Agreement or any
provisions hereof.
12. DEFINITIONS
12.1. Certain Definitions. For purposes of this
Agreement, the following capitalized terms shall have the meanings
specified with respect thereto below:
"Action" shall mean any action, suit, litigation,
complaint, counterclaim, claim, petition, investigation, mediation
contest, set-off or administrative proceeding, whether at law, in
equity, in arbitration or otherwise, and whether conducted by or
before any Government or other Person.
"Affiliate" of any Person shall mean any other
Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with the former Person. A Person
shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction
of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" shall have the meaning set forth in the
Preamble.
"Arbitrators" shall have the meaning set forth in
Paragraph 11.5.
"Assets" shall have the meaning set forth in
Paragraph 3.9(a).
"Barclays Credit Agreement" shall mean that certain
Loan and Security Agreement, by and among Barclays Business Credit,
Inc., S.K. Wellman Limited, Inc. and The S.K. Wellman Corp,. dated
January 15, 1993, together with the "Loan Documentation" (as
defined in the Barclays Credit Agreement), all as amended through
the date hereof.
"Business Day" shall mean any day other than a
Saturday, a Sunday or a day on which commercial banks in New York,
New York are required or authorized to be closed.
"Closing" shall have the meaning set forth in
Paragraph 1.3.
"Closing Date" shall have the meaning set forth in
Paragraph 1.3.
"Code" shall mean the Internal Revenue Code of 1986,
as amended.
"Company" or "Companies" shall have the meaning set
forth in Paragraph 2.1(a).
"Company Contracts" shall have the meaning set forth
in Paragraph 3.19(b).
"DLJ" shall have the meaning set forth in
Paragraph 2.1(b).
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"ERISA Affiliate" shall have the meaning set forth
in Paragraph 3.14(g).
"Environmental Laws" shall mean all federal, state,
provincial, local and foreign laws, including but not limited to
all statutes, ordinances, rules, regulations, and common law,
relating to pollution or protection of the environment, including,
without limitation, laws relating to emissions, discharges,
releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes
into the environment (including without limitation ambient air,
surface water, ground water or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes,
and any and all regulations, codes, plans, orders, decrees,
judgments, injunctions, consent agreements, stipulations, provi-
sions and conditions of permits, licenses and other operating
authorizations, notices or demand letters issued, entered,
promulgated or approved thereunder.
"Escrow Agent" shall have the meaning set forth in
Paragraph 9.1.
"Escrow Agreement" shall have the meaning set forth
in Paragraph 9.1.
"Escrow Fund" shall have the meaning set forth in
Paragraph 9.1.
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
"Executive Officers" shall mean the individuals
identified on Schedule 12.1.
"Foreign Plan" shall have the meaning set forth in
Paragraph 3.14(d).
"Forum" shall mean any federal, state, provincial,
local, municipal or foreign court, governmental agency, administra-
tive body or agency, tribunal, private alternative dispute
resolution system or arbitration panel of competent jurisdiction.
"GAAP" shall mean generally accepted accounting
principles in the United States, consistently applied.
"Government" shall mean any federal, state,
provincial, local, municipal, or foreign government or any depart-
ment, commission, board, bureau, agency, instrumentality, unit, or
taxing authority thereof.
"Hazardous Material" shall mean any substance,
material or waste designated as hazardous or toxic under any
applicable Environmental Laws including, without limitation,
petroleum and petroleum products, any substance which is (i)
designated as a "toxic pollutant" pursuant to the Federal Water
Pollution Control Act, as amended, 33 U.S.C. Section 1317; (ii)
defined as a "hazardous substance" pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended,
42 U.S.C. Section 9601 et seq.; or (iii) defined as a "hazardous
waste" pursuant to the Federal Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901 et seq.
"Hazardous Substance" shall mean any substance
defined as a "hazardous substance" pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, as amended,
42 U.S.C. Section 9601 et seq.
"hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as
a whole and not to any particular provision of this Agreement, and
"Article," "Paragraph," "Exhibit," "Schedule" and like references
are to this Agreement unless otherwise specified.
"Indemnitees" shall have the meaning set forth in
Paragraph 7.1.
"Indemnified Losses" shall have the meaning set
forth in Paragraph 7.1.
"Intellectual Property" shall have the meaning set
forth in Paragraph 3.17(a).
"Italian Capital Leases" shall mean those leases in
effect as of March 31, 1995, pursuant to which S.K. Wellman S.p.A.
is the lessee and which are properly characterized as "capital
leases" in accordance with GAAP.
"Italian Credit Facility" shall mean the note
evidencing the indebtedness of S.K. Wellman S.p.A. to a bank, which
indebtedness is reflected as "Note payable to bank" in Note D to
the Seller's Consolidated Financial Statements in the Annual Report
to Shareholders filed with the Seller's Form 10-K for the year
ended December 31, 1994.
"known", "to the knowledge of," "aware" or words of
similar import employed in this Agreement with reference to any
individual shall be conclusively presumed to mean that the person
has made reasonable and diligent efforts under the circumstances to
become knowledgeable.
"Law" shall mean all federal, state, provincial,
local, municipal or foreign constitutions, statutes, rules,
regulations, ordinances, acts, codes, legislation, treaties,
conventions, judicial decisions and similar laws and legal
requirements, whether of the United States of America or any other
jurisdiction as in effect from time to time.
"Leased Assets" shall have the meaning set forth in
Paragraph 3.9(a).
"Leased Real Property" shall have the meaning set
forth in Paragraph 3.10(a).
"Liability" shall mean any liability or obligation
whether known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated and
whether due or to become due.
"Lien" shall mean any mortgage, pledge, hypotheca-
tion, security interest, encumbrance, claim, restriction on use,
lien or charge of any kind, or any rights of others, however
evidenced or created (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code,
lien notice records or other similar legislation of any jurisdic-
tion).
"Material Adverse Effect" shall mean any material
adverse change in the financial condition, business, or results of
operations of the Companies, and shall be deemed to have occurred
only if an act, omission, event, circumstance or occurrence or
series thereof would, assuming this Agreement is in effect, cause
Indemnified Losses of Fifty Thousand United States Dollars (U.S.
$50,000), except in the case of Paragraph 10.1(e) above, in which
event it shall be deemed to have occurred only if an act, omission,
event, circumstance or occurrence or series thereof would, assuming
this Agreement is in effect, cause Indemnified Losses of Two
Million Dollars (U.S. $2,000,000).
"Multiemployer Plans" shall have the meaning set
forth in Paragraph 3.14(g).
"Order" shall mean all applicable orders, writs,
judgments, decrees, rulings, consent agreements, and awards of any
Forum.
"Owned Assets" shall have the meaning set forth in
Paragraph 3.9(a).
"Owned Real Property" shall have the meaning set
forth in Paragraph 3.10(a).
"PBGC" shall have the meaning set forth in Para-
graph 3.14(f).
"Parent" shall have the meaning set forth in the
Preamble.
"Person" shall include any individual, partnership,
joint venture, corporation, limited liability company, trust,
unincorporated organization, self-regulatory organization or
Government.
"Plan" or "Plans" shall have the meaning set forth
in Paragraph 3.14(a).
"Proxy Statement" shall have the meaning set forth
in Paragraph 2.7(b).
"Purchaser" shall have the meaning set forth in the
Preamble.
"Purchase Price" shall have the meaning set forth in
Paragraph 1.1.
"Qualified Plans" shall have the meaning set forth
in Section 3.14(b).
"Real Property" shall have the meaning set forth in
Paragraph 3.10(a).
"Real Property Leases" shall have the meaning set
forth in Paragraph 3.10(c).
"Release" shall have the meanings assigned to it in
the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601 et seq.
"Representative" of a party shall mean such party's
directors, officers, partners, employees, agents, accountants,
lawyers, investment bankers, and other financial or professional
advisors or consultants.
"Rules" shall have the meaning set forth in
Paragraph 11.5.
"SEC" shall mean the Securities and Exchange
Commission.
"SEC Reports" shall have the meaning set forth in
Paragraph 3.7(a).
"S.K. Wellman" shall mean S.K. Wellman Limited,
Inc., a Michigan corporation.
"Section 338(h)(10) Election" shall have the meaning
set forth in Paragraph 2.14(a).
"Securities Act" shall mean the Securities Act of
1933, as amended.
"Seller" shall have the meaning set forth in the
Preamble.
"Seller's Meeting" shall have the meaning set forth
in Paragraph 2.7(c).
"Shares" shall have the meaning set forth in the
Recitals.
"Significant Customers" shall have the meaning set
forth in Paragraph 3.19(a).
"Significant Suppliers" shall have the meaning set
forth in Paragraph 3.19(a).
"Special Indemnified Losses" shall have the meaning
set forth in Paragraph 7.4(a).
"Subsidiary" or "Subsidiaries" shall have the
meaning set forth in Paragraph 3.1(b).
"Survival Period" shall have the meaning set forth
in Paragraph 8.1.
"Tax Deductible" shall have the meaning set forth in
Paragraph 7.4(a).
"Tax" and "Taxes" shall mean any present or future
taxes, levies, imposts, duties, fees, assessments, deductions,
withholdings or other charges of whatever nature, including without
limitation income, gross receipts, excise, property, sales, use,
customs, value added, consumption, transfer, license, payroll,
employee income, withholding, social security, and franchise taxes,
now or hereafter imposed or levied by the United States of America,
or any state, provincial, local or foreign Government or by any
department, agency or other political subdivision or taxing
authority thereof or therein, all deposits required in connection
therewith, and all interests, penalties, additions to tax, and
other similar liabilities with respect thereto.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the day and year first above written.
THE PARENT:
HAWK CORPORATION
ATTEST: By:________________________________
Name:___________________________
Title:__________________________
________________________
Secretary
THE PURCHASER:
THE HAWK GROUP OF COMPANIES, INC.
ATTEST: By:________________________________
Name:___________________________
Title:__________________________
________________________
Secretary
THE SELLER:
(CORPORATE SEAL) MLX Corp.
ATTEST: By:
Name:
Title:
________________________
Secretary
MLX CORP.
STOCK OPTION AND INCENTIVE
AWARD PLAN
TABLE OF CONTENTS
ARTICLE 1. Establishment, Purpose, and Duration . . . . . . . .1
1.1 Establishment of the Plan . . . . . . . . . . . .1
1.2 Purpose of the Plan . . . . . . . . . . . . . . .1
1.3 Duration of the Plan. . . . . . . . . . . . . . .1
ARTICLE 2. Definitions. . . . . . . . . . . . . . . . . . . . .1
ARTICLE 3. Administration . . . . . . . . . . . . . . . . . . .5
3.1 The Committee . . . . . . . . . . . . . . . . . .5
3.2 Authority of the Committee. . . . . . . . . . . .5
3.3 Decisions Binding . . . . . . . . . . . . . . . .5
ARTICLE 4. Shares Subject to the Plan . . . . . . . . . . . . .5
4.1 Number of Shares. . . . . . . . . . . . . . . . .6
4.2 Lapsed Awards . . . . . . . . . . . . . . . . . .6
4.3 Adjustments In Authorized Shares. . . . . . . . .6
ARTICLE 5. Eligibility and Participation. . . . . . . . . . . .7
ARTICLE 6. Stock Options. . . . . . . . . . . . . . . . . . . .7
6.1 Grant of Options. . . . . . . . . . . . . . . . .7
6.2 Award Agreement . . . . . . . . . . . . . . . . .7
6.3 Option Price. . . . . . . . . . . . . . . . . . .8
6.4 Duration of Options . . . . . . . . . . . . . . .8
6.5 Exercise of Options . . . . . . . . . . . . . . .8
6.6 Payment . . . . . . . . . . . . . . . . . . . . .8
6.7 Termination of Employment Due to Death,
Disability or Retirement. . . . . . . . . . . . .9
6.8 Termination of Employment for Other
Reasons . . . . . . . . . . . . . . . . . . . . 10
6.9 Nontransferability of Options . . . . . . . . . 11
ARTICLE 7. Restricted Stock; Stock Awards . . . . . . . . . . 11
7.1 Grants. . . . . . . . . . . . . . . . . . . . . 11
7.2 Restricted Period; Lapse of
Restrictions. . . . . . . . . . . . . . . . . . 11
7.3 Rights of Holder; Limitations Thereon . . . . . 12
7.4 Delivery of Unrestricted Shares . . . . . . . . 13
7.5 Nonassignability of Restricted Stock. . . . . . 13
ARTICLE 8. Beneficiary Designation. . . . . . . . . . . . . . 13
ARTICLE 9. Deferrals. . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 10. Rights of Employees . . . . . . . . . . . . . . . 14
10.1 Employment. . . . . . . . . . . . . . . . . . . 14
10.2 Participation . . . . . . . . . . . . . . . . . 14
ARTICLE 11. Change in Control . . . . . . . . . . . . . . . . 14
11.1 Occurrence. . . . . . . . . . . . . . . . . . . 14
11.2 Definition. . . . . . . . . . . . . . . . . . . 15
ARTICLE 12. Amendment, Modification and Termination . . . . . 17
12.1 Amendment, Modification and Termination . . . . 17
12.2 Awards Previously Granted . . . . . . . . . . . 17
12.3 Compliance With Code Section 162(m) . . . . . . 17
ARTICLE 13. Withholding . . . . . . . . . . . . . . . . . . . 18
13.1 Tax Withholding . . . . . . . . . . . . . . . . 18
13.2 Share Withholding . . . . . . . . . . . . . . . 18
ARTICLE 14. Indemnification . . . . . . . . . . . . . . . . . 18
ARTICLE 15. Successors. . . . . . . . . . . . . . . . . . . . 18
ARTICLE 16. Legal Construction. . . . . . . . . . . . . . . . 19
16.1 Gender and Number . . . . . . . . . . . . . . . 19
16.2 Severability. . . . . . . . . . . . . . . . . . 19
16.3 Requirements of Law . . . . . . . . . . . . . . 19
16.4 Regulatory Approvals and Listing. . . . . . . . 19
16.5 Securities Law Compliance . . . . . . . . . . . 19
16.6 Governing Law . . . . . . . . . . . . . . . . . 19
MLX CORP.
Stock Option and Incentive Award Plan
ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment of the Plan. MLX Corp., a Georgia
corporation (hereinafter referred to as the "Company"), hereby
establishes a stock option and incentive award plan known as the
"MLX Corp. Stock Option and Incentive Award Plan" (the "Plan"), as
set forth in this document. The Plan permits the grant of
Incentive Stock Options, Nonqualified Stock Options, Stock Awards,
and Restricted Stock.
The Plan shall become effective on the date it is approved by
the Company's shareholders (the "Effective Date") and shall remain
in effect as provided in Section 1.3.
1.2 Purpose of the Plan. The purpose of the Plan is to
secure for the Company and its shareholders the benefits of the
incentive inherent in stock ownership in the Company by key
employees, directors and other persons who are largely responsible
for its future growth and continued success. The Plan promotes the
success and enhances the value of the Company by linking the
personal interests of Participants (as defined below) to those of
the Company's shareholders, and by providing Participants with an
incentive for outstanding performance.
The Plan is further intended to provide flexibility to the
Company in its ability to motivate, attract and retain the services
of Participants upon whose judgment, interest and special effort
the successful conduct of its operation largely depends.
1.3 Duration of the Plan. The Plan shall commence on the
Effective Date, and shall remain in effect, subject to the right of
the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 12, until the day prior to the tenth (10th)
anniversary of the Effective Date.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Award" means, individually or collectively, a grant
under this Plan of Incentive Stock Options, Nonqualified
Stock Options, Stock Awards or Restricted Stock.
(b) "Award Agreement" means an agreement entered into by each
Participant and the Company, setting forth the terms and
provisions applicable to Awards granted to Participants
under this Plan.
(c) "Beneficial Owner" or "Beneficial Ownership" shall have
the meaning ascribed to such term in Rule 13d-3 of the
Exchange Act.
(d) "Board" or "Board of Directors" means the Board of
Directors of the Company.
(e) "Cause" means: (i) willful misconduct on the part of a
Participant that is materially detrimental to the
Company; or (ii) the conviction of a Participant for the
commission of a felony. The existence of "Cause" under
either (i) or (ii) shall be determined by the Committee.
Notwithstanding the foregoing, if the Participant has
entered into an employment agreement that is binding as
of the date of employment termination, and if such
employment agreement defines "Cause," and/or provides a
means of determining whether "Cause" exists, such
definition of "Cause" and means of determining its
existence shall apply to the Participant.
(f) "Code" means the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Committee" means the committee appointed by the Board to
administer the Plan with respect to grants of Awards, as
specified in Article 3.
(h) "Company" means MLX Corp., a Georgia corporation, or any
successor thereto as provided in Article 15.
(i) "Director" means any individual who is a member of the
Board of Directors of the Company.
(j) "Disability" shall have the meaning ascribed to such term
in the Company's long-term disability plan covering the
Participant, or in the absence of such plan, a meaning
consistent with Section 22(e)(3) of the Code.
(k) "Employee" means any full-time, salaried employee of the
Company, or the Company's Subsidiaries. Directors who
are not otherwise employed by the Company or the
Company's Subsidiaries shall not be considered Employees
eligible to receive Awards under this Plan.
(l) "Effective Date" shall have the meaning ascribed to such
term in Section 1.1.
(m) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, or any successor act
thereto.
(n) "Fair Market Value" shall be determined as follows:
(i) If, on the relevant date, the Shares are
traded on a national or regional securities
exchange or on The Nasdaq Stock Market
("Nasdaq") and closing sale prices for the
Shares are customarily quoted, on the basis
of the closing sale price on the principal
securities exchange on which the Shares may
then be traded or, if there is no such sale
on the relevant date, then on the
immediately preceding day on which a sale
was reported;
(ii) If, on the relevant date, the Shares are not
listed on any securities exchange or traded
on Nasdaq, but nevertheless are publicly
traded and reported on Nasdaq without
closing sale prices for the Shares being
customarily quoted, on the basis of the mean
between the closing bid and asked quotations
in such other over-the-counter market as
reported by Nasdaq; but, if there are no bid
and asked quotations in the over-the-counter
market as reported by Nasdaq on that date,
then the mean between the closing bid and
asked quotations in the over-the-counter
market as reported by Nasdaq on the
immediately preceding day such bid and asked
prices were quoted; and
(iii) If, on the relevant date, the Shares are not
publicly traded as described in (i) or (ii),
on the basis of the good faith determination
of the Committee.
(o) "Incentive Stock Option" or "ISO" means an option
to purchase Shares granted under Article 6 which
is designated as an Incentive Stock Option and is
intended to meet the requirements of Section 422
of the Code.
(p) "Insider" shall mean an Employee who is, on the
relevant date, an officer or a director, or a ten
percent (10%) beneficial owner of any class of the
Company's equity securities that is registered
pursuant to Section 12 of the Exchange Act, all as
defined under Section 16 of the Exchange Act.
(q) "Named Executive Officer" means a Participant who,
as of the date of vesting and/or payout of an
Award is one of the group of "covered employees,"
as defined in the regulations promulgated under
Code Section 162(m), or any successor statute.
(r) "Nonqualified Stock Option" or "NQSO" means an
option to purchase Shares granted under Article 6,
and which is not intended to meet the requirements
of Code Section 422.
(s) "Option" means an Incentive Stock Option or a
Nonqualified Stock Option.
(t) "Option Price" means the price at which a Share
may be purchased by a Participant pursuant to an
Option, as determined by the Committee.
(u) "Participant" means an Employee, director or other
person who has been granted an Award under the
Plan which is outstanding.
(v) "Person" shall have the meaning ascribed to such
term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d)
thereof.
(w) "Retirement" shall mean retiring from employment
with the Company or any Subsidiary upon attaining
the age of 65.
(x) "Restricted Stock" means an Award of restricted
Shares granted in accordance with the terms of
Article 7 and the other provisions of the Plan.
(y) "Shares" means the shares of Common Stock of the
Company, par value $0.01 per share.
(z) "Stock Award" means a grant of Shares under
Article 7 that is not generally subject to
restrictions and pursuant to which a certificate
for the Shares is transferred to the Employee.
(aa) "Subsidiary" means any corporation, partnership,
joint venture or other entity in which the Company
has a fifty percent (50%) or greater voting
interest.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the
Compensation Committee of the Board, or by any other Committee
appointed by the Board that is granted authority to administer the
Plan, with such Committee consisting of not less than three (3)
Directors who meet the "disinterested administration" requirements
of Rule 16b-3 or any successor thereto under the Exchange Act. The
members of the Committee shall be appointed from time to time by,
and shall serve at the discretion of, the Board of Directors.
The Committee shall be comprised solely of Directors who are
eligible to administer the Plan pursuant to Rule 16b-3(c)(2) or any
successor thereto under the Exchange Act. However, if for any
reason any member of the Committee does not qualify to administer
the Plan, as contemplated by Rule 16b-3(c)(2) of the Exchange Act,
the Board of Directors may appoint a new Committee member who
complies with Rule 16b-3(c)(2).
3.2 Authority of the Committee. Subject to the provisions of
the Plan, the Committee shall have full power to select the
Employees and other Persons, who are responsible for the future
growth and success of the Company, who may include, without
limitation, consultants, independent contractors or other providers
of services to the Company, who shall participate in the Plan (who
may change from year to year); determine the size and types of
Awards; determine the terms and conditions of Awards in a manner
consistent with the Plan (including vesting provisions and the
duration of the Awards); construe and interpret the Plan and any
agreement or instrument entered into under the Plan; establish,
amend or waive rules and regulations for the Plan's administration;
and (subject to the provisions of Article 12) amend the terms and
conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided
in the Plan, including to establish different terms and conditions
relating to the effect of the termination of employment or other
services to the Company. Further, the Committee shall make all
other determinations which may be necessary or advisable in the
Committee's opinion for the administration of the Plan. As
permitted by law, the Committee may delegate its authority under
this Plan.
3.3 Decisions Binding. All determinations and decisions made
by the Committee pursuant to the provisions of the Plan and all
related orders and resolutions of the Board shall be final,
conclusive and binding on all Persons, including the Company, the
shareholders, Employees, Participants and their estates and
beneficiaries.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in
Section 4.3, the total number of Shares available for grant of
Awards under the Plan shall be an aggregate of one hundred twenty
five thousand (125,000) Shares. These Shares may, in the
discretion of the Company, be either authorized but unissued Shares
or Shares held as treasury shares, including Shares purchased by
the Company.
The following rules shall apply for purposes of the
determination of the number of Shares available for grant under the
Plan:
(a) While an Option, Stock Award or Restricted Stock
is outstanding, it shall be counted against the
authorized pool of Shares, regardless of its
vested status.
(b) The grant of an Option, Stock Award or Restricted
Stock shall reduce the Shares available for grant
under the Plan by the number of Shares subject to
such Award.
4.2 Lapsed Awards. If any Award granted under this
Plan is canceled, terminates, expires or lapses for any reason, any
Shares subject to such Award shall again be available for the grant
of an Award under the Plan. However, in the event that prior to
the Award's cancellation, termination, expiration or lapse, the
holder of the Award at any time received one or more "benefits of
ownership" pursuant to such Award (as defined by the Securities and
Exchange Commission, pursuant to any rule or interpretation
promulgated under Section 16 of the Exchange Act), the Shares
subject to such Award shall not again be made available for regrant
under the Plan.
4.3 Adjustments In Authorized Shares. In the event of any
change in corporate capitalization, such as a stock split, or a
corporate transaction, such as any merger, consolidation,
separation, including a spin-off, or other distribution of stock or
property of the Company, any reorganization (whether or not such
reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company,
such adjustment shall be made in the number and class of Shares
which may be delivered under the Plan, and in the number and class
of and/or price of Shares subject to outstanding Awards granted
under the Plan, as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the
number of Shares subject to any Award shall always be a whole
number and the Committee shall make such adjustments as are
necessary to insure Awards of whole Shares.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Any key Employee of the Company, or of any Subsidiary,
including any such Employee who is also a director of the Company,
or of any Subsidiary, or any other Person, including consultants,
independent contractors or other service providers, whose judgment,
initiative and efforts contribute or may be expected to contribute
materially to the successful performance of the Company or any
Subsidiary shall be eligible to receive an Award under the Plan.
In determining the Employees and other Persons to whom such an
Award shall be granted and the number of Shares which may be
granted pursuant to that Award, the Committee shall take into
account the duties of the respective Person, their present and
potential contributions to the success of the Company or any
Subsidiary, and such other factors as the Committee shall deem
relevant in connection with accomplishing the purpose of the Plan.
No person who is a member of the Committee shall be eligible
to be granted any Award under the Plan while so serving.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of
the Plan, Options may be granted to Employees or other Persons at
any time and from time to time as shall be determined by the
Committee. The Committee shall have discretion in determining the
number of Shares subject to Options granted to each Participant;
provided, however, that in the case of any ISO granted under the
Plan, only an Employee may receive such grant and the aggregate
Fair Market Value (determined at the time such Option is granted)
of the Shares to which ISOs are exercisable for the first time by
the Participant during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any
Subsidiary) shall not exceed $100,000. The Committee may grant a
Participant ISOs, NQSOs or a combination thereof, and may vary such
Awards among Participants. The maximum number of Options a Named
Executive Officer can be granted under the Plan during a 12-month
period is 75,000 Options.
6.2 Award Agreement. Each Option grant shall be evidenced by
an Award Agreement that shall specify the Option Price, the
duration of the Option, the number of Shares to which the Option
pertains and such other provisions as the Committee shall
determine. The Option Agreement shall further specify whether the
Award is intended to be an ISO or an NQSO. Any portion of an
Option that is not designated as an ISO or otherwise fails or is
not qualified an as ISO (even if designated as an ISO) shall be a
NQSO.
6.3 Option Price. The Option Price for each grant of an ISO
shall be not less than one hundred percent (100%) of the Fair
Market Value of a Share on the date the ISO is granted. In no
event, however, shall any Participant who, at any time would
otherwise be granted an Option, owns (within the meaning of Section
424(d) of the Code) stock of the Company possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Company be eligible to receive an ISO at an Option
Price less than one hundred ten percent (110%) of the Fair Market
Value of a share on the date the ISO is granted. The price at
which each Share covered by each NQSO shall be purchased by an
Option holder shall be established by the Committee, but in no
event shall such price be less than eighty-five percent (85%) of
the Fair Market Value (or such lower percentage of Fair Market
Value as may be established by Internal Revenue Service rules or
regulations as the limit for granting discounted stock options
without causing immediate tax consequences to the Participant) of
a Share on the date the Option is granted.
6.4 Duration of Options. Each Option shall expire at such
time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than
the tenth (10th) anniversary date of its grant; provided, further,
however, that any ISO granted to any Participant who at such time
owns (within the meaning of Section 424(d) of the Code) stock of
the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock in the Company, shall
be exercisable not later than the fifth (5th) anniversary date of
its grant.
6.5 Exercise of Options. Options granted under the Plan
shall be exercisable at such times and be subject to such
restrictions and conditions as the Committee shall in each instance
approve, which need not be the same for each grant or for each
Participant. Each Option shall be exercisable for such number of
Shares and at such time or times, including periodic installments,
as may be determined by the Committee at the time of the grant.
Except as otherwise provided in the Award Agreement and Article 11,
the right to purchase Shares that are exercisable in periodic
installments shall be cumulative so that when the right to purchase
any Shares has accrued, such Shares or any part thereof may be
purchased at any time thereafter until the expiration or
termination of the Option.
6.6 Payment. Options shall be exercised by the delivery of
a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the Shares. The Option
Price upon exercise of any Option shall be payable to the Company
in full, either: (a) in cash, (b) if approved by the Committee, by
tendering previously acquired Shares having an aggregate Fair
Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been
held by the Participant for the period required by law, if any,
prior to their tender to satisfy the Option Price), or (c) by a
combination of (a) and (b). The Committee also may allow cashless
exercises as permitted under Federal Reserve Board's Regulation T,
subject to applicable securities law restrictions, or by any other
means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification
of exercise and full payment, the Company shall deliver to the
Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased under
the Option(s).
6.7 Termination of Employment Due to Death, Disability or
Retirement. Unless otherwise provided by the Committee in the
Award Agreement, the following rules shall apply in the event of
the Participant's termination of employment due to death,
Disability or Retirement. With respect to a Participant that is a
non-employee director of the Company or otherwise is not an
Employee, the following references to employment shall be deemed to
be references to service as a director or in such other capacity as
is determined by the Committee:
(a) Termination by Death. In the event the
Participant dies while actively employed, all
outstanding Options granted to that Participant
shall immediately vest and shall remain
exercisable at any time prior to their expiration
date, or for one (1) year after the date of death,
whichever period is shorter, by (i) such
person(s) as shall have been named as the
Participant's beneficiary, (ii) such person(s)
that have acquired the Participant's rights under
such Options by will or by the laws of descent and
distribution, (iii) the Participant's estate or
representative of the Participant's estate, or
(iv) by a transferee of the Option who has
acquired the Option in a transaction that is
permitted by Section 6.9.
(b) Termination by Disability. In the event the
employment of a Participant is terminated by
reason of Disability, all outstanding Options
granted to that Participant shall immediately vest
as of the date the Committee determines the
definition of Disability to have been satisfied
and shall remain exercisable at any time prior to
their expiration date, or for one (1) year after
the date that the Committee determines the
definition of Disability to have been satisfied,
whichever period is shorter, by the Participant's
duly appointed guardian or other legal
representative.
(c) Termination by Retirement. In the event the
employment of a Participant is terminated by
reason of Retirement, all outstanding Options
granted to that Participant shall immediately vest
and shall remain exercisable at any time prior to
their expiration date, or for three (3) months
after the effective date of Retirement, whichever
period is shorter.
(d) Employment Termination Followed by Death. In the
event that a Participant's employment terminates
by reason of Disability or Retirement, and within
the exercise period following such termination the
Participant dies, then the remaining exercise
period for outstanding Options shall equal the
longer of: (i) one (1) year following death; or
(ii) the remaining portion of the exercise period
which was triggered by the employment termination.
Such Options shall be exercisable by the persons
specified in subsection (a) above.
6.8 Termination of Employment for Other Reasons. If the
employment of a Participant shall terminate for any reason other
than the reasons set forth in Section 6.7, all Options held by the
Participant which are not vested as of the effective date of his
employment termination shall be immediately forfeited to the
Company (and shall, subject to Section 4.2 hereof, once again
become available for grant under the Plan). However, the
Committee, in its sole discretion, shall have the right to
immediately vest all or any portion of such Options, subject to
such terms as the Committee, in its sole discretion, deems
appropriate.
In the event an Employee's employment is terminated by the
Company for Cause, or such Employee voluntarily terminates his
employment, the Option rights under any then vested outstanding
Options shall terminate immediately upon termination of employment.
If the Employee's employment is terminated by the Company without
Cause, any Options vested as of such Employee's date of termination
shall remain exercisable at any time prior to their expiration date
or for three (3) months after such Employee's date of termination
of employment, whichever period is shorter.
6.9 Limited Transferability. A Participant may transfer an
Option granted hereunder to members of his or her Immediate Family
(as defined below), to one or more trusts for the benefit of such
Immediate Family members, or to one or more partnerships where such
Immediate Family members are the only partners, if (i) the Award
Agreement evidencing such Option expressly provides that the Option
may be transferred, and (ii) the Participant does not receive any
consideration in any form whatsoever for such transfer. Any Option
so transferred shall continue to be subject to the same terms and
conditions in the hands of the transferee as were applicable to
said Option immediately prior to the transfer thereof. Any
reference in any such Award Agreement to the employment by or
performance of services for the Company by the Participant shall
continue to refer to the employment of, or performance by the
transferring Participant. For purposes hereof, "Immediate Family"
shall mean the Participant and the Participant's spouse, and their
respective ancestors and descendants. Any Option that is granted
pursuant to any Award Agreement that did not initially expressly
allow the transfer of said Option and that has not been amended to
expressly permit such transfer, shall not be transferable by the
Participant otherwise than by will or by the laws of descent and
distribution and such Option thus shall be exercisable in the
Participant's lifetime only by the Participant.
ARTICLE 7. RESTRICTED STOCK; STOCK AWARDS
7.1 Grants. The Committee may from time to time in its
discretion grant Restricted Stock and Stock Awards to Employees and
may determine the number of Shares of Restricted Stock or Stock
Awards to be granted. The Committee shall determine the terms and
conditions of, and the amount of payment, if any, to be made by the
Employee for, such Restricted Stock. A grant of Restricted Stock
may require the Employee to pay for such Shares of Restricted
Stock, but the Committee may establish a price below Fair Market
Value at which the Employee can purchase the Shares of Restricted
Stock. Each grant of Restricted Stock shall be evidenced by an
Award Agreement containing terms and conditions not inconsistent
with the Plan as the Committee shall determine to be appropriate in
its sole discretion.
7.2 Restricted Period; Lapse of Restrictions. At the time a
grant of Restricted Stock is made, the Committee shall establish a
period or periods of time (the "Restricted Period") applicable to
such grant which, unless the Committee otherwise provides, shall
not be less than one year. Subject to the other provisions of this
Section 7, at the end of the Restricted Period all restrictions
shall lapse and the Restricted Stock shall vest in the Participant.
At the time a grant is made, the Committee may, in its discretion,
prescribe conditions for the incremental lapse of restrictions
during the Restricted Period and for the lapse or termination of
restrictions upon the occurrence of other conditions in addition to
or other than the expiration of the Restricted Period with respect
to all or any portion of the Restricted Stock. Such conditions
may, but need not, include without limitation:
(a) The death, Disability or Retirement of the
Employee to whom Restricted Stock is granted, or
(b) The occurrence of a Change in Control (as defined
in Section 11.1).
The Committee may also, in its discretion, shorten or terminate the
Restricted Period, or waive any conditions for the lapse or
termination of restrictions with respect to all or any portion of
the Restricted Stock at any time after the date the grant is made.
7.3 Rights of Holder; Limitations Thereon. Upon a grant of
Restricted Stock, a stock certificate (or certificates)
representing the number of Shares of Restricted Stock granted to
the Employee shall be registered in the Employee's name and shall
be held in custody by the Company or a bank selected by the
Committee for the Employee's account. Following such registration,
the Employee shall have the rights and privileges of a shareholder
as to such Restricted Stock, including the right to receive
dividends and to vote such Restricted Stock, except that, the right
to receive cash dividends shall be the right to receive such
dividends either in cash currently or by payment in Restricted
Stock, as the Committee shall determine, and except further that,
the following restrictions shall apply:
(a) The Employee shall not be entitled to delivery of
a certificate until the expiration or termination
of the Restricted Period for the Shares
represented by such certificate and the
satisfaction of any and all other conditions
prescribed by the Committee;
(b) None of the Shares of Restricted Stock may be
sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted
Period and until the satisfaction of any and all
other conditions prescribed by the Committee; and
(c) All of the Shares of Restricted Stock that have
not vested shall be forfeited and all rights of
the Employee to such Shares of Restricted Stock
shall terminate without further obligation on the
part of the Company, unless the Employee has
remained a full-time employee of the Company or
any of its Subsidiaries, until the expiration or
termination of the Restricted Period and the
satisfaction of any and all other conditions
prescribed by the Committee applicable to such
Shares of Restricted Stock. Upon the forfeiture
of any shares of Restricted Stock, such forfeited
Shares shall be transferred to the Company without
further action by the Employee and shall, in
accordance with Section 4.2, again be available
for grant under the Plan.
With respect to any Shares received as a result of adjustments
under Section 4.3 hereof and any Shares received with respect to
cash dividends declared on Restricted Stock, the Participant shall
have the same rights and privileges, and be subject to the same
restrictions, as are set forth in this Section 7.
7.4 Delivery of Unrestricted Shares. Upon the expiration or
termination of the Restricted Period for any Shares of Restricted
Stock and the satisfaction of any and all other conditions
prescribed by the Committee, the restrictions applicable to such
Shares of Restricted Stock shall lapse and a stock certificate for
the number of Shares of Restricted Stock with respect to which the
restrictions have lapsed shall be delivered, free of all such
restrictions except any that may be imposed by law, to the holder
of the Restricted Stock. The Company shall not be required to
deliver any fractional Share but will pay, in lieu thereof, the
Fair Market Value (determined as of the date the restrictions
lapse) of such fractional share to the holder thereof. Prior to or
concurrently with the delivery of a certificate for Restricted
Stock, the holder shall be required to pay an amount necessary to
satisfy any applicable federal, state and local tax requirements as
set out in Article 13 below.
7.5 Nonassignability of Restricted Stock. Unless the
Committee provides otherwise in the Award Agreement, no grant of,
nor any right or interest of a Participant in or to, any Restricted
Stock, or in any instrument evidencing any grant of Restricted
Stock under the Plan, may be assigned, encumbered or transferred
except, in the event of the death of a Participant, by will or the
laws of descent and distribution.
ARTICLE 8. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name
any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in
case of his or her death before he or she receives any or all of
such benefit. Each such designation shall revoke all prior
designations by the same Participant, shall be in a form prescribed
by the Company and shall be effective only when filed by the
Participant, in writing, with the Company during the Participant's
lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the
Participant's estate.
The spouse of a married Participant domiciled in a community
property jurisdiction shall join in any designation of beneficiary
or beneficiaries other than the spouse.
ARTICLE 9. DEFERRALS
The Committee may permit a Participant to defer to another
plan or program such Participant's receipt of Shares that would
otherwise be due to such Participant by virtue of the exercise of
an Option or the vesting of Restricted Stock. If any such deferral
election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment
deferrals.
ARTICLE 10. RIGHTS OF EMPLOYEES
10.1 Employment. Nothing in the Plan shall interfere with or
limit in any way the right of the Company or a Subsidiary to
terminate any Participant's employment or engagement by the Company
at any time, nor confer upon any Participant any right to continue
in the employ or service of the Company or a Subsidiary. For
purpose of the Plan, transfer of employment of a Participant
between the Company and any one of its Subsidiaries (or between
Subsidiaries) shall not be deemed a termination of employment.
10.2 Participation. No Employee shall have the right to be
selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
ARTICLE 11. CHANGE IN CONTROL
11.1 Occurrence. Upon the occurrence of a Change in Control,
except as provided in the Award Agreement or unless otherwise
specifically prohibited by the terms of Article 16 hereof:
(a) Any and all Options granted hereunder shall become
fully vested and immediately exercisable;
(b) To the extent provided by the Committee in the
Award, all restrictions on a grant of Restricted
Stock shall lapse and such Restricted Stock shall
be delivered to the Participant in accordance with
Section 7.4; provided, however, that there shall
not be an accelerated delivery with respect to
Restricted Stock which was granted less than six
(6) months prior to the effective date of the
Change in Control; and
(c) Subject to Article 12 hereof, the Committee shall
have the authority to make any modifications to
the Awards as determined by the Committee to be
appropriate before the effective date of the
Change in Control.
11.2 Definition. For purposes of the Plan, a "Change in
Control" shall be deemed to have occurred if:
(a) An acquisition by any Person of Beneficial
Ownership of the shares of Common Stock of the
Company then outstanding (the "Company Common
Stock Outstanding") or the voting securities of
the Company then outstanding entitled to vote
generally in the election of directors (the
"Company Voting Securities Outstanding"), if such
acquisition of Beneficial Ownership results in the
Person's beneficially owning (within the meaning
of Rule 13d-3 promulgated under the Exchange Act)
twenty-five percent (25%) or more of the Company
Common Stock Outstanding or twenty-five percent
(25%) or more of the combined voting power of the
Company Voting Securities Outstanding; provided,
that immediately prior to such acquisition such
Person was not a direct or indirect Beneficial
Owner of twenty-five percent (25%) or more of the
Company Common Stock Outstanding or twenty-five
percent (25%) or more of the combined voting power
of Company Voting Securities Outstanding, as the
case may be; or
(b) The approval of the shareholders of the Company of
a reorganization, merger, consolidation, complete
liquidation or dissolution of the Company, the
sale or disposition of all or substantially all of
the assets of the Company or similar corporate
transaction (in each case referred to in this
Section 11.2 as a "Corporate Transaction") or, if
consummation of such Corporate Transaction is
subject, at the time of such approval by
shareholders, to the consent of any government or
governmental agency, the obtaining of such consent
(either explicitly or implicitly); or
(c) A change in the composition of the Board such that
the individuals who, as of the Effective Date,
constitute the Board (such Board shall be
hereinafter referred to as the "Incumbent Board")
cease for any reason to constitute at least a
majority of the Board; provided, however, for
purposes of this Section 11.2 that any individual
who becomes a member of the Board subsequent to
the Effective Date whose election, or nomination
for election by the Company's shareholders, was
approved by a vote of at least a majority of those
individuals who are members of the Board and who
were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall
be considered as though such individual were a
member of the Incumbent Board; but, provided,
further, that any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act, including any
successor to such Rule), or other actual or
threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board,
shall not be so considered as a member of the
Incumbent Board.
Notwithstanding the provisions set forth in
subsections (a) and (b), the following shall not
constitute a Change in Control for purposes of
this Plan: (1) any acquisition of shares of
Common Stock by, or consummation of a Corporate
Transaction with, any Subsidiary or any employee
benefit plan (or related trust) sponsored or
maintained by the Company or an affiliate; (2) any
acquisition of shares of Common Stock, or
consummation of a Corporate Transaction, following
which more than fifty percent (50%) of,
respectively, the shares then outstanding of
common stock of the corporation resulting from
such acquisition or Corporate Transaction and the
combined voting power of the voting securities
then outstanding of such corporation entitled to
vote generally in the election of directors is
then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and
entities who were Beneficial Owners, respectively,
of the Company Common Stock Outstanding and
Company Voting Securities Outstanding immediately
prior to such acquisition or Corporate Transaction
in substantially the same proportions as their
ownership, immediately prior to such acquisition
or Corporate Transaction, of the Company Common
Stock Outstanding and Company Voting Securities
Outstanding, as the case may be; or (3) the sale
of the outstanding capital stock of S.K. Wellman
Limited, Inc. to The Hawk Group of Companies, Inc.
pursuant to that certain Agreement for Purchase
and Sale of the Capital Stock of S.K. Wellman
Limited, Inc., dated as of April 10, 1995, by and
among the Company, The Hawk Group of Companies,
Inc. and Hawk Corporation, and the transactions
contemplated therein, including the grant of
certain proxies by members of the Company's board.
ARTICLE 12. AMENDMENT, MODIFICATION AND TERMINATION
12.1 Amendment, Modification and Termination. The Board may,
at any time and from time to time, alter, amend, suspend or
terminate the Plan in whole or in part; provided, that, unless
approved by the holders of a majority of the total number of Shares
of the Company represented and voted at a meeting at which a quorum
is present, no amendment shall be made to the Plan if such
amendment would (a) materially modify the eligibility requirements
provided in Article 5; (b) increase the total number of Shares
(except as provided in Section 4.3) which may be granted under the
Plan, as provided in Section 4.1; (c) extend the term of the Plan;
or (d) amend the Plan in any other manner which the Board, in its
discretion, determines should become effective only if approved by
the shareholders even though such shareholder approval is not
expressly required by the Plan or by law. No amendment which
requires shareholder approval in order for the Plan to continue to
comply with Rule 16b-3 under the Exchange Act, including any
successor to such Rule, shall be effective unless such amendment
shall be approved by the requisite vote of shareholders.
12.2 Awards Previously Granted. No termination, amendment or
modification of the Plan shall adversely affect in any material way
any Award previously granted under the Plan, without the written
consent of the Participant holding such Award. The Committee
shall, with the written consent of the Participant holding such
Award, have the authority to cancel Awards outstanding and grant
replacement Awards therefor.
12.3 Compliance With Code Section 162(m). At all times when
the Committee determines that compliance with Code Section 162(m)
is desired, all Awards granted under this Plan shall comply with
the requirements of Code Section 162(m). In addition, in the event
that changes are made to Code Section 162(m) to permit greater
flexibility with respect to any Award or Awards under the Plan, the
Committee may, subject to this Article 12, make any adjustments it
deem appropriate.
ARTICLE 13. WITHHOLDING
13.1 Tax Withholding. The Company shall have the power and
the right to deduct or withhold, or require a Participant to remit
to the Company, an amount sufficient to satisfy federal, state and
local taxes (including the Participant's FICA obligation) required
by law to be withheld with respect to any taxable event arising in
connection with an Award under this Plan.
13.2 Share Withholding. With respect to withholding required
upon the exercise of Options, or upon any other taxable event
arising as a result of Awards granted hereunder which are to be
paid in the form of Shares, Participants may elect, subject to the
approval of the Committee, to satisfy the withholding requirement,
in whole or in part, by having the Company withhold Shares having
a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the
transaction. All elections shall be irrevocable, made in writing,
signed by the Participant, and elections by Insiders shall
additionally comply with all legal requirements applicable to Share
transactions by such Participants.
ARTICLE 14. INDEMNIFICATION
Each person who is or shall have been a member of the
Committee, or the Board, shall be indemnified and held harmless by
the Company against and from any loss, cost, liability or expense
that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit or
proceeding to which he or she may be a party or in which he or she
may be involved by reason of any action taken or failure to act
under the Plan and against and from any and all amounts paid by him
or her in settlement thereof, with the Company's approval, or paid
by him in satisfaction of any judgment in any such action, suit or
proceeding against him, provided he shall give the Company an
opportunity, at its own expense, to handle and defend the same
before he undertakes to handle and defend it on his own behalf.
The foregoing right of indemnification shall be in addition to any
other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or Bylaws,
as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
ARTICLE 15. SUCCESSORS
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of
a direct or indirect purchase, merger, consolidation or otherwise,
of all or substantially all of the business and/or assets of the
Company.
ARTICLE 16. LEGAL CONSTRUCTION
16.1 Gender and Number. Except where otherwise indicated by
the context, any masculine term used herein also shall include the
feminine; the plural shall include the singular and the singular
shall include the plural.
16.2 Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
16.3 Requirements of Law. The granting of Awards and the
issuance of Shares under the Plan shall be subject to all
applicable laws, rules and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may
be required.
16.4 Regulatory Approvals and Listing. The Company shall not
be required to issue any certificate or certificates for Shares
under the Plan prior to (i) obtaining any approval from any
governmental agency which the Company shall, in its discretion,
determine to be necessary or advisable, (ii) the admission of such
shares to listing on any national securities exchange or Nasdaq on
which the Company's Shares may be listed, and (iii) the completion
of any registration or other qualification of such Shares under any
state or federal law or ruling or regulations of any governmental
body which the Company shall, in its sole discretion, determine to
be necessary or advisable.
Notwithstanding any other provision set forth in the Plan, if
required by the then-current Section 16 of the Exchange Act, any
"derivative security" or "equity security" offered pursuant to the
Plan to any Insider may not be sold or transferred for at least six
(6) months after the date of grant of such Award. The terms
"equity security" and "derivative security" shall have the meanings
ascribed to them in the then-current Rule 16(a) under the Exchange
Act.
16.5 Securities Law Compliance. With respect to Insiders,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provisions of the Plan or action
by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the
Committee.
16.6 Governing Law. To the extent not preempted by Federal
law, the Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Georgia.
<ATTACHMENT> PROXY CARD
PROXY
MLX Corp.
Norcross, Georgia
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE 1995
ANNUAL MEETING OF STOCKHOLDERS.
The undersigned shareholder of MLX Corp. hereby appoints Thomas C.
Waggoner, Alfred R. Glancy III, or W. John Roberts, or any of them,
with full power of substitution to each, the proxies of the
undersigned to vote as designated below, the shares of the
undersigned at the annual meeting of shareholders of MLX Corp. to
be held on June 27, 1995 and at any adjournments thereof.
The undersigned directs this proxy to be voted as follows:
1. APPROVAL of the proposed sale of all the capital stock of the
S. K. Wellman Limited, Inc. subsidiary
__ For __ Against __Abstain
2. APPROVAL OF THE ELECTION of all nominees for Director listed
below:
Brian R. Esher Willem F.P. de Vogel Alfred R. Glancy III
S. Sterling McMillan, III W. John Roberts J. William Uhrig
H. Whitney Wagner
__ For all nominees for director listed above
(except as marked to the contrary)
__ Withholding authority to vote for all nominees
Instructions: To withhold authority to vote for any individual
Nominee, write that Nominee's name in the space provided below.
3. APPROVAL of the proposed MLX Corp. Stock Option and Incentive
Award Plan
__ For __ Against __ Abstain
4. IN ACCORDANCE WITH THE BEST JUDGMENT of the named proxies with
respect to any other matter which may properly come before the
meeting and any adjournment thereof.
Unless a contrary direction is indicated, the shares represented by
this proxy will be voted for all nominees for directors named
above. If specific instructions are indicated, this proxy will be
voted in accordance with such instructions.
Please vote, date and sign this proxy and return it at once,
whether or not you expect to attend the meeting. You may vote in
person if you do attend.
Date:
Signature(s)
Note: if signing for estates, trusts or corporation, title or
capacity should be stated. If shares are held jointly, each holder
should sign.
