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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
GLEASON CORPORATION
(Name of Issuer)
GLEASON CORPORATION
TORQUE ACQUISITION CO., L.L.C.
<TABLE>
<S> <C>
James S. Gleason Edward J. Pelta
David J. Burns John W. Pysnack
John J. Perrotti Gary J. Kimmet
John J. Perrotti as Custodian for Jason John J. Perrotti as Custodian for
Perrotti under the New York Uniform Gift Christine J. Perrotti under the New York
to Minors Act Uniform Gift to Minors Act
</TABLE>
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
377339 10 6
(CUSIP Number of Class of Securities)
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EDWARD J. PELTA, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
GLEASON CORPORATION
1000 UNIVERSITY AVENUE
P.O. BOX 22970
ROCHESTER, NEW YORK 14692
TELEPHONE: (716) 473-1000
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
<TABLE>
<S> <C>
COPY TO: AND TO:
BLAINE V. FOGG, ESQ. DAVID L. FINKELMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP STROOCK & STROOCK & LAVAN LLP
919 THIRD AVENUE 180 MAIDEN LANE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10038
TELEPHONE: (212) 735-3000 TELEPHONE:(212) 806-5400
</TABLE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This statement is filed in connection with (check the appropriate box):
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<S> <C> <C>
a. / / The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C, or
Rule 13e-3(c) under the Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities
Act of 1933.
c. /X/ A tender offer.
d. / / None of the above.
</TABLE>
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. / /
CALCULATION OF FILING FEE:
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<CAPTION>
TRANSACTION VALUATION AMOUNT OF FILING FEE*
<S> <C>
$193,509,856 $38,702
</TABLE>
* Estimated for purposes of calculating the amount of the filing fee only. The
amount assumes the purchase of 8,413,472 shares of common stock, par value
$1.00 per share (the "Shares"), of Gleason Corporation, a Delaware
corporation (the "Company"), at a price of $23.00 per Share in cash. As of
November 30, 1999, there were 9,589,195 Shares issued and outstanding.
Certain stockholders of the Company, owning in the aggregate (1) 1,458,983
Shares and (2) 472,322 unexercised options to acquire Shares under various
employee stock option plans of the Company as of November 30, 1999, have
agreed not to tender their Shares (which in the aggregate total 1,931,305
Shares, including Shares underlying options) pursuant to the Offer. Based on
the foregoing, the maximum number of Shares available to be tendered
pursuant to the Offer is 8,413,472 Shares, which is equal to the number of
Shares outstanding on a fully diluted basis as of November 30, 1999 less the
aggregate number of Shares and options to acquire Shares owned by the non-
tendering stockholders. The amount of the filing fee calculated in
accordance with Rule 0-11 of the Securities Exchange Act of 1934, as
amended, equals 1/50th of one percent of the value of the transaction.
/X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
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<S> <C> <C> <C>
Amount Previously Paid: $38,702 Filing Party: Torque Acquisition Co., L.L.C.
Form or Registration No.: Schedule 14D-1 Date Filed: December 15, 1999
</TABLE>
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INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the
"Schedule 13E-3") is being filed by Gleason Corporation, a Delaware corporation
(the "Company"), the issuer of the equity securities which are the subject of a
Rule 13e-3 transaction, Torque Acquisition Co., L.L.C., a Delaware limited
liability company and wholly owned subsidiary of Vestar Capital Partners IV,
L.P. ("Acquisition Company"), and certain stockholders of the Company in
connection with a joint offer by the Company and Acquisition Company to purchase
all of the outstanding shares of common stock, par value $1.00 per share, of the
Company (the "Common Stock"), together with the associated preferred share
purchase rights (the "Rights" and, together with the Common Stock, the "Shares")
at a purchase price of $23.00 per Share, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in the
Offer to Purchase, dated December 15, 1999 (the "Offer to Purchase") and the
related Letter of Transmittal (which, as they may be amended from time to time,
are herein collectively referred to as the "Offer"). Copies of the Offer to
Purchase and the Letter of Transmittal filed herewith as Exhibits (a)(1) and
(a)(2), respectively, in response to Item 11(a) of the Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") concurrently being filed by Acquisition
Company with the Securities and Exchange Commission (the "Commission") in
connection with the Offer, are incorporated in their entirety herein by
reference.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Schedule 14D-1,
which contains information required to be included in response to the items of
Schedule 13E-3. The information in the Schedule 14D-1, including all exhibits
thereto, is expressly incorporated by reference herein in its entirety and
responses to each item herein are qualified in their entirety by the provisions
of the Schedule 14D-1.
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CROSS REFERENCE SHEET
(PURSUANT TO GENERAL INSTRUCTION F TO SCHEDULE 13E-3)
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<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN SCHEDULE 14D-1
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<C> <S> <C>
1 ISSUER AND CLASS OF SECURITY SUBJECT TO THE
TRANSACTION.
(a)........................................ The Front Cover Page and Item 1(a) in the
Schedule 14D-1 are incorporated herein by
reference.
(b)........................................ Item 1(b) in the Schedule 14D-1 is
incorporated herein by reference.
(c)........................................ Item 1(c) in the Schedule 14D-1 is
incorporated herein by reference.
(d)........................................ Item 1(c) in the Schedule 14D-1 is
incorporated herein by reference.
(e)........................................ *
(f)........................................ *
2 IDENTITY AND BACKGROUND.
(a)-(g).................................... Items 2(a)-2(g) in the Schedule 14D-1 are
incorporated herein by reference.
3 PAST CONTACTS, TRANSACTIONS OR
NEGOTIATIONS.
(a)-(b).................................... Item 3 in the Schedule 14D-1 is
incorporated herein by reference.
4 TERMS OF THE TRANSACTION.
(a)........................................ Item 3(b) and Item 7 in the Schedule 14D-1
are incorporated herein by reference.
(b)........................................ Item 6(a) in the Schedule 14D-1 is
incorporated herein by reference.
5 PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a)-(g).................................... Items 5(a)-5(g) and Item 7 in the
Schedule 14D-1 are incorporated herein by
reference.
6 SOURCE AND AMOUNT OF FUNDS OR OTHER
CONSIDERATION.
(a)........................................ Item 4(a) in the Schedule 14D-1 is
incorporated herein by reference.
(b)........................................ Item 8 in the Schedule 14D-1 is
incorporated herein by reference.
(c)........................................ Item 4(b) in the Schedule 14D-1 is
incorporated herein by reference.
(d)........................................ Item 4(c) in the Schedule 14D-1 is
incorporated herein by reference.
7 PURPOSE(S), ALTERNATIVES, REASONS AND
EFFECTS.
(a)........................................ Item 5 in the Schedule 14D-1 is
incorporated herein by reference.
(b)........................................ Not applicable.
(c)........................................ Item 5 in the Schedule 14D-1 is
incorporated herein by reference.
(d)........................................ *
</TABLE>
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<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN SCHEDULE 14D-1
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<C> <S> <C>
8 FAIRNESS OF THE TRANSACTION.
(a)-(e).................................... *
(f)........................................ Not applicable.
9 REPORTS, OPINIONS, APPRAISALS AND CERTAIN
NEGOTIATIONS.
(a)-(c).................................... *
10 INTEREST IN SECURITIES OF THE ISSUER.
(a)........................................ Item 6(a) in the Schedule 14D-1 is
incorporated herein by reference.
(b)........................................ Item 6(b) in the Schedule 13E-4 is
incorporated herein by reference.
11 CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS
WITH RESPECT TO THE ISSUER'S SECURITIES. Item 7 in the Schedule 14D-1 is
incorporated herein by reference.
12 PRESENT INTENTION AND RECOMMENDATION OF
CERTAIN PERSONS WITH REGARD TO THE
TRANSACTION.
(a)-(b).................................... *
13 OTHER PROVISIONS OF THE TRANSACTION.
(a)-(c).................................... *
14 FINANCIAL INFORMATION.
(a)-(b).................................... Item 9 in the Schedule 14D-1 is
incorporated herein by reference.
15 PERSONS AND ASSETS EMPLOYED, RETAINED OR
UTILIZED.
(a)........................................ Not applicable.
(b)........................................ Item 8 in the Schedule 14D-1 is
incorporated herein by reference.
16 ADDITIONAL INFORMATION. Item 10(f) in the Schedule 14D-1 is
incorporated herein by reference.
17 MATERIAL TO BE FILED AS EXHIBITS.
(a)........................................ Item 11(b)(1) in the Schedule 14D-1 is
incorporated herein by reference.
(b)........................................ *
(c)........................................ Items 11(c)(1)-11(c)(23) in the
Schedule 14D-1 are incorporated herein by
reference.
(d)........................................ Items 11(a)(1)-11(a)(8) in the Schedule
14D-1 are incorporated herein by reference.
(e)........................................ Item 11(a)(1) in the Schedule 14D-1 is
incorporated herein by reference.
(f)........................................ *
</TABLE>
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* Omitted because the Item is not required by Schedule 14D-1.
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO TRANSACTION.
(a) Reference is made to the information set forth in response to Item 1(a)
of the Schedule 14D-1, which information is incorporated herein by
reference.
(b) The information set forth in "INTRODUCTION" of the Offer to Purchase is
incorporated herein by reference. As of November 30, 1999, there were
approximately 3,040 holders of record of the issued and outstanding
Shares.
(c) The information set forth in "INTRODUCTION" and "THE OFFER--Price Range
of the Shares; Dividends" of the Offer to Purchase is incorporated herein
by reference.
(d) The information set forth in "INTRODUCTION" and "THE OFFER--Price Range
of the Shares; Dividends" of the Offer to Purchase is incorporated herein
by reference.
(e) The information set forth in "SPECIAL FACTORS--Transactions and
Arrangements Concerning the Shares" of the Offer to Purchase is
incorporated herein by reference.
(f) The information set forth in "SPECIAL FACTORS--Transactions and
Arrangements Concerning the Shares" and Schedule III to the Offer to
Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d),(g) This Statement is being filed by (i) Gleason Corporation, the
issuer of the class of securities which is the subject of this
Rule 13e-3 transaction, and (ii) Torque Acquisition Co., L.L.C.,
James S. Gleason, David J. Burns, John J. Perrotti, John J. Perrotti as
Custodian for Jason Perrotti under the New York Uniform Gift to Minors
Act, John J. Perrotti as Custodian for Christine J. Perrotti under the
New York Uniform Gift to Minors Act, Edward J. Pelta, John W. Pysnack and
Gary J Kimmet. The information set forth in "INTRODUCTION," "THE
OFFER--Certain Information Concerning the Company," "THE OFFER--Certain
Information Concerning Vestar, Acquisition Company, Merger Subsidiary and
Certain Affiliates" and in Schedule I and Schedule II of the Offer to
Purchase is incorporated herein by reference.
(e)-(g) During the last five years, neither Acquisition Company nor the
Company nor, to the best knowledge of Acquisition Company and the
Company, any of the persons listed in Schedule I or Schedule II of the
Offer to Purchase has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or has been a party to a
civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining further violations of, or
prohibiting activities subject to, federal or state securities laws or
finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) The information set forth in "INTRODUCTION," "SPECIAL
FACTORS--Background of the Transactions," "SPECIAL FACTORS--Purpose and
Structure of the Transactions," "SPECIAL FACTORS--Plans for the Company
After the Transactions," "SPECIAL FACTORS--Interests of Certain Persons
in the Transactions," "SPECIAL FACTORS--Transactions and Arrangements
Concerning the Shares" and Schedule III of the Offer to Purchase are
incorporated herein by reference.
(b) The information set forth in "INTRODUCTION," "SPECIAL
FACTORS--Background of the Transactions," "SPECIAL FACTORS--Purpose and
Structure of the Transactions," "SPECIAL FACTORS--Plans for the Company
After the Transactions" and "THE OFFER--Conditions to the Offer" of the
Offer to Purchase is incorporated herein by reference.
2
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ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "INTRODUCTION," "SPECIAL FACTORS--The
Merger Agreement," "SPECIAL FACTORS--Purpose and Structure of the
Transactions," "SPECIAL FACTORS--Plans for the Company After the
Transactions," "THE OFFER--Procedures for Tendering Shares," "THE
OFFER--Acceptance for Payment and Payment for Shares," "THE
OFFER--Withdrawal Rights" and "THE OFFER--Conditions of the Offer" of the
Offer to Purchase is incorporated herein by reference.
(b) The information set forth in "SPECIAL FACTORS--Interests of Certain
Persons in the Transactions" and "SPECIAL FACTORS--The Merger Agreement"
of the Offer to Purchase is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth in "INTRODUCTION," "SPECIAL FACTORS--Plans
for the Company After the Transactions," "SPECIAL FACTORS--Interests of
Certain Persons in the Transactions," "SPECIAL FACTORS--The Merger
Agreement," "SPECIAL FACTORS--Certain Effects of the Transactions" and
"THE OFFER--Effect of the Transactions on the Market for the Shares;
Exchange Act Registration" of the Offer to Purchase is incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a),(c) The information set forth in "SPECIAL FACTORS--Financing of the
Transactions" of the Offer to Purchase is incorporated herein by
reference.
(b) The information set forth in "THE OFFER--Fees and Expenses" of the Offer
to Purchase is incorporated herein by reference.
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The information set forth in "INTRODUCTION" and "SPECIAL
FACTORS--Purpose and Structure of the Transactions" of the Offer to
Purchase is incorporated herein by reference.
(b), (c)The information set forth in "INTRODUCTION," "SPECIAL
FACTORS--Background of the Transactions," "SPECIAL
FACTORS--Recommendation of the Special Committee and Board of Directors;
Fairness of the Transactions," "SPECIAL FACTORS--Opinion of the Special
Committee's Financial Advisor" and "SPECIAL FACTORS--Purpose and
Structure of the Transactions" and Exhibit I of the Offer to Purchase is
incorporated herein by reference.
(d) The information set forth in "SPECIAL FACTORS--Interests of Certain
Persons in the Transactions," "SPECIAL FACTORS--Certain Tax
Consequences," "SPECIAL FACTORS--Certain Effects of the Transactions,"
"THE OFFER--Certain Information Concerning the Company," and "THE
OFFER--Effect of the Transactions on the Market for the Shares; Exchange
Act Registration" of the Offer to Purchase is incorporated herein by
reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(e) The information set forth in "INTRODUCTION," "SPECIAL
FACTORS--Background of the Transactions," "SPECIAL
FACTORS--Recommendation of the Special Committee and Board of Directors;
Fairness of the Transactions," "SPECIAL FACTORS--Opinion of the Special
Committee's Financial Advisor" and Exhibit I of the Offer to Purchase is
incorporated herein by reference.
(f) None.
3
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ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth in "SPECIAL FACTORS--Background of the
Transactions," "SPECIAL FACTORS--Recommendation of the Special Committee
and Board of Directors; Fairness of the Transactions," "SPECIAL
FACTORS--Opinion of the Special Committee's Financial Advisor" and
Exhibit I of the Offer to Purchase is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The information set forth in "SPECIAL FACTORS--Beneficial Ownership
of Common Stock," "SPECIAL FACTORS--Transactions and Arrangements
Concerning the Shares" and Schedule III of the Offer to Purchase is
incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
(a) The information set forth in "SPECIAL FACTORS--Interests of Certain
Persons in the Transactions," "SPECIAL FACTORS--The Merger Agreement,"
"SPECIAL FACTORS--Financing of the Transactions" and "SPECIAL
FACTORS--Transactions and Arrangements Concerning the Shares" of the
Offer to Purchase is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) The information set forth in "INTRODUCTION," "SPECIAL FACTORS--Interests
of Certain Persons in the Transactions," "SPECIAL FACTORS--The Merger
Agreement" and "SPECIAL FACTORS--Transactions and Arrangements Concerning
the Shares" of the Offer to Purchase is incorporated herein by reference.
(b) The information set forth in "INTRODUCTION" and "SPECIAL
FACTORS--Recommendation of the Special Committee and Board of Directors;
Fairness of the Transactions" of the Offer to Purchase is incorporated
herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in "INTRODUCTION," "SPECIAL FACTORS--Appraisal
Rights" and Exhibit IV of the Offer to Purchase is incorporated herein by
reference.
(b) No provision has been made by the Company to allow unaffiliated security
holders to obtain access to corporate files of the Company or to obtain
counsel or appraisal services at the expense of the Company.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) The financial information set forth in "THE OFFER--Certain Information
Concerning the Company," "THE OFFER--Certain Information Concerning
Vestar, Acquisition Company, Merger Subsidiary and Certain Affiliates"
and Exhibit II of the Offer to Purchase is incorporated herein by
reference.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Not applicable.
(b) The information set forth in "SPECIAL FACTORS--Recommendation of the
Special Committee and Board of Directors; Fairness of the Transactions,"
"SPECIAL FACTORS--Opinion of
4
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the Special Committee's Financial Advisor," "SPECIAL FACTORS--Financing
of the Transactions" and "THE OFFER--Fees and Expenses" of the Offer to
Purchase is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal, copies of which are incorporated by reference as Exhibit (d)(1) and
(d)(2) herein, which are incorporated in their entirety by reference herein.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Commitment Letter, dated November 29, 1999, by and among Gleason
Corporation, Torque Acquisition Co., L.L.C., Gleason Germany Holdings
GmbH, Gleason Works Holding Limited and Bankers Trust Company,
attached as Exhibit (b)(1) to the Schedule 14D-1 and incorporated
herein by reference.
(b)(1) Opinion of Bear, Stearns & Co., Inc., attached as Exhibit I to the
Offer to Purchase, attached hereto as Exhibit (d)(1).
(b)(2) Presentation of Bear, Stearns & Co., Inc. to the Special Committee of
the Board of Directors, dated December 8, 1999, attached as
Exhibit (b)(2) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(1) Proposal Letter, dated November 29, 1999, from James S. Gleason and
Torque Acquisition Co., L.L.C. to the Special Committee of the Board
of Directors of Gleason Corporation, attached as Exhibit (c)(1) to
the Schedule 14D-1 and incorporated herein by reference.
(c)(2) Agreement and Plan of Merger, dated as of December 8, 1999, by and
among Gleason Corporation, Torque Acquisition Co., L.L.C. and Torque
Merger Sub, Inc., attached as Exhibit III to the Offer to Purchase
filed herewith as Exhibit (d)(1).
(c)(3) Unit Purchase Agreement, dated as of November 29, 1999, by and
between Vestar Capital Partners IV, L.P. and Torque Acquisition Co.,
L.L.C., attached as Exhibit (c)(3) to the Schedule 14D-1 and
incorporated herein by reference.
(c)(4) Form of Stockholders' Agreement, dated as of November 29, 1999, among
Gleason Corporation and certain of its stockholders, attached as
Exhibit (c)(4) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(5) Letter Agreement, dated as of November 29, 1999, by and among James
S. Gleason, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(5) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(6) Letter Agreement, dated as of November 29, 1999, by and among Janis
F. Gleason, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(6) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(7) Letter Agreement, dated as of November 29, 1999, by and among David
J. Burns, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(7) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(8) Letter Agreement, dated as of November 29, 1999, by and among John J.
Perrotti, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(8) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(9) Letter Agreement, dated as of November 29, 1999, by and among Edward
J. Pelta, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(9) to the Schedule 14D-1 and incorporated
herein by reference.
5
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(c)(10) Letter Agreement, dated as of November 29, 1999, by and among John
W. Pysnack, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(10) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(11) Letter Agreement, dated as of November 29, 1999, by and among Gary
J. Kimmet, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(11) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(12) Letter Agreement, dated as of November 29, 1999, by and among the
GST Exempt Trust for the benefit of James S. Gleason under Articles
Third (E) of the Trust Under Agreement dated March 8, 1989, with
Lawrence C. Gleason, Torque Acquisition Co., L.L.C. and Gleason
Corporation, attached as Exhibit (c)(12) to the Schedule 14D-1 and
incorporated herein by reference.
(c)(13) Letter Agreement, dated as of November 29, 1999, by and among the
Non Exempt Trust for the benefit of James S. Gleason under Articles
Third (F) of the Trust Under Agreement dated March 8, 1989, with
Lawrence C. Gleason, Torque Acquisition Co., L.L.C. and Gleason
Corporation, attached as Exhibit (c)(13) to the Schedule 14D-1 and
incorporated herein by reference.
(c)(14) Term Sheet for Management Subscription Agreement, dated as of
November 29, 1999, attached as Exhibit (c)(14) to the
Schedule 14D-1 and incorporated herein by reference.
(c)(15) Terms of New Management Option Plan, dated as of November 29, 1999,
attached as Exhibit (c)(15) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(16) Form of Voting Trust Agreement, by and among Gleason Corporation,
Torque Acquisition Co., L.L.C., certain stockholders of Gleason
Corporation and James S. Gleason, David J. Burns and Edward J.
Pelta, as voting trustees, attached as Exhibit (c)(16) to the
Schedule 14D-1 and incorporated herein by reference.
(c)(17) Letter by and among Torque Acquisition Co., L.L.C., Torque Merger
Sub, Inc. and James S. Gleason, dated as of November 29, 1999,
attached as Exhibit (c)(17) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(18) Foundation Agreement, dated as of December 8, 1999, by and between
Torque Acquisition Co., L.L.C. and the Gleason Foundation, attached
as Exhibit (c)(18) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(19) Form of Severance Agreement, attached as Exhibit (c)(19) to the
Schedule 14D-1 and incorporated herein by reference.
(c)(20) Form of Management Agreement, by and between Vestar Capital Partners
and Gleason Corporation, attached as Exhibit (c)(20) to the
Schedule 14D-1 and incorporated herein by reference.
(c)(21) Amendment, dated as of December 8, 1999, to the Rights Agreement
dated as of May 4, 1999, between Gleason Corporation and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent, attached as
Exhibit (c)(21) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(22) Form of Amended and Restated Certificate of Incorporation of Gleason
Corporation, attached as Annex B to Exhibit III of the Offer to
Purchase filed herewith as Exhibit (d)(1).
(c)(23) Form of Amended and Restated Bylaws of Gleason Corporation, attached
as Annex C to Exhibit III of the Offer to Purchase filed herewith as
Exhibit (d)(1).
(d)(1) Offer to Purchase, dated December 15, 1999, attached in response to
Item 9(a) of the Schedule 13E-4.
6
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(d)(2) Letter of Transmittal, attached in response to Item 9(a) of the
Schedule 13E-4.
(d)(3) Notice of Guaranteed Delivery, attached in response to Item 9(a) of
the Schedule 13E-4 and incorporated in its entirety herein by
reference.
(d)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees, attached in response to Item 9(a) of the
Schedule 13E-4 and incorporated in its entirety herein by reference.
(d)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees, attached in response to Item 9(a)
of the Schedule 13E-4 and incorporated in its entirety herein by
reference.
(d)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9, attached in response to Item 9(a) of the
Schedule 13E-4 and incorporated in its entirety herein by reference.
(d)(7) Summary Advertisement, dated December 15, 1999, attached in response
to Item 9(a) of the Schedule 13E-4 and incorporated in its entirety
herein by reference.
(e) Not applicable.
(g)(1) Class Action Complaint filed by Melissa Marotta on December 9, 1999,
in the action entitled MAROTTA V. NICHOLS, ET AL, C.A. No. 17643NC
(Court of Chancery of New Castle County, Delaware), attached as
Exhibit (g)(1) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(2) Class Action Complaint filed by Caroline Weiss on December 9, 1999,
in the action entitled WEISS V. NICHOLS, ET AL, C.A. No. 17644NC
(Court of Chancery of New Castle County, Delaware), attached as
Exhibit (g)(2) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(3) Class Action Complaint filed by William Steiner on December 9, 1999,
in the action entitled STEINER V. NICHOLS, ET AL, C.A. No. 17648NC
(Court of Chancery of New Castle County, Delaware), attached as
Exhibit (g)(3) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(4) Class Action Complaint filed by Aaron Brody on December 10, 1999, in
the action entitled BRODY V. NICHOLS, ET AL, C.A. No. 17654NC (Court
of Chancery of New Castle County, Delaware), attached as
Exhibit (g)(4) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(5) Class Action Complaint filed by William Harper on December 10, 1999,
in the action entitled HARPER V. NICHOLS, ET AL, C.A. No. 17652NC
(Court of Chancery of New Castle County, Delaware), attached as
Exhibit (g)(5) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(6) Class Action Complaint filed by Alan Freberg on December 10, 1999, in
the action entitled FREBERG V. NICHOLS, ET AL, C.A. No. 17650NC
(Court of Chancery of New Castle County, Delaware), attached as
Exhibit (g)(6) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(7) Class Action Complaint filed by James Lichtenstein on December 13,
1999, in the action entitled LICHTENSTEIN V. NICHOLS, ET AL, C.A.
No. 17658NC (Court of Chancery of New Castle County, Delaware),
attached as Exhibit (g)(7) to the Schedule 14D-1 and incorporated
herein by reference.
7
<PAGE>
SIGNATURE
After due inquiry and to the best of their knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: December 15, 1999
<TABLE>
<S> <C> <C>
GLEASON CORPORATION
By: /s/ EDWARD J. PELTA
-----------------------------------------
Name: Edward J. Pelta
Title: Vice President, General Counsel
and Secretary
/s/ JAMES S. GLEASON
---------------------------------------------
James S. Gleason
/s/ DAVID J. BURNS
---------------------------------------------
David J. Burns
/s/ JOHN J. PERROTTI
---------------------------------------------
John J. Perrotti
/s/ JOHN J. PERROTTI
---------------------------------------------
John J. Perrotti,
as Custodian for Jason Perrotti under the New
York Uniform Gift to Minors Act
/s/ JOHN J. PERROTTI
---------------------------------------------
John J. Perrotti,
as Custodian for Christine J. Perrotti under
the New York Uniform Gift to Minors Act
/s/ EDWARD J. PELTA
---------------------------------------------
Edward J. Pelta
/s/ JOHN W. PYSNACK
---------------------------------------------
John W. Pysnack
/s/ GARY J. KIMMET
---------------------------------------------
Gary J. Kimmet
TORQUE ACQUISITION CO., L.L.C.
By: /s/ SANDER M. LEVY
-----------------------------------------
Name: Sander M. Levy
Title: President
</TABLE>
8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
</TABLE>
(a) Commitment Letter, dated November 29, 1999, by and among Gleason
Corporation, Torque Acquisition Co., L.L.C., Gleason Germany Holdings
GmbH, Gleason Works Holding Limited and Bankers Trust Company,
attached as Exhibit (b)(1) to the Schedule 14D-1 and incorporated
herein by reference.
(b)(1) Opinion of Bear, Stearns & Co., Inc., attached as Exhibit I to the
Offer to Purchase, attached hereto as Exhibit (d)(1).
(b)(2) Presentation of Bear, Stearns & Co., Inc. to the Special Committee of
the Board of Directors, dated December 8, 1999, attached as
Exhibit (b)(2) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(1) Proposal Letter, dated November 29, 1999, from James S. Gleason and
Torque Acquisition Co., L.L.C. to the Special Committee of the Board
of Directors of Gleason Corporation, attached as Exhibit (c)(1) to
the Schedule 14D-1 and incorporated herein by reference.
(c)(2) Agreement and Plan of Merger, dated as of December 8, 1999, by and
among Gleason Corporation, Torque Acquisition Co., L.L.C. and Torque
Merger Sub, Inc., attached as Exhibit III to the Offer to Purchase
filed herewith as Exhibit (d)(1).
(c)(3) Unit Purchase Agreement, dated as of November 29, 1999, by and
between Vestar Capital Partners IV, L.P. and Torque Acquisition Co.,
L.L.C., attached as Exhibit (c)(3) to the Schedule 14D-1 and
incorporated herein by reference.
(c)(4) Form of Stockholders' Agreement, dated as of November 29, 1999, among
Gleason Corporation and certain of its stockholders, attached as
Exhibit (c)(4) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(5) Letter Agreement, dated as of November 29, 1999, by and among James
S. Gleason, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(5) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(6) Letter Agreement, dated as of November 29, 1999, by and among Janis
F. Gleason, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(6) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(7) Letter Agreement, dated as of November 29, 1999, by and among David
J. Burns, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(7) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(8) Letter Agreement, dated as of November 29, 1999, by and among John J.
Perrotti, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(8) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(9) Letter Agreement, dated as of November 29, 1999, by and among Edward
J. Pelta, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(9) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(10) Letter Agreement, dated as of November 29, 1999, by and among John
W. Pysnack, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(10) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(11) Letter Agreement, dated as of November 29, 1999, by and among Gary
J. Kimmet, Torque Acquisition Co., L.L.C. and Gleason Corporation,
attached as Exhibit (c)(11) to the Schedule 14D-1 and incorporated
herein by reference.
<PAGE>
(c)(12) Letter Agreement, dated as of November 29, 1999, by and among the
GST Exempt Trust for the benefit of James S. Gleason under Articles
Third (E) of the Trust Under Agreement dated March 8, 1989, with
Lawrence C. Gleason, Torque Acquisition Co., L.L.C. and Gleason
Corporation attached as Exhibit (c)(12) to the Schedule 14D-1 and
incorporated herein by reference.
(c)(13) Letter Agreement, dated as of November 29, 1999, by and among the
Non Exempt Trust for the benefit of James S. Gleason under Articles
Third (F) of the Trust Under Agreement dated March 8, 1989, with
Lawrence C. Gleason, Torque Acquisition Co., L.L.C. and Gleason
Corporation attached as Exhibit (c)(13) to the Schedule 14D-1 and
incorporated herein by reference.
(c)(14) Term Sheet for Management Subscription Agreement, dated as of
November 29, 1999 attached as Exhibit (c)(14) to the Schedule 14D-1
and incorporated herein by reference.
(c)(15) Terms of New Management Option Plan, dated as of November 29, 1999
attached as Exhibit (c)(15) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(16) Form of Voting Trust Agreement, by and among Gleason Corporation,
Torque Acquisition Co., L.L.C., certain stockholders of Gleason
Corporation and James S. Gleason, David J. Burns and Edward J.
Pelta, as voting trustees attached as Exhibit (c)(16) to the
Schedule 14D-1 and incorporated herein by reference.
(c)(17) Letter by and among Torque Acquisition Co., L.L.C., Torque Merger
Sub, Inc. and James S. Gleason, dated as of November 29, 1999
attached as Exhibit (c)(17) to the Schedule 14D-1 and incorporated
herein by reference.
(c)(18) Foundation Agreement, dated as of December 8, 1999, by and between
Torque Acquisition Co., L.L.C. and the Gleason Foundation attached
as Exhibit (c)(18) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(19) Form of Severance Agreement attached as Exhibit (c)(19) to the
Schedule 14D-1 and incorporated herein by reference.
(c)(20) Form of Management Agreement, by and between Vestar Capital Partners
and Gleason Corporation attached as Exhibit (c)(20) to the
Schedule 14D-1 and incorporated herein by reference.
(c)(21) Amendment, dated as of December 8, 1999, to the Rights Agreement
dated as of May 4, 1999, between Gleason Corporation and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent attached as
Exhibit (c)(21) to the Schedule 14D-1 and incorporated herein by
reference.
(c)(22) Form of Amended and Restated Certificate of Incorporation of Gleason
Corporation attached as Annex B to Exhibit III of the Offer to
Purchase filed herewith as Exhibit (d)(1).
(c)(23) Form of Amended and Restated Bylaws of Gleason Corporation attached
as Annex C to Exhibit III of the Offer to Purchase filed herewith as
Exhibit (d)(1).
(d)(1) Offer to Purchase, dated December 15, 1999, attached in response to
Item 9(a) of the Schedule 13E-4.
(d)(2) Letter of Transmittal, attached in response to Item 9(a) of the
Schedule 13E-4.
(d)(3) Notice of Guaranteed Delivery, attached in response to Item 9(a) of
the Schedule 13E-4 and incorporated in its entirety herein by
reference.
(d)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees, attached in response to Item 9(a) of the
Schedule 13E-4 and incorporated in its entirety herein by reference.
<PAGE>
(d)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees, attached in response to Item 9(a)
of the Schedule 13E-4 and incorporated in its entirety herein by
reference.
(d)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9, attached in response to Item 9(a) of the
Schedule 13E-4 and incorporated in its entirety herein by reference.
(d)(7) Summary Advertisement, dated December 15, 1999, attached in response
to Item 9(a) of the Schedule 13E-4 and incorporated in its entirety
herein by reference.
(e) Not applicable.
(g)(1) Class Action Complaint filed by Melissa Marotta on December 9, 1999,
in the action entitled MAROTTA V. NICHOLS, ET AL, C.A. No. 17643NC
(Court of Chancery of New Castle County, Delaware) attached as
Exhibit (g)(1) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(2) Class Action Complaint filed by Caroline Weiss on December 9, 1999,
in the action entitled WEISS V. NICHOLS, ET AL, C.A. No. 17644NC
(Court of Chancery of New Castle County, Delaware) attached as
Exhibit (g)(2) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(3) Class Action Complaint filed by William Steiner on December 9, 1999,
in the action entitled STEINER V. NICHOLS, ET AL, C.A. No. 17648NC
(Court of Chancery of New Castle County, Delaware) attached as
Exhibit (g)(3) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(4) Class Action Complaint filed by Aaron Brody on December 10, 1999, in
the action entitled BRODY V. NICHOLS, ET AL, C.A. No. 17654NC (Court
of Chancery of New Castle County, Delaware) attached as
Exhibit (g)(4) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(5) Class Action Complaint filed by William Harper on December 10, 1999,
in the action entitled HARPER V. NICHOLS, ET AL, C.A. No. 17652NC
(Court of Chancery of New Castle County, Delaware) attached as
Exhibit (g)(5) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(6) Class Action Complaint filed by Alan Freberg on December 10, 1999, in
the action entitled FREBERG V. NICHOLS, ET AL, C.A. No. 17650NC
(Court of Chancery of New Castle County, Delaware) attached as
Exhibit (g)(6) to the Schedule 14D-1 and incorporated herein by
reference.
(g)(7) Class Action Complaint filed by James Lichtenstein on December 13,
1999, in the action entitled LICHTENSTEIN V. NICHOLS, ET AL, C.A.
No. 17658NC (Court of Chancery of New Castle County, Delaware)
attached as Exhibit (g)(7) to the Schedule 14D-1 and incorporated
herein by reference.
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK,
TOGETHER WITH THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS
OF
GLEASON CORPORATION
AT
$23.00 NET PER SHARE
BY
TORQUE ACQUISITION CO., L.L.C.,
A WHOLLY OWNED SUBSIDIARY OF
VESTAR CAPITAL PARTNERS IV, L.P.,
AND BY
GLEASON CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, JANUARY 27, 2000, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES (AS DEFINED HEREIN) WHICH WOULD RESULT IN TORQUE ACQUISITION CO., L.L.C.
("ACQUISITION COMPANY"), AND CERTAIN STOCKHOLDERS OF THE COMPANY, INCLUDING THE
GLEASON FOUNDATION (THE "FOUNDATION") AND MEMBERS OF THE COMPANY'S SENIOR
MANAGEMENT WHO HAVE AGREED NOT TO TENDER THEIR SHARES PURSUANT TO THE OFFER,
OWNING IN THE AGGREGATE AT LEAST TWO-THIRDS OF THE SHARES OUTSTANDING ON A FULLY
DILUTED BASIS AFTER GIVING EFFECT TO THE REPURCHASE OF SHARES BY THE COMPANY IN
THE OFFER, AND (II) THE COMPANY RECEIVING THE FINANCING FOR THE OFFER
CONTEMPLATED BY A BANK COMMITMENT LETTER ENTERED INTO BY ACQUISITION COMPANY AND
THE COMPANY SUFFICIENT TO PURCHASE SUCH PORTION OF THE SHARES WHICH THE COMPANY
IS AGREEING TO PURCHASE PURSUANT TO THE OFFER, TO PAY FOR THE MERGER
CONSIDERATION (AS DEFINED HEREIN) AND TO PAY ALL RELATED FEES AND EXPENSES
REQUIRED TO BE PAID BY THE COMPANY IN CONNECTION WITH THE OFFER AND THE MERGER.
THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS.
THE BOARD OF DIRECTORS OF THE COMPANY, AFTER RECEIVING THE UNANIMOUS
RECOMMENDATION OF A SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT (AS DEFINED HEREIN) AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, HAS UNANIMOUSLY
DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, ARE ADVISABLE, FAIR TO, AND IN THE BEST
INTERESTS OF, THE COMPANY'S STOCKHOLDERS (OTHER THAN ACQUISITION COMPANY AND
MERGER SUBSIDIARY (AS DEFINED HEREIN) AND THEIR AFFILIATES, THE FOUNDATION AND
THE OTHER STOCKHOLDERS OF THE COMPANY WHO WILL BE RETAINING SHARES FOLLOWING THE
MERGER), AND UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
--------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares of common stock, par value $1.00 per share, of the Company (the "Shares"
or the "Common Stock") should either (i) complete and sign the enclosed Letter
of Transmittal (or a facsimile thereof) in accordance with the instructions in
the Letter of Transmittal, have such stockholder's signature thereon guaranteed
(if required by Instruction 1 to the Letter of Transmittal), mail or deliver the
Letter of Transmittal (or a facsimile thereof) and any other required documents
to the Depositary (as defined herein) and either deliver the certificates for
such Shares to the Depositary along with the Letter of Transmittal or tender
such Shares pursuant to the procedure for book-entry transfer set forth in "THE
OFFER-- Procedures for Tendering Shares" or (ii) request such stockholder's
broker, dealer, commercial bank, trust company or other nominee to effect the
transaction for such stockholder. Any stockholder whose Shares are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
must contact such broker, dealer, commercial bank, trust company or other
nominee to tender such Shares.
ANY STOCKHOLDER WHO DESIRES TO TENDER SHARES AND WHOSE CERTIFICATES
EVIDENCING SUCH SHARES ARE NOT IMMEDIATELY AVAILABLE, OR WHO CANNOT COMPLY WITH
THE PROCEDURES FOR BOOK-ENTRY TRANSFER DESCRIBED IN THIS OFFER TO PURCHASE ON A
TIMELY BASIS, OR WHO CANNOT DELIVER ALL REQUIRED DOCUMENTS TO THE DEPOSITARY
PRIOR TO THE EXPIRATION OF THE OFFER, MAY TENDER SUCH SHARES BY FOLLOWING THE
PROCEDURES FOR GUARANTEED DELIVERY SET FORTH IN "THE OFFER-- PROCEDURES FOR
TENDERING SHARES."
Questions and requests for assistance or for additional copies of this Offer
to Purchase, the Letter of Transmittal or other tender offer materials, may be
directed to Georgeson Shareholder Communications Inc. (the "Information Agent")
at its address and telephone number set forth on the back cover of this Offer to
Purchase. Stockholders may also contact brokers, dealers, commercial banks or
trust companies for assistance concerning the Offer.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
December 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTRODUCTION................................................ 1
SPECIAL FACTORS............................................. 5
Background of the Transactions.......................... 5
Recommendation of the Special Committee and Board of
Directors; Fairness of the Transactions................ 11
Opinion of the Special Committee's Financial Advisor.... 14
Purpose and Structure of the Transactions............... 21
Plans for the Company After the Transactions............ 22
Interests of Certain Persons in the Transactions........ 22
The Merger Agreement.................................... 30
Appraisal Rights........................................ 42
Certain Tax Consequences................................ 43
Financing of the Transactions........................... 43
Beneficial Ownership of Common Stock.................... 47
Transactions and Arrangements Concerning the Shares..... 48
Certain Effects of the Transactions..................... 49
THE OFFER................................................... 50
Terms of the Offer...................................... 50
Acceptance for Payment and Payment for Shares........... 52
Procedures for Tendering Shares......................... 53
Withdrawal Rights....................................... 55
Price Range of the Shares; Dividends.................... 56
Effect of the Transactions on the Market for the Shares;
Exchange Act Registration.............................. 56
Certain Information Concerning the Company.............. 57
Certain Information Concerning Vestar, Acquisition
Company, Merger Subsidiary and Certain Affiliates...... 66
Conditions to the Offer................................. 67
Certain Legal Matters................................... 69
Fees and Expenses....................................... 72
Recapitalization Accounting............................. 73
Miscellaneous........................................... 73
</TABLE>
<TABLE>
<S> <C>
Schedule I -- Information Concerning Directors and Executive Officers
of the Company
Schedule II -- Information Concerning Directors and Executive Officers
of Vestar Associates Corporation IV and Acquisition Company
Schedule III -- Information Regarding Transactions in the Company's
Shares
Exhibit I --Opinion of Bear, Stearns & Co. Inc.
Exhibit II --Historical Financial Information Concerning the Company
Exhibit III -- Agreement and Plan of Merger, dated as of December 8,
1999, by and among the Company, Acquisition Company and
Merger Subsidiary (together with the Annexes thereto)
Exhibit IV --Section 262 of the Delaware General Corporation Law
</TABLE>
<PAGE>
To the Holders of Common Stock of
GLEASON CORPORATION:
INTRODUCTION
Torque Acquisition Co., L.L.C. ("Acquisition Company"), a newly formed
Delaware limited liability company and a wholly owned subsidiary of Vestar
Capital Partners IV, L.P. ("Vestar"), and Gleason Corporation, a Delaware
corporation (the "Company" and, together with Acquisition Company, the
"Purchasers"), hereby offer to purchase all of the outstanding shares of common
stock, par value $1.00 per share, of the Company (the "Common Stock"), together
with the associated preferred share purchase rights issued pursuant to a Rights
Agreement, dated as of May 4, 1999, as amended (the "Rights Agreement"), between
the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the
"Rights" and, together with the Common Stock, the "Shares"), at a purchase price
of $23.00 per Share, net to the seller in cash (such amount, or any greater
amount per Share paid pursuant to the Offer, being referred to herein as the
"Offer Price"), without interest thereon, with Acquisition Company agreeing to
pay for and purchase the first 2,318,126 Shares tendered pursuant to the Offer
and the Company agreeing to pay for and purchase all Shares in excess of such
2,318,126 Shares paid for and purchased by Acquisition Company, upon the terms
and subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which, as amended or supplemented from time to
time, together constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, subject to Instruction 6 of the Letter of Transmittal, stock
transfer taxes on the transfer and sale of Shares pursuant to the Offer. The
Company will pay all fees and expenses of ChaseMellon Shareholder Services,
L.L.C., which is acting as the Depositary (the "Depositary"), and Georgeson
Shareholder Communications Inc., which is acting as the Information Agent (the
"Information Agent"), incurred in connection with the Offer. See "THE
OFFER--Fees and Expenses."
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of December 8, 1999 (the "Merger Agreement"), by and among the Company,
Acquisition Company and Torque Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Acquisition Company ("Merger Subsidiary"). Pursuant
to the Merger Agreement, following the completion of the Offer and the
satisfaction or waiver of certain other conditions, Merger Subsidiary will be
merged with and into the Company (the "Merger") with the Company being the
surviving corporation (the "Surviving Corporation"). In the Merger, each
outstanding Share (other than (i) Shares held by the Company or its
subsidiaries, (ii) Shares held by Acquisition Company or Merger Subsidiary or
their affiliates, (iii) certain Shares held by the Gleason Foundation (the
"Foundation"), (iv) certain Shares held by James S. Gleason, Chairman and Chief
Executive Officer of the Company, (v) Shares held by the other Continuing
Stockholders (as defined below) and (vi) Dissenting Shares (as defined in the
Merger Agreement)) will be converted into the right to receive the Offer Price
without interest thereon (the "Merger Consideration").
The Foundation (which owns 1,197,346 Shares), and six members of the
Company's senior management, including Mr. Gleason, and certain related parties
(who together own 261,637 Shares and 472,322 Shares issuable upon exercise of
currently exercisable options), have entered into agreements with Acquisition
Company providing that they will not tender any of their Shares pursuant to the
Offer and will vote all of their Shares in favor of the approval of the Merger.
Pursuant to such agreements and the Merger Agreement, Acquisition Company will
retain 484,334 of its Shares purchased in the Offer, the Foundation will retain
202,000 Shares, and the other parties together will retain 282,950 Shares (as
well as approximately 301,522 Shares issuable upon exercise of currently
exercisable options), following the consummation of the Merger. Other members of
the Company's management, who together own approximately 66,000 Shares (and
approximately 36,000 Shares issuable upon exercise of currently exercisable
options), will be offered the opportunity to enter into agreements with
Acquisition Company providing that they will retain their Shares and options
following consummation of the Offer and the Merger. All stockholders who
previously have entered into, or in the future enter into, such agreements with
Acquisition Company (other than the Foundation) are sometimes collectively
referred to herein as the
<PAGE>
"Continuing Stockholders." Acquisition Company, Merger Subsidiary and the
Continuing Stockholders are sometimes collectively referred to herein as the
"Acquisition Parties."
In the Merger, 60,000 Shares, and, at the Foundation's election, up to an
additional 485,000 Shares held by the Foundation will be converted into
preferred stock and warrants of the Company. In the Merger, 1,833,792 of the
Shares purchased by Acquisition Company in the Offer also will be converted into
preferred stock and warrants of the Company. Acquisition Company has agreed to
purchase from the Company additional preferred stock and warrants if the
Foundation elects not to convert more than 60,000 of its Shares into preferred
stock and warrants, in order to fund the payment of the Merger Consideration
with respect to any of the 485,000 additional Shares that the Foundation elects
not to convert into preferred stock and warrants. See "SPECIAL FACTORS--The
Merger Agreement."
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES WHICH WOULD RESULT IN THE ACQUISITION PARTIES AND THE FOUNDATION OWNING
IN THE AGGREGATE AT LEAST TWO-THIRDS OF THE SHARES OUTSTANDING ON A FULLY
DILUTED BASIS AFTER GIVING EFFECT TO THE REPURCHASE OF SHARES BY THE COMPANY IN
THE OFFER AND ASSUMING THE CANCELLATION OF SUCH SHARES (THE "MINIMUM
CONDITION"), AND (II) THE COMPANY RECEIVING THE FINANCING (THE "FINANCING") FOR
THE OFFER CONTEMPLATED BY A BANK COMMITMENT LETTER ENTERED INTO BY THE
PURCHASERS SUFFICIENT TO PURCHASE THE PORTION OF THE SHARES WHICH THE COMPANY IS
AGREEING TO PURCHASE PURSUANT TO THE OFFER, TO PAY FOR THE MERGER CONSIDERATION
AND TO PAY ALL RELATED FEES AND EXPENSES REQUIRED TO BE PAID BY THE COMPANY IN
CONNECTION WITH THE OFFER AND THE MERGER (THE "FINANCING CONDITION"). The Offer
is also subject to the other terms and conditions set forth in this Offer to
Purchase. See "SPECIAL FACTORS--Financing of the Transactions" for a discussion
of the Financing and "THE OFFER--Conditions to the Offer" which sets forth in
full the conditions of the Offer. For purposes of the Offer, "on a fully diluted
basis" means, as of any date, the number of Shares that are actually issued and
outstanding plus the number of shares that the Company is required to issue
pursuant to currently exercisable obligations under convertible securities,
stock options and otherwise.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD"), AFTER RECEIVING THE
UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS (THE
"SPECIAL COMMITTEE"), (1) HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, (2) HAS
UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE ADVISABLE, FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS (OTHER THAN THE
ACQUISITION PARTIES, THEIR AFFILIATES AND THE FOUNDATION), AND (3) UNANIMOUSLY
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
As of November 30, 1999, there were 9,589,195 shares of Common Stock
(including restricted stock) issued and outstanding, 2,004,945 shares of Common
Stock held in the treasury of the Company and 879,552 shares of Common Stock
reserved for issuance pursuant to the Company's stock option plans, of which
755,582 of such Shares are subject to currently outstanding stock options. As of
November 30, 1999, there were approximately 3,040 holders of record of the
issued and outstanding Shares. Based on such numbers of Shares and options
outstanding and agreements of the Continuing Stockholders and the Foundation to
not tender their Shares, the Minimum Condition will be satisfied if 6,524,918
Shares are tendered. Such number could be reduced to 6,389,918 Shares if all
persons who are eligible to become Continuing Stockholders do so prior to the
expiration of the Offer.
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Bear, Stearns & Co. Inc. ("Bear Stearns"), the financial advisor to the
Special Committee, has delivered to the Special Committee its written opinion,
dated as of December 8, 1999 (the "Opinion"), to the effect that, as of such
date and based upon and subject to the assumptions, factors and limitations set
forth therein, the $23.00 per Share in cash being offered in the Offer and to be
received in the Merger is fair, from a financial point of view, to the
stockholders of the Company (other than the Acquisition Parties, their
affiliates and the Foundation). See "SPECIAL FACTORS--Opinion of Special
Committee's Financial Advisor." A copy of the Opinion is attached hereto as
Exhibit I. Stockholders are urged to, and should, read the Opinion carefully and
in its entirety.
The Company has received a commitment letter (the "Commitment Letter") from
Bankers Trust Company ("BTCo") pursuant to which BTCo has committed, subject to
certain conditions, to provide to the Company and certain of its subsidiaries a
$250 million senior secured credit facility from a syndicate of banks and other
lenders arranged and managed by BTCo, as administrative agent, sole lead
arranger and book manager. Such credit facility will be comprised of (i) $180
million of term loans to be divided into two primary tranches in amounts to be
determined, and (ii) $70 million of revolving credit facilities. Borrowings
under such credit facility, if obtained by the Company, will be sufficient to
satisfy the Financing Condition. See "SPECIAL FACTORS--Financing of the
Transactions" and "THE OFFER--Conditions to the Offer."
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the approval and adoption of the Merger Agreement
and the Merger by the requisite vote of stockholders of the Company. See
"SPECIAL FACTORS--The Merger Agreement." Under the Company's certificate of
incorporation, the affirmative vote of the holders of two-thirds of the
outstanding Shares is required to approve and adopt the Merger Agreement and the
Merger. Pursuant to the Merger Agreement, Acquisition Company has agreed to
vote, or cause to be voted, all Shares owned by it, Merger Subsidiary or any of
its other subsidiaries or affiliates in favor of the adoption of the Merger
Agreement and approval of the Merger. In addition, as noted above, the
Foundation has agreed, and the Continuing Stockholders have agreed or will
agree, to vote, or to cause to be voted, all Shares owned by them in favor of
the adoption of the Merger Agreement and approval of the Merger. ACCORDINGLY, IF
THE MINIMUM CONDITION IS SATISFIED AND SHARES ARE PURCHASED PURSUANT TO THE
OFFER, THE FAVORABLE VOTE TO APPROVE THE MERGER WILL BE ASSURED.
Following the Merger, the Continuing Stockholders, the Foundation and
Acquisition Company will own all of the Shares and other equity interests of the
Surviving Corporation. Accordingly such stockholders will participate in any
future increase in the equity value of the Company, as well as be subject to the
increased risks of owning Shares in a significantly more leveraged Company. In
addition, as part of the Merger, each of Acquisition Company and the Foundation
will exchange a portion of their Shares for a new series of 13.17% Series A
Cumulative Preferred Stock of the Company (the "Series A Preferred") and
warrants (the "Warrants") to acquire Shares at a price of $23.00 per Share; each
Share so exchanged will be converted into one share of Series A Preferred and
one Warrant (hereinafter referred to as the "Series A Preferred/Warrant
Consideration"). In the Merger, Acquisition Company will convert 1,833,792 of
the Shares purchased by it in the Offer into the Series A Preferred/Warrant
Consideration and the Foundation will convert at least 60,000 Shares, and, at
its election, up to an additional 485,000 Shares, into the Series A
Preferred/Warrant Consideration. If the Foundation elects not to convert more
than 60,000 of its Shares for the Series A Preferred/Warrant Consideration,
Acquisition Company will purchase additional Series A Preferred for $20.70 per
Share in cash and additional Warrants at $2.30 per Warrant in cash to provide
the funds necessary to pay the Merger Consideration for any of the 485,000
additional Shares the Foundation elects not to convert into the Series A
Preferred/Warrant Consideration. The Opinion does not address the Common Stock
or the Series A Preferred and the Warrants to be received by certain of the
Acquisition Parties and the Foundation in connection with the Merger.
In connection with the approval of the Transactions, the Board approved the
Offer as a "Permitted Offer" under the Rights Agreement and authorized an
amendment to the Rights Agreement to assure that
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the Rights will not be triggered as a result of the Transactions and that the
Rights will terminate upon consummation of the Merger. See "SPECIAL
FACTORS--Interests of Certain Persons in the Transactions--Rights Agreement
Amendment."
This Offer to Purchase and the accompanying documents contain information
required to be disclosed by the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the "Exchange Act"), including
financial information regarding the Company, a description of the terms,
conditions and background of the Offer, and the procedures for tendering Shares.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION AND SHOULD BE READ CAREFULLY AND IN THEIR ENTIRETY BEFORE ANY
DECISION IS MADE WITH RESPECT TO THE OFFER.
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SPECIAL FACTORS
BACKGROUND OF THE TRANSACTIONS
On February 10, 1999, at a regular meeting of the Board, Mr. Gleason, the
Company's Chairman and Chief Executive Officer, initiated a discussion regarding
the Company's stock price. Mr. Gleason expressed his opinion that the Company's
stock was undervalued in the public markets when compared to the Company's
performance. The Board generally discussed the possibility of considering
alternatives to enhance stockholder value in the event the Company's current
stock valuation continues. Mr. Gleason indicated that a few investment bankers
had approached the Company about considering alternatives to enhance stockholder
value, and that members of the Company's management recently met with one
investment banking firm in order to better understand the alternatives, but that
no alternatives were then being pursued.
On April 20, 1999, the Board met to discuss, among other things, various
strategic alternatives that might be available with respect to the Company in
order to enhance stockholder value. At this meeting, Mr. John J. Perrotti, the
Company's Vice President--Finance and Treasurer, made a presentation regarding
strategic alternatives, including, among other things, share repurchase
programs, implementation of a significant acquisition program, sale of the
Company and a leveraged recapitalization of the Company. Following discussion of
these various alternatives, the Board authorized that management speak on a
confidential basis with one or two additional financial advisors in order to
further assess possible alternatives for enhancing stockholder value.
In early May 1999, the Company's senior management met with two investment
banking firms in order to better understand alternatives for enhancing
stockholder value, including through a leveraged recapitalization. At a meeting
held on May 27, 1999, the Board discussed management's evaluation of the
financial advisors' presentations. Mr. Gleason reported that, based on
discussions with the financial advisors, it was the view of the Company's senior
management that the most appropriate potential transaction would involve a
leveraged recapitalization transaction involving a private equity sponsor. Mr.
Gleason said that management might wish to participate in such a transaction
after evaluating the feasibility of such a transaction. The Board formed the
Special Committee of non-management independent directors composed of
Messrs. John W. Guffey, Jr., William P. Montague and Robert L. Smialek to
consider any potential transaction proposed by the Company's senior executives.
On June 3, 1999, Stroock & Stroock & Lavan LLP was retained by the Special
Committee to serve as counsel to the Special Committee.
On June 8, 1999, counsel for management contacted counsel for the Special
Committee to discuss, on a preliminary basis, issues regarding the structure of
a possible leveraged recapitalization transaction. In addition, on June 9, 1999,
counsel for management requested that the Special Committee reimburse the
Acquisition Parties for expenses incurred by the Acquisition Parties in
exploring the feasibility of financing and submitting a proposal, subject to a
"cap" of $150,000.
On or about June 15, 1999, representatives of management approached
representatives of Vestar and Vestar Capital Partners, a Delaware general
partnership (sometimes referred to in this section collectively as "Vestar"),
regarding Vestar's interest in possibly participating in a leveraged
recapitalization transaction with members of the Company's management. On June
18, 1999, the Company entered into a confidentiality agreement with Vestar
Capital Partners.
On June 22, 1999, the Special Committee met by conference telephone with its
legal counsel. Counsel for the Special Committee discussed the request that had
been made for reimbursement of up to $150,000 of expenses incurred by management
in exploring the feasibility of financing and submitting a proposal. The Special
Committee determined that it did not believe it was appropriate to authorize the
expenditure of funds of the Company at that stage and counsel for the Special
Committee advised counsel for management to that effect.
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On July 27, 1999, the General Counsel for the Company telephoned counsel for
the Special Committee to advise that senior management of the Company had
determined to work with Vestar to explore the feasibility of a proposal for a
leveraged recapitalization transaction, but that at least six weeks or more
would be required before such a proposal could be made.
Commencing on August 2, 1999, the Company provided due diligence materials
to counsel for the Acquisition Parties. In addition, Vestar retained an
independent public accounting firm to assist it in its due diligence review of
the Company and in structuring a transaction which would be eligible for
recapitalization accounting treatment.
During the period from mid-June 1999 to November 29, 1999, representatives
of the Acquisition Parties met several times and had numerous telephone
conferences to generally discuss issues regarding, among other things, possible
transaction structure, financing for the transaction, the terms of the
management participation in the transaction, possible stockholder arrangements
following the transaction, accounting issues and due diligence. In addition,
during such period Vestar met with the Company's senior management and reviewed
certain non-public financial information of the Company, including certain
projections and alternative forecasts prepared by senior management at the
request of Vestar (the "Projections") and furnished to Vestar and its potential
financing sources, and other information with respect to the Company and
conducted additional due diligence with respect to the Company and its assets
and operations. These Projections were also provided to the Special Committee
and its legal and financial advisors as described in "THE OFFER--Certain
Information Concerning the Company--Certain Projections."
On August 24, 1999, counsel for the Acquisition Parties telephoned counsel
for the Special Committee to discuss the status of the work done by the
Acquisition Parties to determine whether they would be in a position to present
a proposal to the Special Committee. During this discussion, counsel for the
Acquisition Parties advised counsel for the Special Committee of certain aspects
of the structure of the transaction the Acquisition Parties were considering;
that, although no decision had been made, the Acquisition Parties could be in a
position to make a proposal to the Special Committee in the not too distant
future; and that the Special Committee might wish to consider retaining a
financial advisor. Counsel to the Acquisition Parties also told counsel for the
Special Committee that the Acquisition Parties would not make a proposal unless
and until the Special Committee and its advisors were prepared to move quickly
toward the negotiation of a definitive agreement between the Company and the
Acquisition Parties, although recognizing that there were no assurances that an
agreement would be reached. Counsel for the Acquisition Parties also proposed to
counsel for the Special Committee that the Special Committee recommend, and the
Board adopt, a resolution that would approve for purposes of Section 203 of the
Delaware General Corporation Law (the "DGCL") the Acquisition Parties and
possibly the Foundation joining together to make a proposal to the Special
Committee if, in fact, they decided to do so (the "203 Resolution").
On September 7, 1999, the Special Committee and its counsel met by
conference telephone. Counsel for the Special Committee said that they had been
advised that Vestar was in the process of completing its due diligence review of
the Company and that a proposal, accompanied by a draft of a merger agreement,
might be submitted to the Special Committee as early as the middle of September.
The Special Committee determined that, in view of the foregoing, it would be
appropriate at this time to engage an investment banking firm to serve as
financial advisor to the Special Committee and decided to seek proposals from
each of three nationally-recognized investment banking firms with which the
Special Committee members had had experience. The Special Committee also
considered the 203 Resolution that had been submitted by counsel for the
Acquisition Parties and determined to recommend the adoption of such 203
Resolution by the Board, subject to the inclusion therein of a six month time
limitation for the submission of a proposal by the Acquisition Parties. After
the conclusion of the Special Committee meeting, counsel for the Special
Committee telephoned counsel to the Acquisition Parties to advise that the
Special Committee
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would retain a financial advisor in the near future and was prepared to
recommend that the Board adopt the 203 Resolution with the condition that the
203 Resolution would apply for only six months.
On September 16, 1999, the Board, upon the recommendation of the Special
Committee, adopted the 203 Resolution applicable for six months. For a
discussion of Section 203 of the DGCL and the effect of the 203 Resolution, see
"THE OFFER--Certain Legal Matters."
On September 16, 1999, following the meeting of the Board, the Special
Committee met by conference telephone to review the proposals that had been
received from the three investment banking firms discussed at the Special
Committee's September 7th meeting. The Special Committee determined to request
two of such firms to reconsider the compensation provisions of their respective
proposals with a view towards proposing lower base fees with incentives for
greater fees if a transaction occurs at higher per share values.
On September 27, 1999, the Special Committee met again by conference
telephone and reviewed the revised proposals that had been received from Bear
Stearns and the other investment banking firm discussed at the Special
Committee's September 16th meeting. The Special Committee determined to retain
Bear Stearns as its financial advisor, subject to negotiation of a satisfactory
engagement agreement which was subsequently negotiated with Bear Stearns by
counsel for the Special Committee and approved by the Special Committee and
executed by the Company as of October 1, 1999. (Bear Stearns was not one of the
investment banking firms or financial advisors which had contacted or been
contacted by, or met with, the Company prior to June 1999 as discussed above.)
Counsel for the Special Committee reported that the Company's General Counsel
had inquired as to whether the Special Committee members intended to request
compensation for their services on the Special Committee. Counsel for the
Special Committee advised that, according to the Company's most recent proxy
statement, directors who served on committees of the Board were entitled to
receive a fee of $1,000 for attendance at each meeting of a committee. The
Special Committee determined that in view of the special responsibilities and
time commitments assumed by the members of the Special Committee, it would be
appropriate to request a fee of $1,500 for each meeting attended by a member of
the Special Committee. The Special Committee also determined that the Company's
normal practice of deferring 50% of fees to a phantom stock account was not
appropriate since the function of the Special Committee involved a possible sale
of the Company.
From time to time during the months of October and November 1999, counsel
for the Acquisition Parties discussed with counsel for the Special Committee the
timing of a proposal should the Acquisition Parties determine to make a
proposal, and the process to be followed if a proposal were made to the Special
Committee.
On October 6, 1999, the Special Committee met by conference telephone with
its financial and legal advisors. Counsel for the Special Committee reported
that he had been advised by counsel for the Acquisition Parties that a proposal
might be presented to the Special Committee by the latter part of October,
although there was no certainty as to the timing thereof or whether any proposal
would, in fact, be made. Bear Stearns outlined for the Special Committee the due
diligence procedures they planned on following and the timetable therefor.
On October 21, 1999, the Board authorized the payment of fees of $1,500 per
meeting to each member of the Special Committee as compensation for service on
the Special Committee.
On October 29, 1999, the Special Committee met by conference telephone with
its financial and legal advisors. Bear Stearns reported on its review of the
Company, including its visit with senior management at the Company's executive
offices in Rochester, New York. Bear Stearns informed the Special Committee that
an additional meeting had been scheduled with the Company's Chief Financial
Officer and that Bear Stearns planned on meeting with Vestar in the near future.
On October 29, 1999, counsel for the Special Committee notified counsel for
the Acquisition Parties of a meeting that had occurred between the Special
Committee and Bear Stearns earlier in the day. During
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this discussion, counsel for the Special Committee advised counsel for the
Acquisition Parties that the Special Committee, at the request of Bear Stearns,
had requested that management provide Bear Stearns with updates of the annual
budget once the annual budgeting process (which was underway) was completed. In
addition, counsel for the Special Committee and counsel for the Acquisition
Parties discussed issues regarding the timing of a potential transaction.
On November 11, 1999, in advance of a scheduled meeting between
representatives of Vestar and representatives of Bear Stearns, a representative
of Vestar contacted a representative of Bear Stearns. During such conversation,
Vestar advised Bear Stearns that if management and Vestar decided to proceed
with a proposal, they were likely to do so in a week or two and that the
proposal would reflect a price in the "low $20s." On November 12, 1999,
representatives of Vestar and Bear Stearns held a meeting at which Vestar
discussed its view of the valuation of the Company, including under various
valuation methodologies. Representatives of Vestar and Bear Stearns held
follow-up conversations during the week of November 15, 1999.
On November 24, 1999, counsel to the Acquisition Parties furnished counsel
to the Special Committee with a draft merger agreement for discussion purposes
and in order to facilitate the process in the event that a proposal was made by
the Acquisition Parties. The draft merger agreement did not identify the price
that the Acquisition Parties might be willing to offer in the transaction. Also
on November 24, 1999, a representative of Vestar contacted a representative of
Bear Stearns to again advise that if the Acquisition Parties determined to
submit a proposal, such proposal would likely be in the "low $20s." The
representative of Bear Stearns advised the representative of Vestar that Bear
Stearns had completed a preliminary review of the Company's assets, operations
and financial position, including a review of the Projections furnished to
Vestar and also to Bear Stearns, and would be prepared to advise the Special
Committee in response to any proposal submitted by the Acquisition Parties.
On November 29, 1999, Mr. Gleason, members of senior management and Vestar
determined to proceed with a proposal and thereafter Acquisition Company and Mr.
Gleason delivered a letter to the Special Committee and its advisors and other
non-management members of the Board proposing a transaction in which the
Company's public stockholders would receive $21.50 per Share in cash. The
proposal letter was accompanied by a draft merger agreement; a Commitment Letter
executed by BTCo providing to the Company a $240 million senior secured credit
facility (which was subsequently increased to $250 million); letter agreements
(the "Letter Agreements") from certain senior members of management agreeing,
among other things, to support the transaction and roll-over their Shares
following the proposed transaction; and a unit purchase agreement between Vestar
Capital Partners IV, L.P. and Acquisition Company (the "Unit Purchase
Agreement") pursuant to which Vestar Capital Partners IV, L.P. agreed, subject
to certain conditions, to purchase equity interests in Acquisition Company to
fund the purchase of Shares by Acquisition Company. The proposal was conditioned
upon, among other things, the Acquisition Parties reaching an agreement with the
Foundation with respect to a minimum level of participation in the transaction
by the Foundation and the receipt of funds pursuant to the Commitment Letter.
On November 30, 1999, the Acquisition Parties delivered to the Foundation
and its advisors a draft of a proposed agreement pursuant to which the
Foundation would agree, among other things, to support the transaction;
roll-over a minimum number of its Shares; and exchange some of its Shares for
the Series A Preferred/Warrant Consideration having the same terms as those to
be issued to Acquisition Company.
On November 30, 1999, the Special Committee held a telephonic meeting with
its legal and financial advisors to review the $21.50 per Share proposal on a
preliminary basis. The Special Committee determined that the $21.50 per Share
proposal was insufficient and instructed Bear Stearns to so advise Acquisition
Company and request Acquisition Company to consider an increase in the price of
its proposal.
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Following the November 30, 1999 meeting, on December 1, 1999,
representatives of Bear Stearns contacted representatives of Acquisition Company
to advise them that the $21.50 per Share proposal was insufficient. Bear Stearns
advised Acquisition Company that the Special Committee would be meeting again
later in the week and that the Special Committee had authorized Bear Stearns to
request that the Acquisition Parties consider increasing the price being offered
in their proposal. The representatives of Acquisition Company advised Bear
Stearns that the Acquisition Parties would take the Special Committee's request
under consideration.
On December 2, 1999, representatives of Bear Stearns met with
representatives of Acquisition Company to discuss and review the status of the
proposal. At such meeting, representatives of Acquisition Company advised Bear
Stearns that the Acquisition Parties would be prepared to increase their
proposal by $.75 per Share to $22.25 provided that the Special Committee did not
have any significant issues with the draft merger agreement presented with the
Proposal. The representatives of Bear Stearns advised Acquisition Company that
they would inform the Special Committee of the revised proposal but expected
that the Special Committee would find the revised proposal to be insufficient.
On December 3 , 1999, management informed Vestar and Bear Stearns that
shipments for certain products were expected to be delayed, thereby deferring
into year 2000 approximately $10 million in sales and resulting in a $2 million
reduction in operating profit previously expected to be realized in 1999.
On December 3, 1999, the Special Committee held a telephonic meeting with
its financial and legal advisors. At such meeting, Bear Stearns advised the
Special Committee of the Acquisition Parties' revised proposal of $22.25 per
Share. The Special Committee determined that such price was still insufficient
and instructed their legal and financial advisors to propose to the Acquisition
Parties a price of $23.50 per Share. Following such meeting, the financial and
legal advisors to the Special Committee communicated to representatives of
Acquisition Company and legal counsel to the Acquisition Parties the Special
Committee's proposal of $23.50 per Share and further advised representatives of
Acquisition Company and legal counsel to the Acquisition Parties that until a
favorable proposal was received with respect to price, the Special Committee had
instructed its counsel not to engage in substantive negotiations regarding the
draft merger agreement.
On December 4, 1999, Mr. Gleason, together with representatives of
Acquisition Company and counsel to the Acquisition Parties, met with the
Investment Committee of the Foundation and its counsel to discuss the proposed
transaction. Commencing on December 4, 1999, counsel to the Foundation and
counsel to the Acquisition Parties commenced negotiations of the Foundation
Agreement.
On December 5, 1999, representatives of Acquisition Company and Bear Stearns
discussed the transaction. Acquisition Company informed Bear Stearns that the
Acquisition Parties were prepared to increase the price of their proposal to
$23.00 per Share and that the $23.00 per Share price represented Acquisition
Company's best and final offer. Bear Stearns informed the representatives of
Acquisition Company that it would communicate that price to the Special
Committee. In response to the increase in the price of the proposal and
consistent with the authority granted by the Special Committee, the Special
Committee's legal counsel distributed to counsel for the Acquisition Parties a
revised draft of the merger agreement marked to indicate the changes from the
draft that had been furnished with the Acquisition Parties' original proposal.
From December 5 to December 8, 1999, the Acquisition Parties and their
counsel negotiated the terms of the Merger Agreement with the Special Committee
and its counsel and financial advisors and the terms of the Foundation Agreement
with counsel to the Foundation.
On December 7, 1999, the Special Committee met at the offices of its counsel
in New York City with its financial and legal advisors. Counsel for the Special
Committee reviewed the status of negotiations of the terms of the Merger
Agreement and various resolved and unresolved issues, including the amount of
the termination fee and the maximum dollar amount of expenses of the Acquisition
Company that would
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be payable by the Company in the event the transactions contemplated by the
Merger Agreement were not consummated for specified reasons and the initial
expiration date of the Offer. Bear Stearns reviewed in detail with the Special
Committee its preliminary analysis of the proposed transaction. Bear Stearns
orally expressed its view that the price of $23.00 per Share in cash being
offered in the Offer and to be received in the Merger was fair, from a financial
point of view, to the Company's stockholders (other than the Acquisition
Parties, their affiliates and the Foundation). The Special Committee instructed
its legal counsel to continue negotiations with respect to the terms of the
Merger Agreement.
On December 7, 1999, following the meeting of the Special Committee, a
special meeting of the Board took place at the offices of counsel for the
Special Committee. Neither Mr. Gleason, nor Mr. David J. Burns, President and
Chief Operating Officer and a director of the Company, nor any other members of
the Company's management attended such meeting which was attended only by the
members of the Special Committee and the other directors who were not officers
or employees or otherwise affiliated with the Company and by the Special
Committee's financial and legal advisors. Bear Stearns reviewed for the
directors present at such meeting its preliminary analysis (presented earlier
that day to the Special Committee) of the proposed transaction. Counsel for the
Special Committee discussed the terms of the proposed merger agreement in
detail, including the structure of the transaction as a joint cash tender offer
by the Company and Acquisition Company, the terms of the debt financing that had
been arranged by the Acquisition Parties and the conditions to the Offer and the
Merger. In particular, counsel for the Special Committee discussed the
importance of the specific provisions in the Merger Agreement which would allow
the Board (acting upon the recommendation of the Special Committee) to negotiate
with third parties who might submit written acquisition proposals and to
terminate the Merger Agreement in such circumstances. Counsel for the Special
Committee also reviewed the unresolved issues that had been discussed with the
Special Committee earlier in the day.
Following such meeting of the Board, counsel for the Special Committee
continued to negotiate the terms of the Merger Agreement with counsel for the
Acquisition Parties during the evening of December 7th and the morning of
December 8th.
On December 8, 1999, the Special Committee met again with its financial and
legal advisors. Counsel for the Special Committee reported that it had
satisfactorily concluded negotiation of the unresolved issues related to the
Merger Agreement and Bear Stearns issued to the Special Committee its written
opinion to the effect that, as of the date of the opinion and based upon and
subject to the assumptions, factors and limitations set forth therein, the
$23.00 per Share in cash being offered in the Offer and to be received in the
Merger is fair, from a financial point of view, to the Company's stockholders
(other than the Acquisition Parties, their affiliates and the Foundation). The
Special Committee unanimously determined that the Offer and the Merger and the
terms and provisions of the Merger Agreement were advisable, fair to and in the
best interests of the Company's stockholders (other than the Acquisition
Parties, their affiliates and the Foundation), and unanimously recommended to
the full Board that it approve the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger.
At a meeting of the full Board held on December 8, 1999 immediately
following the Special Committee meeting, the Board received the recommendation
of the Special Committee and reviewed the terms of the Transactions and the
reasons for the Special Committee's recommendation. At such meeting, the Board
unanimously determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are advisable, fair
to, and in the best interests of, the Company's stockholders (other than the
Acquisition Parties, their affiliates and the Foundation), unanimously approved
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, and unanimously recommended that stockholders of the
Company accept the Offer and tender their Shares pursuant to the Offer.
On December 9, 1999, the Company issued a press release announcing the
execution of the Merger Agreement.
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RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
TRANSACTIONS
SPECIAL COMMITTEE. In determining that the Special Committee would approve
and recommend the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, to the full Board, the Special Committee
considered the following factors, each of which in the view of the Special
Committee, supported such determination:
(1) MARKET PRICE AND PREMIUM. The Special Committee considered the
historical market prices and recent trading activity of the Common Stock
with a particular emphasis on the relationship between the $23.00 per Share
in cash price offered by the Acquisition Parties and the trading history of
the Common Stock. In particular, the Special Committee noted that the $23.00
per Share in cash price offered by the Acquisition Parties represents a
premium of (x) approximately 27.8% over the $18.00 per Share closing price
on the New York Stock Exchange (the "NYSE") on December 8, 1999, the last
full trading day before the Merger Agreement was publicly announced, and (y)
approximately 10.5% over the 52-week closing high of $20.81 per Share.
(2) SPECIAL COMMITTEE FORMATION AND ARM'S-LENGTH NEGOTIATIONS. The
Special Committee also considered the fact that the Merger Agreement and the
transactions contemplated thereby were the product of arm's-length
negotiations between the Acquisition Parties and the Special Committee (and
their respective advisors), none of whose members were employed by or
affiliated with the Company (except in their capacities as directors) or
would have any equity interest in the Company following the Merger.
(3) OFFER PRICE AND MERGER CONSIDERATION. The Special Committee
concluded, based on its negotiations with the Acquisition Parties, that the
Offer Price and Merger Consideration represented the highest price that the
Acquisition Parties would be willing to pay in acquiring the Shares. This
determination was the result of the Special Committee's arm's-length
negotiations with the Acquisition Parties in an attempt to obtain the
highest possible price and the fact that the Offer Price was increased by
the Acquisition Parties on two occasions to a price equal to $1.50 per Share
in excess of the initial proposal made by the Acquisition Parties.
(4) BEAR STEARNS FAIRNESS OPINION. The Special Committee also considered
the financial presentation of Bear Stearns and Bear Stearns' oral opinion
delivered at the December 7, 1999 meeting of the Special Committee,
subsequently confirmed in writing, to the effect that, as of the date of
such opinion and based upon and subject to the assumptions, factors and
limitations set forth therein, the $23.00 per Share in cash being offered in
the Offer and to be received in the Merger is fair, from a financial point
of view, to the Company's stockholders (other than the Acquisition Parties,
their affiliates and the Foundation). A COPY OF BEAR STEARNS' WRITTEN
OPINION SETTING FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY BEAR STEARNS IS ATTACHED AS EXHIBIT
I TO THIS OFFER TO PURCHASE AND IS INCORPORATED HEREIN BY REFERENCE.
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION OF BEAR STEARNS
CAREFULLY AND IN ITS ENTIRETY (SEE "--OPINION OF THE SPECIAL COMMITTEE'S
FINANCIAL ADVISOR").
(5) TRANSACTION STRUCTURE. The Special Committee also evaluated the
benefits of the transaction being structured as an immediate cash tender
offer for all of the outstanding Shares, thereby enabling the public
stockholders of the Company the opportunity to obtain cash for all of their
Shares at the earliest possible time and the fact that the per Share
consideration to be paid in the Offer and the Merger is the same; the
Special Committee also concluded that the 49-day period of time between the
public announcement of the transaction and the initial expiration date of
the Offer would provide a sufficient period of time for any interested third
party to prepare and present an acquisition proposal for the Company.
11
<PAGE>
(6) MINIMUM CONDITION. The Special Committee also considered the fact
that the Minimum Condition in the Offer represented approximately 80% of the
Shares held by the stockholders of the Company other than the Foundation and
the Continuing Stockholders.
(7) TERMS OF THE MERGER AGREEMENT. The Special Committee also considered
the terms of the Merger Agreement including (A) the provision providing that
the Special Committee may, in the exercise of its fiduciary duties (and,
with respect to persons who submitted written inquiries with regard to
acquisition proposals in 1999 prior to the date of the Merger Agreement,
without regard to its fiduciary duties), furnish or provide access to
information concerning the Company to, and engage in discussions and
negotiate with, third parties who make an unsolicited written acquisition
proposal, (B) the ability of the Board (acting on the recommendation of the
Special Committee), in the exercise of its fiduciary duty, to terminate the
Merger Agreement on three business days notice in order to permit the
Company to enter into an alternative transaction with a third party, and (C)
the obligation to pay a $4.0 million termination (or "break up") fee and the
obligation to pay the Acquisition Parties' documented costs and expenses not
to exceed an aggregate of $2.5 million in the event the Merger Agreement is
terminated because of a withdrawal or change in the Board's recommendation
to stockholders favoring the Offer and the Merger or the Board's
determination to enter into an agreement with respect to an alternative
transaction with a third party. The Special Committee decided that the
Merger Agreement would not unduly deter a third party from making, or
inhibit the Special Committee in evaluating, negotiating and, if
appropriate, approving, an alternative transaction.
(8) RECEIPT OF COMMITMENT LETTER AND UNIT PURCHASE AGREEMENT. The
Special Committee also considered the fact that the Company and Acquisition
Company had received the Commitment Letter from BTCo to arrange, fund and
administer the necessary debt financing for the Offer and the Merger, and
the Special Committee had reviewed the terms and conditions of the
Commitment Letter. The Special Committee also considered the fact that
Acquisition Company had entered into the Unit Purchase Agreement that would
provide it with the necessary funds to purchase the Shares being acquired by
Acquisition Company pursuant to the Offer and that the Merger Agreement
requires the consummation of the transactions contemplated by the Unit
Purchase Agreement as a condition to the Company's obligation to purchase
Shares in the Offer. (See "--Financing of the Transactions.")
(9) HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE AND RELATED RISK AND
UNCERTAINTIES. The Special Committee also considered the various financial
Projections prepared by the Company's management (see "THE OFFER--Certain
Information Concerning the Company--Certain Projections"). The Special
Committee noted that in view of the cyclical nature of the industry in which
the Company operates, the Company's historical financial results were often
different from the budgeted results of operations and sometimes
significantly so.
(10) THE COMPANY'S RECENT EARNINGS RESULTS AND INDUSTRY POSITION. The
Special Committee also considered the Company's business, financial
condition, results of operations and prospects and the nature of the
industry in which the Company operates, including the prospects of the
Company if it were to remain independent. The Special Committee noted that
the results of operations for the Company for the nine months ended
September 30, 1999 reflected net income of approximately $9.0 million (or
$.90 per fully diluted share) as compared to net earnings of approximately
$17.8 million (or $1.63 per fully diluted share) for the comparable period
of the prior fiscal year, reflecting a decrease of approximately 45%. The
Special Committee further noted that management informed Bear Stearns on
December 3, 1999 that shipments for certain products were expected to be
delayed, thereby deferring into year 2000 approximately $10 million in
sales, and resulting in a $2 million reduction in operating profit
previously expected to be realized in 1999, and, accordingly, the Company
was likely to miss its latest budget estimate and the analysts' published
expectations for 1999. The Special Committee also noted that the Company
operates in a mature industry with cyclical customer
12
<PAGE>
demands and that the Company's customer base is undergoing consolidation and
faces excess capacity.
(11) LACK OF LIQUIDITY OF COMMON STOCK. The Special Committee also
considered the relatively thin trading market and the lack of liquidity of
the Common Stock. The Special Committee believes that the Offer and the
Merger will permit the stockholders of the Company, other than the
Acquisition Parties, their affiliates and the Foundation, to sell all of
their Shares at a fair price.
(12) POSSIBLE DECLINE IN MARKET PRICE OF COMMON STOCK. The Special
Committee also considered the possibility that if a merger transaction with
the Acquisition Parties were not negotiated and the Company remained as a
publicly owned corporation, it is possible that because of a decline in the
market price of the shares of the Common Stock or the stock market in
general, the price that might be received by the holders of the Shares in
the open market or in a future transaction might be less than the $23.00 per
Share price to be received by stockholders in connection with the Offer and
the proposed Merger.
(13) TREATMENT OF SHARES BY CERTAIN OF THE ACQUISITION PARTIES. The
Special Committee acknowledged that Mr. Gleason (and certain of his family
members and trusts) and the Foundation each would be receiving the Merger
Consideration with respect to a portion of their Shares and therefore their
interests were to some extent aligned with the interests of the public
stockholders of the Company.
(14) STRUCTURE OF FINANCIAL ADVISOR'S FEE. The Special Committee
considered the fact that, under the terms of Bear Stearns' engagement
letter, a portion of Bear Stearns' fee was structured as an incentive fee,
providing Bear Stearns an additional incentive to negotiate, on behalf of
the Special Committee, the highest possible price. See "--Opinion of the
Special Committee's Financial Advisor."
(15) REGULATORY APPROVALS. The Special Committee also considered the
fact that there are relatively few regulatory approvals or consents required
to consummate the Offer and the Merger, and the favorable prospects for
receiving such approvals and consents.
(16) AVAILABILITY OF DISSENTERS' RIGHTS. The Special Committee also
considered the fact that dissenters' rights of appraisal will be available
to the holders of Shares under Delaware law in connection with the Merger.
The Special Committee also considered the fact that if the Merger is
approved, the holders of the Shares will not participate in the future growth of
the Company. Because of the risks and uncertainties associated with the
Company's future prospects, the Special Committee concluded that this detriment
was not quantifiable. The Special Committee also concluded that obtaining a cash
premium for the Common Stock now was preferable to enabling the holders of such
stock to have a speculative potential future return.
BOARD OF DIRECTORS OF THE COMPANY. In reaching its determination referred
to above, the full Board considered and relied upon the conclusions and
unanimous recommendation of the Special Committee that the full Board approve
the Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, and the considerations referred to above as having been
taken into account by the Special Committee, as well as the Board's own
familiarity with the Company's business, financial condition, results of
operations and prospects and the nature of the industry in which the Company
operates.
In light of the number and variety of factors that the Special Committee and
the Board considered in connection with their evaluation of the Offer and the
Merger, neither the Special Committee nor the Board found it practicable to
quantify or otherwise assign relative weights to the foregoing factors, and,
accordingly, neither the Special Committee nor the Board did so. In addition,
individual members of the
13
<PAGE>
Special Committee and the Board may have given different weights to different
factors. Rather, the Special Committee and the Board viewed their positions and
recommendations as being based on the totality of the information presented to
and considered by it.
The Board believes that the Offer and the Merger is procedurally fair
because, among other things: (1) the Special Committee consisted of independent
directors appointed by the Board to represent solely the interests of the
Company's stockholders other than the Acquisition Parties, their affiliates and
the Foundation; (2) the Special Committee retained and was advised by its own
independent legal counsel who negotiated on behalf of the Special Committee; (3)
the Special Committee retained and was advised by its own financial advisor,
Bear Stearns, to assist it in evaluating the proposed transaction and provide it
with financial advice; (4) the deliberations pursuant to which the Special
Committee evaluated the Offer and the Merger; and (5) the $23.00 per Share cash
purchase price and the other terms and conditions of the Merger Agreement
resulted from active arm's-length bargaining between the Special Committee and
the Acquisition Parties and their respective advisors. The Board believes that
sufficient procedural safeguards to ensure fairness of the transaction and to
permit the Special Committee to effectively represent the interests of the
holders of the Common Stock (other than the Acquisition Parties, their
affiliates and the Foundation) were present, and therefore there was no need to
retain any additional unaffiliated representative to act on behalf of the
holders of the Shares in view of (1) the unaffiliated status of the members of
the Special Committee whose sole purpose was to represent the interests of the
holders of the Shares (other than the Acquisition Parties, their affiliates and
the Foundation) and retention by the Special Committee of its own independent
legal counsel and financial advisor, and (2) the fact that the Special
Committee, even though consisting of directors of the Company and therefore not
completely unaffiliated with the Company, is a mechanism well recognized under
Delaware law to ensure fairness in transactions of this type.
Under the Company's certificate of incorporation, a plan of merger requires
the affirmative vote of at least two-thirds of all outstanding shares entitled
to vote thereon in order to be adopted. The Board and the Special Committee
recognized that while the Merger is not structured to require the approval of
the holders of two-thirds of the outstanding Shares of the Company held by
stockholders other than the Acquisition Parties, their affiliates and the
Foundation, the Minimum Condition represents a number of Shares held by the
public stockholders in excess of 66 2/3% of such Shares. In addition, the Board
and the Special Committee recognized that if the Offer is consummated, the
Acquisition Parties, together with the Foundation, will have sufficient voting
power to approve the Merger without the affirmative vote of any other
stockholders of the Company. Consummation of the Offer, however, is conditioned
upon, among other things, the Minimum Condition, which may not be waived without
the consent of the Special Committee. Pursuant to the Merger Agreement,
consummation of the Offer is a condition to the Merger.
THE BOARD, AFTER RECEIVING THE UNANIMOUS RECOMMENDATION OF THE SPECIAL
COMMITTEE, (1) HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, (2) HAS
UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE ADVISABLE, FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY'S STOCKHOLDERS (OTHER THAN THE
ACQUISITION PARTIES, THEIR AFFILIATES AND THE FOUNDATION), AND (3) UNANIMOUSLY
RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES IN THE OFFER.
OPINION OF THE SPECIAL COMMITTEE'S FINANCIAL ADVISOR
At the meeting of the Special Committee on December 7, 1999, Bear Stearns
delivered its oral opinion to the Special Committee, confirmed in writing on
December 8, 1999, to the effect that, as of the date of the Opinion, and subject
to the assumptions and qualifications set forth therein, the $23.00 per Share
cash consideration being offered in the Offer and to be received in the Merger
was fair, from a
14
<PAGE>
financial point of view, to the Company's stockholders (other than the
Acquisition Parties, their affiliates and the Foundation). The Opinion did not
address the Common Stock or the Series A Preferred and the Warrants to be
received by certain of the Acquisition Parties and the Foundation in connection
with the Merger, as described in "--The Merger Agreement."
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY BEAR STEARNS, IS ATTACHED
AS EXHIBIT I TO THIS OFFER TO PURCHASE AND IS INCORPORATED HEREIN BY REFERENCE.
THE SUMMARY OF THE OPINION SET FORTH IN THIS OFFER TO PURCHASE IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. STOCKHOLDERS ARE
URGED TO READ CAREFULLY THE OPINION IN ITS ENTIRETY IN CONJUNCTION WITH THIS
OFFER TO PURCHASE.
The Opinion was expressly intended for the benefit and use of the Special
Committee and does not constitute a recommendation to the Special Committee or
the Board or to any stockholder of the Company as to whether to tender their
Shares in the Offer or vote in connection with the Merger. The Opinion also does
not address the underlying business decision to pursue or effect the Offer or
the Merger.
The Offer Price was determined by the Special Committee and the Acquisition
Parties through arm's-length negotiations. Although Bear Stearns was consulted
and provided certain advice to the Special Committee from time to time during
the course of such negotiations, the consideration to be received was not based
on any recommendation by Bear Stearns. The Special Committee did not provide
specific instructions to, or place any limitations upon, Bear Stearns with
respect to the procedures to be followed or factors to be considered by Bear
Stearns in performing its analyses or rendering the Opinion.
In the course of performing its review and analyses for rendering the
Opinion, Bear Stearns, among other things:
- reviewed a draft of the Merger Agreement;
- reviewed the Company's Annual Reports on Form 10-K for the fiscal years
ended December 31, 1995 through 1998, and Quarterly Reports on Form 10-Q
for the periods ended March 31, 1999, June 30, 1999 and September 30,
1999;
- reviewed the Company's Current Reports on Form 8-K filed on June 30, 1995
and August 14, 1997 and the Company's Proxy Statement filed on May 4,
1999;
- reviewed certain operating and financial information, including
projections and alternative forecasts (collectively, the "Forecasts"),
provided to Bear Stearns by management relating to the Company's business
and prospects;
- met with certain members of the Company's senior management to discuss the
Company's business, operations, historical financial results and future
prospects, including the Forecasts;
- reviewed the historical prices, valuation parameters and trading volume of
the Common Stock;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which Bear Stearns deemed generally
comparable to the Company;
- reviewed the financial terms, to the extent publicly available, of recent
acquisitions of companies which Bear Stearns deemed generally comparable
to the Company;
- performed discounted cash flow analyses based on the Forecasts; and
- conducted such other studies, analyses, inquiries and investigations as
Bear Stearns deemed appropriate.
15
<PAGE>
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including without limitation the Forecasts, provided to Bear
Stearns by the Company. With respect to the Forecasts, Bear Stearns assumed that
they were reasonably prepared on bases reflecting currently available estimates
and judgments of the Company's senior management as to the potential future
performance of the Company. Bear Stearns did not assume any responsibility for
the independent verification of any such information or of the Forecasts, and
Bear Stearns further relied upon the assurances of the Company's senior
management that they were unaware of any facts that would make the information
or the Forecasts incomplete or misleading. In arriving at the Opinion, Bear
Stearns did not perform or obtain any independent appraisal of the assets,
liabilities or solvency of the Company, nor was it furnished with any such
appraisals. For purposes of rendering the Opinion, Bear Stearns assumed the
final form of the Merger Agreement was substantially similar to the last draft
reviewed by Bear Stearns. The Opinion is necessarily based on economic, market
and other conditions, and the information made available to Bear Stearns, as of
the date of the Opinion.
In connection with preparing and rendering the Opinion, Bear Stearns
performed a variety of valuation, financial and comparative analyses. The
summary of such analyses, as set forth below, does not purport to be a complete
description of the analyses underlying the Opinion. The preparation of a
fairness opinion is a complex process and is not necessarily susceptible to
partial analysis or summary description. Bear Stearns believes that its analyses
must be considered as a whole, and that selecting portions of its analyses and
the factors considered by it, without considering all such factors and analyses,
could create an incomplete or misleading view of the processes underlying the
Opinion. Moreover, the analyses performed by Bear Stearns, particularly those
based on the Forecasts, are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by these analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Accordingly, such estimates are inherently subject to substantial
uncertainties.
In connection with the preparation of the Opinion, Bear Stearns was not
authorized by the Special Committee to solicit, nor did Bear Stearns solicit,
third-party indications of interest for the acquisition of all or any part of
the Company.
Bear Stearns did not form an opinion as to whether any individual analysis
or factor (positive or negative), considered in isolation, supported or failed
to support the Opinion. In arriving at the Opinion, Bear Stearns considered the
results of its separate analyses and did not attribute particular weight to any
one analysis or factor. The matters considered by Bear Stearns in its analyses
were based on numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
Company's control and involve the application of complex methodologies and
educated judgments.
The following is a summary of the material valuation, financial and
comparative analyses performed by Bear Stearns in arriving at the Opinion.
COMPARABLE COMPANIES ANALYSIS. Using publicly available information, Bear
Stearns reviewed and compared the financial and stock market performance of the
Company and certain ratios and multiples of the Company to the financial and
stock market performance and the corresponding ratios and multiples of eight
publicly traded companies that Bear Stearns believed were generally comparable
to the Company (the "Comparable Companies"). The Comparable Companies were
Browne & Sharpe Manufacturing Co., DT Industries Inc., Genesis Worldwide Inc.,
Hardinge Inc., Hurco Companies Inc., Milacron Inc., Newcor Inc. and UNOVA Inc.
For each of the comparable companies, Bear Stearns reviewed certain publicly
available financial data, valuation statistics, financial ratios, research
reports, published earnings estimates for 1999 and 2000 and stock market
information and calculated the ratios and multiples based on such information,
which data was adjusted, where applicable, for certain pension liabilities and
other post-retirement benefit obligations as described below under "Treatment of
Net Unfunded Pension Liabilities
16
<PAGE>
and Other Post-Retirement Benefit Obligations," and was further adjusted for
certain extraordinary and non-recurring items. Financial data reviewed included
revenues, operating earnings before interest, taxes, depreciation and
amortization ("EBITDA"), operating earnings before interest and taxes ("EBIT"),
net income and earnings per share ("EPS") for various time periods, as well as
certain operating margins, valuation statistics, financial ratios and projected
growth rates. For purposes of its analysis, Bear Stearns also reviewed the
harmonic mean of certain valuation multiples of the Comparable Companies.
Among other analyses, for each of the Comparable Companies, Bear Stearns
calculated the ratio of their respective stock prices as of December 7, 1999 to
their respective earnings per share ("P/E") during the 12-month period ended
September 30, 1999 ("LTM") and estimated 1999 and projected 2000 earnings per
share, and also calculated the ratio of their respective enterprise values
(I.E., market value of equity plus debt and net pension and other
post-retirement benefit obligations, less cash and cash equivalents)
("Enterprise Value") as of December 7, 1999 to their respective LTM sales, LTM
EBIT and LTM EBITDA and estimated 1999 and projected 2000 EBITDA. This analysis
indicated the following:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/ STOCK PRICE/
---------------------------------------------------- ------------------------------
LTM LTM LTM 1999E 2000P LTM 1999E 2000P
SALES EBIT EBITDA EBITDA EBITDA EPS EPS EPS
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harmonic Mean of Comparable
Companies (1)........................... 0.53x 10.4x 6.1x 6.0x 5.1x 9.6x 13.2x 9.6x
High of Comparable Companies.............. 0.81x 16.2x 8.3x 8.0x 6.3x 25.8x 24.5x 15.3x
Low of Comparable Companies............... 0.34x 7.1x 4.9x 3.9x 3.8x 5.5x 7.2x 6.5x
Gleason--At $23.00 per Share (2).......... 0.90x 9.2x 5.6x 6.2x 5.7x 12.4x 15.0x 13.5x
</TABLE>
- ------------------------
(1) "Harmonic Mean" represents the reciprocal of the arithmetic mean of the
reciprocals of a set of data points.
(2) Source of estimated and projected information: management's latest estimates
and projections. See "THE OFFER--Certain Information Concerning the
Company--Certain Projections."
Bear Stearns chose the Comparable Companies because they have general
business, operating and financial characteristics similar to those of the
Company. However, Bear Stearns noted that no company used in the foregoing
analysis is directly comparable to the Company. Accordingly, Bear Stearns did
not rely solely on the mathematical results of the analysis, but also made
qualitative judgments concerning the differences in financial and operating
characteristics of the Company and the Comparable Companies and other factors
that could affect the values of each.
17
<PAGE>
PRECEDENT M&A TRANSACTIONS ANALYSIS. Bear Stearns reviewed and analyzed
certain publicly available financial information related to thirteen merger and
acquisition transactions over the prior four years that Bear Stearns deemed
generally comparable to the proposed transaction (the "Precedent M&A
Transactions"). The Precedent M&A Transactions were the following:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- -------- ------
<S> <C>
Goldman Industrial Bridgeport Machines
Genesis Worldwide Herr-Voss Industries
UNOVA Cincinnati Milacron's Machine Tool
Business
UNOVA R&B Machine Tool Company
Newcor Deco Group
UNOVA Goldcrown Machinery
Gleason Hermann Pfauter
DT Industries Lucas Assembly and Test Systems
Koch Industries Glitsch International
Newcor Plastronics Plus
Precision Castparts Olofsson Corporation
Hardinge Kellenberger
Gleason Hurth
</TABLE>
For each of the Precedent M&A Transactions, Bear Stearns reviewed certain
publicly available information for the acquired companies, including revenues,
EBITDA, EBIT, net income and calculated certain valuation statistics, including
the ratio of Enterprise Value to LTM sales, LTM EBITDA and LTM EBIT, and the
ratio of equity value to LTM net income and book value. Adjustments were made,
where applicable, for certain net unfunded pension and other post-retirement
benefit obligations as described below under "--Treatment of Net Unfunded
Pension Liabilities and Other Post-Retirement Benefit Obligations" and for
certain extraordinary and non-recurring items. This analysis indicated the
following:
<TABLE>
<CAPTION>
ENTERPRISE VALUE/ EQUITY VALUE/
------------------------------ ---------------------
LTM LTM LTM LTM BOOK
SALES EBITDA EBIT NET INCOME VALUE
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Harmonic Mean of Precedent M&A Transactions (1)...... 0.60x 6.3x 9.2x 12.0x 1.1x
High of Precedent M&A Transactions................... 1.15x 7.7x 12.6x 16.1 2.2x
Low of Precedent M&A Transactions.................... 0.35x 5.0x 6.6x 9.6x 0.8x
Gleason--At $23.00 per Share (2)..................... 0.91x 6.2x 11.0x 15.0x 1.8x
Gleason--At $23.00 per Share (3)..................... 0.90x 5.6x 9.2x 12.2x 1.8x
</TABLE>
- ------------------------
(1) "Harmonic Mean" represents the reciprocal of the arithmetic mean of the
reciprocals of a set of data points.
(2) Implied transaction multiples based on 1999E data.
(3) Implied transaction multiples based on LTM (ended September 30, 1999) data.
18
<PAGE>
All multiples for the Precedent M&A Transactions were based on financial
information available at the time of the announcement of the relevant Precedent
M&A Transaction and data for the latest twelve months preceding the date of
announcement of the transaction.
Bear Stearns noted that no company or transaction used in the foregoing
analysis is directly comparable to the Company or the proposed transaction.
Accordingly, Bear Stearns did not rely solely on the mathematical results of the
analysis, but also made qualitative judgements concerning the differences in
financial and operating characteristics of the companies and the Precedent M&A
Transactions and other factors that could affect the value of the companies or
transactions to which the Company or the proposed transaction are being
compared.
HYPOTHETICAL PER SHARE PRICE ANALYSIS. Bear Stearns performed a
hypothetical future stock price analysis with respect to the Shares based on
projections for calendar years 2001, 2002 and 2003. Bear Stearns assumed that
the Company continued to pay dividends at the current level ($0.25 per Share per
year) and derived a range of hypothetical prices per Share at the beginning of
each of 2001, 2002 and 2003 by multiplying projected earnings per Share (based
on such projections) by a range of assumed future forward multiples of price to
earnings of 8.0x to 11.0x. Bear Stearns discounted these hypothetical future
prices per Share, together with a stream of projected dividends, applying
discount rates of 12% and 14%. The discount rates used were based on the
Company's estimated cost of equity capital. This analysis indicated the
following:
<TABLE>
<CAPTION>
PRESENT VALUE OF HYPOTHETICAL FUTURE STOCK PRICE
(DISCOUNTED AT 12%) (1)
--------------------------------------------------------------------------
2001 2002 2003
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Case I (2)............................... $ 17.75--$24.32 $ 18.63--$25.46 $ 18.82--$25.66
Case II (2).............................. $ 10.57--$14.45 $ 12.16--$16.57 $ 14.40--$19.58
</TABLE>
<TABLE>
<CAPTION>
PRESENT VALUE OF HYPOTHETICAL FUTURE STOCK PRICE
(DISCOUNTED AT 14%) (1)
--------------------------------------------------------------------------
2001 2002 2003
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Case I (2)............................... $ 17.43--$23.89 $ 17.99--$24.58 $ 17.86--$24.34
Case II (2).............................. $ 10.39--$14.20 $ 11.74--$15.99 $ 13.67--$18.57
</TABLE>
- ------------------------
(1) Values at the beginning of the year.
(2) See "THE OFFER--Certain Information Concerning the Company--Certain
Projections."
DISCOUNTED CASH FLOW ANALYSIS. Bear Stearns performed a discounted cash
flow analysis of the Company based on projections for calendar years 2000, 2001,
2002 and 2003. Free cash flows for the four-year period beginning January 1,
2000 and ending on December 31, 2003 were discounted to December 31, 1999. Bear
Stearns calculated free cash flow for each year as tax-effected EBIT, plus
depreciation and amortization, less changes in working capital and capital
expenditures. Bear Stearns adjusted EBIT to exclude the net cost associated with
pension and other post-retirement benefit obligations, as described below under
"Treatment of Net Unfunded Pension Liabilities and Other Post-Retirement Benefit
Obligations." Bear Stearns calculated a terminal value by applying to projected
2003 EBITDA a range of multiples of 4.5x to 5.5x. Bear Stearns' determination of
the appropriate range of multiples was based on the expected growth prospects of
the Company in 2003. To that extent, Bear Stearns considered the expected
perpetual growth rates in the cash flows implied by the selected multiples.
Discount rates of 10% to 11% were chosen based on the cost of capital to the
Company calculated within the capital asset pricing model framework. To
calculate the aggregate net present value of the equity of the Company, Bear
Stearns subtracted total debt, net pension and other post-retirement benefit
obligations, minus cash and cash
19
<PAGE>
equivalents of the Company as of September 30, 1999, from the sum of the present
value of the projected free cash flows and the present value of the terminal
value. This analysis indicated the following:
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE PER SHARE
------------------------------
<S> <C>
Case I (1)......................................... $ 21.80--$27.80
Case II (1)........................................ $ 15.96--$20.92
</TABLE>
(1) See "THE OFFER--Certain Information Concerning the Company--Certain
Projections."
HISTORICAL STOCK PRICE ANALYSIS. Bear Stearns reviewed the historical
closing prices of the Shares on the NYSE. Bear Stearns observed that the Offer
Price represented the following premiums to selected closing prices of the
Shares on the NYSE at various times during such 12-month period:
<TABLE>
<CAPTION>
PRICE IMPLIED PREMIUM
----------------- ---------------
<S> <C> <C>
Closing Price--December 7, 1999................... $ 18.06 27.3%
30-Day Average.................................... 17.76 29.5%
6-Month Average................................... 17.37 32.4%
12-Month Average.................................. 17.56 31.0%
52-Week Low....................................... 15.88 44.9%
52-Week High...................................... 20.81 10.5%
</TABLE>
TREATMENT OF NET UNFUNDED PENSION LIABILITIES AND OTHER POST-RETIREMENT
BENEFIT OBLIGATIONS. The Company advised Bear Stearns that it is subject to
liabilities for unfunded pension and other post-retirement benefits. In
performing its analyses, Bear Stearns treated unfunded pension and other post-
retirement benefit obligations similarly to debt and made appropriate balance
sheet and income statement adjustments, which were applied in calculating
Enterprise Value (by treating the difference between the projected benefit
obligations and the fair value of plan assets similarly to debt) and adjusting
EBITDA and EBIT to exclude the net cost associated with these obligations. All
analyses pertaining to public comparable companies, precedent merger and
acquisition transactions and discounted cash flow valuation have been prepared
on a consistent basis with respect to net pension and other post-retirement
benefit obligations.
The Special Committee engaged Bear Stearns as its financial advisor based on
Bear Stearns' expertise, reputation and familiarity with the capital goods
industry and because its investment banking professionals have substantial
experience in transactions similar to the transactions contemplated by the
Merger Agreement, including the Offer and the Merger. Bear Stearns has not been
previously engaged by the Company or the Special Committee to provide any
investment banking and financial advisory services in connection with any
mergers, acquisitions or business combinations or in connection with any
offerings of equity or debt. Bear Stearns is an internationally recognized
investment banking firm and, as part of its investment banking activities,
regularly engages in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. In the ordinary course
of business, Bear Stearns may actively trade the securities of the Company for
its own account and for the accounts of its customers and, accordingly, may, at
any time, hold a long or short position in the Company's securities.
Pursuant to the terms of its engagement letter with Bear Stearns, dated as
of October 1, 1999 (the "Bear Stearns Engagement Letter"), the Company is
required to pay Bear Stearns a cash fee of $1,000,000 for rendering its Opinion
as to fairness with respect to a transaction. The Bear Stearns Engagement Letter
further provides for the payment to Bear Stearns of a cash fee equal to the sum
of (1) 0.5% of the aggregate consideration based on the initial proposal
received by the Company with respect to the transaction ($21.50 per Share) in
respect of (A) the assets or operations of the Company, (B) the Shares and other
capital stock, securities, warrants, options or other rights to acquire capital
stock of the
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Company, and (C) the assumption, directly or indirectly (by operation of law or
otherwise), or repayment, retirement or settlement of indebtedness and other
long-term liabilities (including, without limitation, pension liabilities and
other post-retirement benefits) of the Company, and (2) the Incentive Fee (as
defined below). The "Incentive Fee" is based upon the increase between the
aggregate consideration offered in the initial proposal received by the Company
with respect to a transaction ($21.50 per Share) and the aggregate consideration
paid upon the closing of a transaction in an amount equal to: (A) 1.0% of the
increase in aggregate consideration resulting from up to $1.00 of increase in
the price per Share, (B) 3.0% of the increase in aggregate consideration
resulting from an increase in the price per Share greater than $1.00 and up to
$2.00 per Share, and (C) 5.0% of the increase in aggregate consideration
resulting from an increase in the price per Share greater than $2.00 per Share.
This Incentive Fee, against which the $1,000,000 opinion fee paid in connection
with the delivery of the Opinion is to be credited, is payable upon consummation
of the Offer. In addition, the Company has agreed to reimburse Bear Stearns for
all reasonable out-of-pocket expenses incurred by it (including reasonable fees
and disbursements of counsel and other consultants and advisors retained by Bear
Stearns) in connection with the transaction. The Company has also agreed to
indemnify Bear Stearns against certain liabilities in connection with its
engagement, including certain liabilities under the federal and state securities
laws. The total Incentive Fee payable to Bear Stearns is approximately
$1.8 million.
PURPOSE AND STRUCTURE OF THE TRANSACTIONS
The purpose of the Transactions is for the Acquisition Parties to
recapitalize the Company and, together with the Foundation, to own the entire
equity interest in the Company in a transaction in which the holders of Shares
(other than the Acquisition Parties and the Foundation) would be entitled to
have their equity interest in the Company extinguished in exchange for cash in
the amount of $23.00 per Share. Such acquisition is structured as a joint third
party tender offer by Acquisition Company and a self-tender offer by the Company
to purchase at the Offer Price all Shares validly tendered and not withdrawn
pursuant to the Offer. Pursuant to the Merger Agreement, Acquisition Company has
agreed to pay for and purchase the first 2,318,126 Shares tendered pursuant to
the Offer, and the Company has agreed to pay for and purchase all Shares
tendered in excess of such 2,318,126 Shares paid for and purchased by
Acquisition Company. The Offer is being made as part of a comprehensive plan to
recapitalize the Company.
As described above, the Board has approved the Merger and the Merger
Agreement in accordance with the DGCL and rendered inapplicable the restrictions
on mergers contained in Section 203 of the DGCL. The Board will be required to
submit the Merger Agreement to the Company's stockholders for adoption at a
stockholders' meeting convened for that purpose in accordance with the DGCL and
the Company's certificate of incorporation. Under the Company's certificate of
incorporation, the Merger Agreement must be adopted by the affirmative vote of
holders of two-thirds of the outstanding shares of Common Stock. Pursuant to the
Merger Agreement, the Company has agreed to convene a meeting of its
stockholders as soon as practicable following the consummation of the Offer for
the purpose of adopting the Merger Agreement and, subject to its fiduciary
obligations under applicable law, to include in any proxy or information
statement required for such meeting the recommendation of the Board that the
Company's stockholders vote in favor of the adoption of the Merger Agreement. IF
THE MINIMUM CONDITION IS SATISFIED AND SHARES ARE PURCHASED IN THE OFFER, THE
FAVORABLE VOTE TO APPROVE THE MERGER WILL BE ASSURED.
It is anticipated that, prior to the Effective Time, certain additional
stockholders who are employees of the Company and its subsidiaries will be given
the opportunity to elect to become Continuing Stockholders and therefore retain
their Shares and Options following the Merger. To the extent such Continuing
Stockholders make such election, they will execute the Management Subscription
Agreement (as defined herein), the Stockholders' Agreement and the Voting Trust
Agreement (as defined herein) at or prior to the Effective Time, and all Shares
and Company Options (as defined herein) held by such
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<PAGE>
additional Continuing Stockholders will be treated in a substantially similar
manner to the treatment of the Shares and Company Options held by all other
Continuing Stockholders.
PLANS FOR THE COMPANY AFTER THE TRANSACTIONS
Pursuant to the terms of the Merger Agreement, the Company, Acquisition
Company and Merger Subsidiary intend to effect the Merger as soon as practicable
following completion of the Offer. Following the Effective Time, the Board will
be reconstituted to consist of three members of management and two
representatives of Acquisition Company, and the officers of the Surviving
Corporation will be the officers of the Company immediately prior to the
Effective Time. See "--The Merger Agreement."
It is currently expected that the business and operations of the Surviving
Corporation will be continued substantially as they are currently being
conducted by the Company and its subsidiaries. Except as otherwise indicated in
this Offer to Purchase or as contemplated by the Stockholders' Agreement, none
of the Purchasers, the Foundation or the Continuing Stockholders has any present
plans or proposals involving the Company or its subsidiaries which relate to or
would result in an extraordinary corporate transaction such as a merger,
reorganization or liquidation, or a sale or transfer of a material amount of
assets, or any material change in the Company's present dividend policy,
indebtedness or capitalization, or any other material change in the Company's
corporate structure or business. However, the Surviving Corporation's management
and board of directors will review proposals or may propose the acquisition or
disposition of assets or other changes in the Surviving Corporation's business,
corporate structure, capitalization, management or dividend policy which they
consider to be in the best interests of the Surviving Corporation and its
stockholders. The Surviving Corporation's management and board of directors may,
from time to time, evaluate and review the Surviving Corporation's businesses,
operations and properties and make such changes as are deemed appropriate.
Upon consummation of the Transactions, the Company will become a privately
held corporation. Accordingly, stockholders (other than Acquisition Company, the
Foundation and the Continuing Stockholders with respect to their Retained Shares
(as defined below)) will not have the opportunity to participate in the earnings
and growth of the Surviving Corporation after the consummation of the
Transactions and will not have any right to vote on corporate matters.
Similarly, such stockholders will not face the risk of losses generated by the
Surviving Corporation's operations or any decrease in the value of the Surviving
Corporation after the consummation of the Transactions.
Following the consummation of the Transactions, the Shares will no longer be
quoted on the NYSE. In addition, the registration of the Shares under the
Exchange Act will be terminated. Accordingly, following the consummation of the
Transactions, there will be no publicly-traded Shares outstanding. See
"--Certain Effects of the Transactions" and "THE OFFER--Effect of the
Transactions on the Market for the Shares; Exchange Act Registration." It is
expected that if Shares are not accepted for payment by the Purchasers pursuant
to the Offer and the Transactions are not consummated, the Company's current
management, under the general direction of the Board, will continue to manage
the Company as an ongoing business.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTIONS
Pursuant to the Merger Agreement, 138,455 of the Shares held by Mr. Gleason
and all of the Shares held by the other Continuing Stockholders each will be
converted into the right to retain one share (a "Retained Share") of Surviving
Corporation Common Stock, and all Company Options held by such Continuing
Stockholders (other than Mr. Gleason), and certain of the Company Options held
by Mr. Gleason, each will continue to represent an option to acquire the same
number of shares of Surviving Corporation Common Stock. See "--The Merger
Agreement." Such retention of a continuing interest in the equity of the Company
pursuant to the Merger Agreement may present certain members of the Board and
the Company's management, including Mr. Gleason, with actual, potential or the
appearance of
22
<PAGE>
conflicts of interest in connection with the Transactions. In considering the
recommendation of the Special Committee and the Board with respect to the
Transactions, stockholders should be aware of such interests. The Special
Committee and the Board were aware of such interests and considered them along
with other matters described under "--Recommendation of the Special Committee
and Board of Directors; Fairness of the Transactions."
In connection with the Merger, Mr. Gleason: (1) will receive $1,629,646 in
net cash representing the difference between the aggregate Merger Consideration
for 108,100 Shares issuable upon exercise of options held by Mr. Gleason and the
aggregate exercise price such options; (2) will receive an aggregate of
approximately $456,136 in cash in exchange for 19,832 Shares held by him which
will be cashed out in the Merger; and (3) will transfer 21,555 Shares (valued at
$23.00 per Share) to the Company as payment of the exercise price of 62,700
options to be exercised by Mr. Gleason on or prior to the Effective Time.
Following the Merger, Mr. Gleason will own 138,455 Retained Shares and 116,000
options (before giving effect to any grant of new options). The Merger Agreement
also provides that Mr. Gleason and David J. Burns, President and Chief Operating
Officer of the Company, each of whom is a current member of the Board, will be
two of the five directors of the Surviving Corporation immediately after the
Effective Time and that John J. Perrotti, the Vice President-Finance and
Treasurer of the Company, will also become a member of the Board. The current
officers of the Company will become officers of the Surviving Corporation
immediately after the Effective Time. See "--The Merger Agreement."
It is anticipated that up to an aggregate of $350,000 will be paid by the
Company as loans to certain members of management in December 1999 to assist in
the payment of certain taxes to be incurred in connection with the Transactions.
It is anticipated that such loans will be full recourse and will bear interest
at market rates. It is also contemplated that there may be increases in the base
salary of certain members of senior management following the Offer and/or
Merger, such increases to be determined by the Board of Directors of the
Company.
Certain members of the Board and the Company's management may have other
actual, potential or the appearance of potential conflicts of interest in
connection with the Transactions as set forth below.
TREATMENT OF RESTRICTED SHARES. In approving the Merger, on December 8,
1999 the Board authorized the acceleration of all restrictions with respect to
the restricted stock issued under the Company's 1992 Stock Plan and authorized
the acceleration of the distribution of, and elimination of restrictions on,
Shares under the Company's Miriam B. Gleason Restricted Stock Plan (the "MBG
Shares"). As a result of such action, the members of senior management who are
Continuing Stockholders had restrictions lapse on the following numbers of
Shares and MBG Shares, respectively: James S. Gleason (2,722 Shares and 14,824
MBG Shares); David J. Burns (2,205 Shares and 7,372 MBG Shares); John J.
Perrotti (2,202 Shares and 8,220 MBG Shares); Edward J. Pelta (587 Shares and
3,635 MBG Shares); Gary J. Kimmet (0 Shares and 8,996 MBG Shares); and John W.
Pysnack (1,228 Shares and 2,892 MBG Shares).
VOTING TRUST AGREEMENT. Pursuant to a Voting Trust Agreement (the "Voting
Trust Agreement") to be entered into upon consummation of the Merger, the
Continuing Stockholders will assign and transfer to Mr. Gleason, Mr. Burns and
Mr. Pelta, Vice President, General Counsel and Secretary of the Company, as
voting trustees (the "Voting Trustees"), all Shares held by them on the date
thereof and the certificates therefor, as well as any other shares of Common
Stock and the certificates therefor thereafter acquired by them (including,
without limitation, pursuant to the exercise of any option, warrant, convertible
security or any other right to acquire Common Stock) immediately upon such
acquisition. The Voting Trustees will hold such shares of Common Stock in trust
(the "Voting Trust") subject to the terms and conditions of the Voting Trust
Agreement and will deliver to each Continuing Stockholder certificates (the
"Voting Trust Certificates") representing the shares of Common Stock so
deposited by them. The Voting Trust Agreement requires that any Permitted
Transferee (as defined in the Stockholders' Agreement) of any Continuing
Stockholder who may after the date thereof become a holder of shares of Common
Stock as a result of a Permitted Transfer (as defined in the Stockholders'
Agreement) by such Continuing Stockholder will
23
<PAGE>
become a party to the Voting Trust Agreement and will deposit with the Voting
Trustees the certificates representing the shares held by such Permitted
Transferee, and such shares will become subject to the terms and conditions of
the Voting Trust Agreement. No transfer of any shares of Common Stock will be
permitted under the Voting Trust Agreement unless, as required by the
Stockholders' Agreement, the transferor of such shares has delivered to the
Voting Trustees and the Company a written agreement of the Permitted Transferee
of such shares to be bound by the terms and conditions of the Voting Trust
Agreement and the Stockholders' Agreement and to deposit any certificates
representing such shares with the Voting Trustees in accordance with the Voting
Trust Agreement.
The Voting Trust Agreement also provides that each Voting Trust Certificate
will be subject to the restrictions against sale or other transfer as set forth
in the Stockholders' Agreement that are and would be applicable to the
particular shares of Common Stock represented by such Voting Trust Certificate
if such shares of Common Stock were held of record by the holder of such Voting
Trust Certificate and had not been deposited with the Voting Trustees
thereunder. See "--Stockholders' Agreement."
Pursuant to the Voting Trust Agreement, if, prior to the occurrence of a
Control Event (as defined in the Stockholders' Agreement), any vacancy occurs,
by reason of death, disability, resignation or inability or refusal to act, in
the position of (i) Mr. Gleason or Mr. Burns, as Voting Trustees, either of such
Voting Trustee's successor will be such individual who, at the time such vacancy
occurs, is serving as the most senior member of management of the Company (as
determined by the Board by a Special Board Vote (as defined in the Stockholders'
Agreement)), and any subsequent vacancy in either position will thereafter be
filled by the most senior member of management of the Company (as determined by
the Board by a Special Board Vote) at the time such vacancy occurs, and (ii) Mr.
Pelta, as Voting Trustee, such vacancy, and any subsequent vacancy in such
position, will be filled by the appointment by the remaining Voting Trustees of
a successor Voting Trustee, which successor shall be reasonably acceptable to
Acquisition Company. The Voting Trust Agreement provides that, upon the
occurrence of a Control Event, all of the Voting Trustees will immediately
resign, whereupon all powers, rights and obligations of such resigning Voting
Trustees under the Voting Trust Agreement will cease, and Acquisition Company
will become the sole Voting Trustee, and all of the rights, powers and
obligations of the Voting Trustees thereunder will then pass to and devolve upon
Acquisition Company; PROVIDED, HOWEVER, that in the event of any cure of a
Control Event pursuant to the Stockholders' Agreement, Acquisition Company will
immediately resign as Voting Trustee, whereupon all powers, rights and
obligations of Acquisition Company under the Voting Trust Agreement will cease,
and the Voting Trustees who were serving in such positions immediately prior to
the occurrence of such Control Event, or their appropriate successors, will
become the Voting Trustees thereunder.
The Voting Trust Agreement requires that the Voting Trustees vote the shares
of Common Stock held by them thereunder in accordance with the terms of the
Stockholders' Agreement. See "--Stockholders' Agreement." All questions arising
among the Voting Trustees will be determined by an affirmative decision of the
majority of those then holding office as Voting Trustees, either at a meeting or
by written consent without a meeting; PROVIDED, HOWEVER, that in the event no
such determination by a majority of the Voting Trustees is obtained, the Voting
Trustees will vote the shares of Common Stock held by them in accordance with
the determination of a majority of the Board by a Special Board Vote. The
decision or act of a majority of the Voting Trustees will be deemed, for the
exercise of the voting power and for all purposes of the Voting Trust Agreement,
the decision or act of all of the Voting Trustees.
The Voting Trust Agreement will terminate immediately upon the termination
of the Stockholders' Agreement and may be amended, modified or supplemented by
the affirmative vote of a majority in interest of the holders of Voting Trust
Certificates and by Acquisition Company until Acquisition Company owns less than
the Preferred Minimum Threshold (as defined in the Stockholders' Agreement) and
less than 10% of the shares of Common Stock that it owned immediately following
the Effective Time.
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<PAGE>
STOCKHOLDERS' AGREEMENT. Acquisition Company and certain of the Continuing
Stockholders have entered into the Stockholders' Agreement, dated as of November
29, 1999, which will become effective upon the consummation of the Merger. The
Company, the Voting Trust, the Foundation and any additional Continuing
Stockholders will become parties to the Stockholders' Agreement on or prior to
the consummation of the Merger.
Pursuant to the Stockholders' Agreement, the Board, upon the consummation of
the Merger, will initially consist of five directors, and Acquisition Company
and the Voting Trust will vote all of their shares of Common Stock to elect (i)
three designees of the Voting Trust (each a "Voting Trust Director"), provided
that such designees shall include the two most senior members of the Company's
management, and (ii) two designees of Acquisition Company (each an "Acquisition
Company Director"). Within one year after the Effective Time, the Voting Trust
and Acquisition Company will each designate one non-affiliated individual who is
reasonably acceptable to the other party to serve as an independent director of
the Board (the "Voting Trust Independent Director" and the "Acquisition Company
Independent Director," respectively), and the authorized number of directors of
the Board will increase to seven immediately upon such designations. Acquisition
Company will have the exclusive right to remove any Acquisition Company
Independent Director and the right, subject to reasonable acceptance by the
Voting Trust, to replace such Acquisition Company Independent Director, and the
Voting Trust will have the exclusive right to remove any Voting Trust
Independent Director and, subject to reasonable acceptance by Acquisition
Company, to replace such Voting Trust Independent Director.
Under the Stockholders' Agreement, upon the occurrence of certain control
events (the "Control Events"), Acquisition Company may (i) increase its
representation on the Board and (ii) as described under "--Voting Trust
Agreement," become the sole Voting Trustee. The Stockholders' Agreement also
provides that the continuing right of Acquisition Company and the Voting Trust
to designate directors to the Board will be conditioned upon the maintenance of
certain ownership thresholds, and a Special Board Vote which requires the
affirmative vote of certain directors will be necessary in order for the Board
to approve and authorize certain actions.
Under the Stockholders' Agreement, Acquisition Company will have the right
to require the Company to purchase at Fair Market Value (as defined in the
Stockholders' Agreement) shares of Common Stock and/or Warrants representing up
to 50% on or after November 29, 2005, and up to 100% on or after November 29,
2006, of the number of shares of Common Stock and Warrants owned by Acquisition
Company immediately after the Effective Time (the "Acquisition Company Common
Put"). Upon receipt of notice of an Acquisition Company Common Put, the
Foundation and Mr. Gleason will also have certain put rights with respect to, in
the case of the Foundation, its Common Stock and/or Warrants, and, in the case
of Mr. Gleason, his Common Stock and/or Company Options. In addition, subject to
the terms of the Stockholders' Agreement, on the sixth, seventh, eighth and
ninth anniversaries of the date of the Stockholders' Agreement, Mr. Gleason will
have the right to require the Company to purchase at Fair Market Value 25%, 50%,
75%, and 100%, respectively, of the Common Stock and/or Company Options held by
him upon written notice to the Company.
After the exercise of the Acquisition Company Common Put for at least 25% of
the number of shares of Common Stock, including shares of Common Stock
underlying Warrants, that were held by Acquisition Company immediately following
the Effective Time, and if Acquisition Company owns less than 10% of the Series
A Preferred it held immediately following the Effective Time, the Company will
have the right to purchase all, but not less than all, of the shares of Common
Stock, Warrants and Series A Preferred owned by Acquisition Company, subject to
certain exceptions as set forth in the Stockholders' Agreement.
25
<PAGE>
Pursuant to the Stockholders' Agreement, the shares of Common Stock are
subject to certain restrictions on transfer, "tag-along" rights, "drag-along"
rights, rights of first refusal and preemptive and customary registration
rights. The Stockholders' Agreement will terminate upon a sale of the Company in
which Acquisition Company disposes of all of its securities of the Company.
LETTER AGREEMENTS WITH CERTAIN CONTINUING STOCKHOLDERS. On November 29,
1999, certain Continuing Stockholders (including senior members of the Company's
management) entered into the Letter Agreements with Acquisition Company pursuant
to which each such Continuing Stockholder agreed (a) not to tender any shares of
Common Stock pursuant to the Offer, (b) to vote all shares of Common Stock held
by such Continuing Stockholder prior to the record date for voting on the Merger
in favor of the Merger and the approval and adoption of the Merger Agreement,
(c) that pursuant to the terms of the Merger Agreement, except as set forth
below with respect to Mr. Gleason, (i) all shares of Common Stock owned by such
Continuing Stockholder prior to the Effective Time, and all Option Shares issued
prior to or at the Effective Time, will each be converted in the Merger into the
right to receive one Retained Share and (ii) except if and to the extent
exercised prior to or at the Effective Time, each outstanding Company Option
owned by such Continuing Stockholder will, as of the Effective Time, continue to
represent an option to acquire the same number of shares of Common Stock of the
Surviving Corporation at the same exercise price per share, subject to extension
by the Board, and (d) except as set forth below with respect to Mr. Gleason, not
to sell or transfer any Company Options. The Letter Agreement executed by Mr.
Gleason provides that (i) a total of 41,387 shares of Common Stock owned by Mr.
Gleason (a portion of which will be transferred to the Company in connection
with the payment of the exercise price of 62,700 Company Options to be exercised
by Mr. Gleason on or prior to the Effective Time) and 108,100 Option Shares
owned by Mr. Gleason will not be converted in the Merger into the right to
receive Retained Shares and (ii) Mr. Gleason will exercise 108,100 Company
Options and will simultaneously transfer the Shares issued upon such exercise to
the Company at the Effective Time and will receive the difference between the
aggregate Merger Consideration for such issued Shares and the aggregate exercise
price for such Company Options.
In the Letter Agreements, each Continuing Stockholder who was a member of
management also agreed (i) to enter into a Severance Agreement (the "Severance
Agreement") concurrently with the execution and delivery of the Merger
Agreement, (ii) to the terms and provisions set forth in the term sheet with
respect to a New Management Option Plan (the "New Management Option Plan"), and
(iii) to the terms and provisions set forth in the term sheet with respect to a
Management Subscription Agreement (the "Management Subscription Agreement") and
to enter into a definitive agreement with the Company prior to or concurrently
with the Effective Time which incorporates in all material respects such terms
and provisions.
FOUNDATION AGREEMENT. On December 8, 1999, the Foundation and Acquisition
Company entered into a Foundation Agreement (the "Foundation Agreement"),
pursuant to which the Foundation has agreed not to tender pursuant to the Offer
any of the shares of Common Stock beneficially owned by the Foundation. The
Foundation has also agreed that, during the term of the Foundation Agreement, at
any meeting of the Company's stockholders, the Foundation will vote all of its
Shares (i) in favor of the Merger and the approval and adoption of the Merger
Agreement and (ii) against any action or agreement that would impede, interfere
with or prevent the Offer or the Merger. In addition, the Foundation has
appointed Acquisition Company and its designees as proxies to vote its Shares in
accordance with the foregoing. The Foundation has also agreed, subject to
certain exceptions, not to transfer its Shares or acquire any shares of Common
Stock or other securities of the Company without the prior written consent of
Acquisition Company.
Pursuant to the Foundation Agreement, the Foundation has agreed (i) to the
treatment of its Shares pursuant to the terms of the Merger Agreement as set
forth under "--The Merger Agreement" and to make an election with respect to the
treatment of its Remaining Shares (as defined herein) in accordance with the
procedures and time periods as set forth in the Foundation Agreement and
(ii) not to sell or
26
<PAGE>
transfer any of its Shares or, without the written consent of Acquisition
Company, acquire any additional shares of Common Stock. The foregoing provisions
of the Foundation Agreement terminate if the Merger Agreement is terminated or
upon consummation of the Merger.
The Foundation Agreement provides that until Acquisition Company owns less
than the Preferred Minimum Threshold and the Acquisition Company Second Minimum
Share Amount (each such term as defined in the Stockholders' Agreement), the
Foundation (i) will use reasonable efforts to not permit the composition of the
Board of the Directors of the Foundation to consist of any employee of the
Company or its subsidiaries or any member of the immediate family of such
employee who lives within 500 miles of such employee (collectively, the
"Excluded Group") unless 50% or more of the members of the Board of Directors of
the Foundation are not members of the Excluded Group; (ii) will not permit any
employee of the Company or its subsidiaries or any member of the immediate
family of such employee to be a member of the Investment Committee of the
Foundation; and (iii) will cause any and all decisions with respect to the
Foundation's investment in the Company to be determined by the Investment
Committee of the Foundation. The Foundation has also agreed that following the
Merger, so long as it owns any shares of Common Stock (whether voting or
non-voting), at least 80,000 shares of such Common Stock, or such lesser number
of Shares as the Foundation then owns, shall be voting Common Stock. Such number
of shares will be appropriately adjusted for stock splits and stock dividends.
Pursuant to the Foundation Agreement, the Foundation also has agreed to
enter into the Stockholders' Agreement with the Company, Acquisition Company and
the Continuing Stockholders on or prior to the Effective Time. Acquisition
Company has agreed in the Foundation Agreement to, and to use its reasonable
efforts to cause the other parties to agree to, (i) make all modifications to
the Stockholders' Agreement requested by the Foundation prior to January 31,
2000 which, upon advice of counsel to the Foundation, are reasonably required in
order to avoid application of any tax under Chapter 42 of the Internal Revenue
Code of 1986, as amended (the "Code"), which would not otherwise be incurred,
and (ii) entertain in good faith any reasonable requests made by the Foundation
prior to January 31, 2000 for other modifications to the Stockholders' Agreement
and to make all such other modifications as Acquisition Company and the other
parties shall reasonably deem appropriate, provided that, if Acquisition Company
determines in good faith that any such modification reduces its rights
thereunder or otherwise adversely affects it, then, unless the Foundation
withdraws its request for such modification, the Foundation shall not become a
party to the Stockholders' Agreement other than for the purpose of certain
sections thereof and such modification shall not be made.
On November 29, 1999, Mr. Gleason and his wife, Janis F. Gleason, resigned
their positions as Trustees and Officers of the Foundation and their positions
as members of the Foundation's Contributions Committee. It is anticipated that
Mr. and Mrs. Gleason will enter into consulting agreements with the Foundation
pursuant to which they will provide consulting services for the Foundation on
matters not relating to the Company or the Foundation's investment in the
Company, as requested by the Foundation or the Contributions Committee thereof.
Mr. and Mrs. Gleason will not be compensated for such consulting services but
will be reimbursed for their out-of-pocket costs and expenses.
MANAGEMENT SUBSCRIPTION AGREEMENTS. Prior to or concurrently with the
Effective Time, the Company and the Continuing Stockholders who will continue to
be employees of the Company after the Effective Time will enter into the
Management Subscription Agreement, which provides that, upon termination of such
Continuing Stockholder's employment with the Company (i) the Company will have
certain call rights with respect to shares of Common Stock owned by such
Continuing Stockholder and certain transferees and (ii) such Continuing
Stockholder and certain transferees in limited circumstances will have a right
to put shares of Common Stock to the Company. The amount paid for shares of
Common Stock upon a put or a call will vary depending on the reason for the
termination of such Continuing Stockholder's employment.
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JAMES GLEASON LETTER. On November 29, 1999, Acquisition Company, Merger
Subsidiary and Mr. Gleason entered into an agreement (the "Gleason Letter")
pursuant to which, among other things, Acquisition Company and Merger Subsidiary
agreed that, without the prior written consent of Mr. Gleason (or, in the event
of Mr. Gleason's death, Mr. Burns), (i) they will not amend, modify or change
the amount or form of the Offer Price or the Merger Consideration, (ii) they
will not amend, modify, change or waive the Minimum Condition and (iii)
Acquisition Company will not amend the Unit Purchase Agreement. Acquisition
Company and Mr. Gleason also agreed that, if necessary to finance the
Transactions, Acquisition Company will have the right to purchase additional
shares of Common Stock or Series A Preferred and Warrants, up to an aggregate
amount of $15 million in connection with the consummation of the Merger at the
Offer Price, provided that Acquisition Company will provide each of the
Foundation, Mr. Gleason and the other Continuing Stockholders who are parties to
the Stockholders' Agreement the preemptive right to invest a pro rata amount in
Common Stock on equitable terms either in cash or, in the case of Mr. Gleason
and the Foundation and at their option, through the retention of shares of
Common Stock following the consummation of the Merger. In the event of any such
purchase of additional shares of Common Stock or Series A Preferred and Warrants
by Acquisition Company, the number of options to be issued under the New
Management Option Plan will be proportionately and equitably increased.
SEVERANCE AGREEMENTS. Messrs. Gleason, Burns, Perrotti, Pelta, Kimmet and
Pysnack have entered into Severance Agreements (each such person is referred to
in this paragraph as an "Executive"). The Severance Agreements will take effect
only upon consummation of the Offer, at which time they will supersede the
executive agreements (the "Executive Agreements") currently in effect between
the Company and each Executive. Each of the Severance Agreements has an
indefinite term and provides generally that, in the event that the Executive's
employment with the Company is terminated either (i) by the Company other than
for Cause (as defined in the Severance Agreements) or (ii) by the Executive with
Good Reason (as defined in the Severance Agreements), the Company will pay to
the Executive the severance payments, and will provide to the Executive the
severance benefits, as follows: (a) a lump sum cash payment in an amount equal
to the sum of the Executive's bonus under the Company's annual incentive plan,
prorated to the date of termination, and any unpaid portion of the Executive's
base salary as of the date of termination; (b) continued payment of the
Executive's base salary for two years following the date of termination; (c) on
the first of each month for two years following the date of termination, a cash
payment equal to the sum of (i) one twenty-fourth of the lump sum actuarial
equivalent of the additional retirement pension to which the Executive would
have become entitled under the terms of the Company's defined benefit retirement
plans had the Executive accumulated two additional years of age and service
credit at his compensation level as of the date of termination, and (ii) the
amount the Company would have contributed for such month under the Company's
defined contribution plans if the Executive's compensation during such month was
one-twelfth of the highest annual compensation received in the two years
preceding the date of termination and the Executive were to continue, where
relevant, to contribute to such plan at the highest rate at which he had
contributed during the two years preceding the date of termination; (e) the
continuation, for a period of two years following the date of termination of
employment, of all health, dental, life insurance, disability and other welfare
benefits on substantially the same basis as offered to the Company's executives
generally, but at no cost to the Executive. If an Executive's employment is
terminated either by the Company other than for Cause or by the Executive with
Good Reason within one year following the Effective Time, payments to the
Executive will be reduced as necessary to avoid the imposition of an excise tax
under Section 4999 of the Code. Each Severance Agreement prohibits the Executive
from competing against the Company for up to two years following termination of
employment.
The existing Executive Agreements (which will terminate upon consummation of
the Offer) with each of Messrs. Gleason, Burns, Perrotti, Pelta, Pysnack and
Kimmet provide for severance benefits under certain circumstances. The terms
"change in control," "cause," "disability" and "good reason," as defined in the
Executive Agreements, are used in the following summary of the principal
provisions of the Executive Agreements. If, while there is pending or within two
years after a change in control, the
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Company terminates the Executive's employment other than for cause or due to
death or disability, or if the Executive terminates his employment for good
reason (or if the Executive determines to leave the employment of the Company
during a window period one year following a change-in-control), the Executive is
entitled to receive: (1) salary through the termination date; (2) normal
severance pay plus a cash payment of two times his highest annual compensation
(including base salary and incentive compensation) for the three preceding
years; (3) a cash payment to compensate for the additional pension benefits he
would have received had he remained employed by the Company for two additional
years; (4) a cash payment equal to two times the annual cost of his employee
benefits, other than retirement and stock option plans; and (5) a cash payment
of the present value of his accrued benefit under the Company's Supplemental
Retirement Plan, including credit for two additional years of service. Payments
under the Executive Agreements are limited to that amount which would not be
subject to the excise tax imposed by Sections 280G and 4999 of the Code.
NEW MANAGEMENT OPTION PLAN. Pursuant to the terms of the New Management
Option Plan, immediately after the Effective Time, the Board will approve a
management stock option plan and authorize the Company to make initial grants of
options to acquire an aggregate amount of shares of Common Stock equal to 20% of
the fully diluted number of shares of Common Stock outstanding at the Effective
Time to those members of management determined by the Board, including certain
Continuing Stockholders, under such plan. Fifty percent of the options under the
New Management Option Plan will periodically vest over a five-year period if the
executive holding the options continues to be employed by the Company. The
balance of such options will become eligible to vest based on specified
performance targets and will generally vest upon the occurrence of certain
"liquidity" events. The options under the New Management Option Plan will be
non-qualified stock options, and the exercise price for the initial grant of
options thereunder immediately after the Effective Time will be the Offer Price.
The exercise price for all other options thereunder will be the fair market
value per share of Common Stock as determined by the Board. All options will be
subject to a call by the Company at fair market value if the executive's
employment terminates for any reason. All shares of Common Stock acquired
pursuant to such options will be subject to the terms and conditions of the
Stockholders' Agreement and the Voting Trust Agreement.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that the
Surviving Corporation will, from and after the Effective Time, indemnify, defend
and hold harmless the present and former officers and directors of the Company
in connection with any claims relating to such person serving as a director,
officer, employee or agent of the Company or any of its subsidiaries or at the
request of the Company or any of its subsidiaries of any other entity to the
full extent permitted under applicable law or the Company's certificate of
incorporation, by-laws or indemnification agreements in effect on the date of
the Merger Agreement. In addition, the Surviving Corporation will, for a period
of six years, maintain all rights to indemnification and limitations on
liability in favor of such officers and directors to the same extent provided in
the Company's certificate of incorporation, by-laws or indemnification
agreements as in effect as of the date of the Merger Agreement, and to the
extent such rights are consistent with applicable law against certain losses and
expenses in connection with claims based on the fact that such person was an
officer or director of the Company or any of its subsidiaries. The Merger
Agreement also provides that the Surviving Corporation will, for a period of six
years after the Effective Time, maintain in effect, without any lapses in
coverage, policies of directors' and officers' liability insurance (or a "tail"
policy), for the benefit of those persons who are covered by the Company's
directors' and officers' liability insurance policies at the Effective Time,
providing coverage with respect to matters occurring prior to the Effective Time
that is at least equal to the coverage provided under the Company's current
directors' and officers' liability insurance policies, to the extent that such
liability insurance can be maintained at an annual cost to the Surviving
Corporation of not greater than 200% of the premium for the current Company
directors' and officers' liability insurance, provided that if such insurance
(or "tail" policy) cannot be so maintained at such cost, the Surviving
Corporation will maintain as much of such insurance as can be so maintained at a
cost equal to 200% of the current annual premiums of the Company for such
insurance. See "--The Merger Agreement--Indemnification and Insurance."
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MANAGEMENT AGREEMENT. The Company has agreed in the Stockholders' Agreement
to enter into a management agreement (the "Management Agreement") with Vestar
Capital Partners concurrently with the consummation of the Merger. Pursuant to
the Management Agreement, Vestar Capital Partners will render certain advisory
and consulting services in relation to the affairs of the Company following the
consummation of the Offer, and the Company will pay to Vestar Capital Partners
in consideration therefor an annual management fee (the "Fee") equal to 0.5% of
the consolidated EBITDA, commencing on the consummation of the Offer, provided,
that if EBITDA is less than $50 million, the Fee will be $250,000 and if EBITDA
is greater than $70 million, the Fee will be $350,000. The Fee will be payable
semi-annually in advance, with an adjustment of the Fee for any fiscal year
payable promptly following the determination of EBITDA for such fiscal year or
upon termination of the Management Agreement. The semi-annual Fee payments will
be non-refundable (except for any downward adjustment as described above). The
Management Agreement also provides that, in addition to the Fee, the Company
will, at the direction of Vestar Capital Partners, pay directly or reimburse
Vestar Capital Partners for its reasonable out-of-pocket expenses incurred after
the consummation of the Offer in connection with the services provided by Vestar
Capital Partners pursuant to the Management Agreement.
Pursuant to the Management Agreement, the Company will indemnify Vestar
Capital Partners from and against any and all losses, claims, damages and
liabilities relating to or arising out of the services contemplated thereby or
the engagement of Vestar Capital Partners pursuant thereto.
RIGHTS AGREEMENT AMENDMENT. At the meeting of the Board on December 8,
1999, the Board approved an Amendment (the "Amendment") to the Rights Agreement,
dated as of May 4, 1999, between the Company and ChaseMellon Shareholder
Services, L.L.C., which provides that (a) none of Acquisition Company, Merger
Subsidiary, Vestar, Vestar Capital Partners, the Continuing Stockholders or the
Foundation, individually or collectively, shall be deemed to be an Acquiring
Person, and (b) neither a Distribution Date (as defined in the Rights
Agreement), a Shares Acquisition Date (as defined in the Rights Agreement) nor
an event as described in Section 13 of the Rights Agreement causing the Rights
to be adjusted or exercisable in accordance with such section shall be deemed to
have occurred, solely as a result of (i) the announcement, approval, execution
or delivery of the Merger Agreement or the Stockholders' Agreement, (ii) the
commencement of the Offer, (iii) the acceptance for payment of Shares in the
Offer, (iv) the consummation of the Merger or (v) the consummation of the other
transactions contemplated by the Merger Agreement. The above descriptions of the
Rights, the Rights Agreement and the Amendment do not purport to be complete and
are qualified in their entirety by reference to the Rights Agreement and the
Amendment. See "THE OFFER--Certain Legal Matters--The Rights Agreement."
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT.
THE SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
MERGER AGREEMENT, WHICH IS INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH
IS ATTACHED HERETO AS EXHIBIT III. CAPITALIZED TERMS NOT OTHERWISE DEFINED IN
THE FOLLOWING SUMMARY SHALL HAVE THE MEANINGS SET FORTH IN THE MERGER AGREEMENT.
THE OFFER. The Merger Agreement provides that the Purchasers will commence
the Offer on the fifth business day following the public announcement of the
execution of the Merger Agreement and that, upon the terms and subject to the
prior satisfaction or waiver of the conditions of the Offer, the Purchasers will
purchase all Shares validly tendered pursuant to the Offer, with Acquisition
Company agreeing to pay for and purchase the first 2,318,126 Shares tendered and
the Company agreeing to pay for and purchase all Shares tendered in excess of
such 2,318,126 Shares paid for and purchased by Acquisition Company. The Merger
Agreement provides that Acquisition Company (after consulting with the Company
(acting through the Special Committee)), will make all determinations with
respect to the terms and conditions (including, without limitation, with respect
to the satisfaction or waiver of conditions) of the Offer, provided, that
Acquisition Company will not (i) decrease the Offer Price or change the form of
consideration payable pursuant to the Offer (other than by adding
consideration), (ii) decrease the number of
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Shares sought, (iii) waive the Minimum Condition or the condition set forth in
subparagraph (f) under "THE OFFER--Conditions to the Offer," (iv) impose any
additional conditions or amend any other term or condition of the Offer (other
than by increasing the Offer Price) or (v) extend the Expiration Date (as
defined herein) of the Offer beyond March 15, 2000, in each case without the
prior written consent of the Company (acting through the Special Committee),
except that if on the initial scheduled Expiration Date or any extension
thereof, all conditions to the Offer have not been satisfied or waived, the
Offer may be extended from time to time until March 15, 2000 by Acquisition
Company in its sole discretion. In addition, the Merger Agreement provides that
Acquisition Company may, in its sole discretion (and, at the direction of
Acquisition Company, the Company shall) increase the Offer Price and extend the
Offer to the extent required by law in connection with such increase.
The Merger Agreement also provides that, subject to the terms and conditions
of the Offer, Acquisition Company will use its commercially reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the Offer. Notwithstanding the foregoing, the Company will not be
required to consummate the Offer or pay the Offer Price for any Shares tendered
unless the purchase of securities of Acquisition Company by Vestar for a minimum
purchase price of $53,316,898, as contemplated by Section 1 of the Unit Purchase
Agreement (the "Unit Purchase"), shall have occurred and the Company shall be
reasonably satisfied that the proceeds from the Unit Purchase shall be deposited
with the depositary for the Offer promptly following the expiration of the
Offer. The Merger Agreement provides that Acquisition Company shall not amend,
modify or terminate the Unit Purchase Agreement in a manner adverse to the
Company without the prior written consent of the Company (acting through the
Special Committee).
THE MERGER. The Merger Agreement provides that at the Effective Time,
Merger Subsidiary will be merged with and into the Company in accordance with
the DGCL. As a result of the Merger, the separate existence of Merger Subsidiary
will cease, and the Company will be the Surviving Corporation.
The Merger Agreement provides that at the Effective Time, each issued and
outstanding share of Common Stock, other than Shares held in the Company's
treasury and other than Dissenting Shares, will be treated as follows: (a)
except as otherwise provided in clauses (b), (c) and (d) below, each Share
outstanding at the Effective Time will be converted into the right to receive
the Merger Consideration; (b) each Share held by the Continuing Stockholders
(except Mr. Gleason) and 138,455 Shares held by Mr. Gleason each will be
converted into the right to retain one fully paid and nonassessable share (a
"Retained Share") of Surviving Corporation Common Stock; (c) the Shares
purchased in the Offer and held by Acquisition Company will be treated as
follows: (i) 484,334 Shares each will be converted into the right to receive one
Retained Share; and (ii) 1,833,792 Shares each will be converted into the right
to receive the Series A Preferred/Warrant Consideration consisting of one share
of the Series A Preferred and one Warrant to acquire one share of Surviving
Corporation Common Stock at $23.00 per Share; and (d) the Shares held by the
Foundation will be treated as follows: (i) 202,000 Shares shall not be affected
by, and shall remain outstanding and owned by the Foundation following, the
Merger, (ii) 60,000 Shares each will be converted into the right to receive the
Series A Preferred/Warrant Consideration, and (iii) 935,346 Shares (the
"Remaining Shares") each will be, at the Foundation's election pursuant to the
Foundation Agreement, treated in one of the following ways: (A) each Remaining
Share will be converted into the right to receive the Merger Consideration, or
(B) as shall be specified by the Foundation, up to 485,000 of the Remaining
Shares each will be converted into the right to receive the Series A
Preferred/Warrant Consideration and the rest of the Remaining Shares each will
be converted into the right to receive the Merger Consideration. In the event
that the Foundation does not make its election in accordance with the Foundation
Agreement, the Foundation will be deemed to have elected to receive the Merger
Consideration with respect to each of its Remaining Shares.
OPTIONS AND OTHER EQUITY-BASED PLANS. The Merger Agreement provides that
the Company shall take all actions necessary and appropriate to provide that,
except as set forth below, upon the Effective Time,
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each outstanding option and related rights to purchase shares of Common Stock or
other similar interest (collectively, the "Company Options") granted under any
of the Company's stock option plans or under any other plan or arrangement (the
"Company Option Plans"), whether or not then exercisable or vested, will be
cancelled and, in exchange therefor, each holder of such Company Option will
receive an amount in cash in respect thereof, if any, equal to the product of
(i) the excess, if any, of the Merger Consideration over the per Share exercise
price thereof and (ii) the number of shares of Common Stock subject thereto
(such payment to be net of applicable withholding taxes). Notwithstanding the
foregoing, at the Effective Time, each outstanding Company Option, whether or
not then exercisable or vested, held by certain option holders (collectively,
the "Retained Options"), including certain of the Continuing Stockholders, will,
as of the Effective Time, continue to represent an option to acquire the same
number of shares of Surviving Corporation Common Stock at the same exercise
price per share. Except as otherwise provided by the Board with respect to the
extension of the term thereof, after the Effective Time, each such Retained
Option shall continue to be exercisable upon the same terms and conditions as
were applicable immediately prior to the Effective Time.
Pursuant to the Merger Agreement, at the Effective Time, all Shares credited
to the "Stock Account" of each "Participant" under the Gleason Corporation Plan
for Deferral of Directors' Fees (the "Deferral Plan") will be cancelled, and a
cash amount equal to the product of (i) the Merger Consideration and (ii) the
number of shares of Common Stock so cancelled will be credited to each such
Participant's "Cash Account" under the Deferral Plan. No further Shares will be
credited to a Participant's Stock Account following the date of the execution of
the Merger Agreement, and any outstanding elections of Participants to be
credited with Shares will be converted into elections to have cash credited to
such Participant's Cash Account.
THE BOARD. The Merger Agreement provides that promptly after the purchase
of and payment for Shares by Acquisition Company pursuant to the Offer,
Acquisition Company will be entitled to designate two directors on the Board
(the "Acquisition Company Directors"). In furtherance thereof, the Company will
use its commercially reasonable efforts promptly to secure the resignations of
three incumbent directors in order to enable the designees of Acquisition
Company to be so elected to the Board, and the Company will cause such designees
to be so elected. Notwithstanding the foregoing, until the Effective Time, the
Company will use its commercially reasonable efforts to ensure that all of the
members of the Special Committee on the date of the Merger Agreement will
continue as members of the Board (the "Independent Directors") until the
Effective Time. In the event there is only one Independent Director, such
Independent Director will have the right to designate a person to become an
Independent Director. In the event no Independent Director remains, the other
directors who were directors prior to the date of the Merger Agreement will
designate two persons to fill such vacancies who shall not be employees or
affiliates of the Company or any of its subsidiaries or employees, stockholders,
members or affiliates of Vestar, Acquisition Company, Merger Subsidiary or the
Foundation, and such persons will be deemed to be Independent Directors under
the Merger Agreement.
Except as otherwise expressly contemplated by the Merger Agreement,
following the election or appointment of the Acquisition Company Directors in
accordance with the preceding paragraph and prior to the Effective Time, any
amendment of the Merger Agreement, any termination of the Merger Agreement by
the Company, any extension by the Company of the time for the performance of any
of the obligations or other acts of Acquisition Company or Merger Subsidiary,
any consent of the Company contemplated by the Merger Agreement, any waiver of
any of the Company's rights under the Merger Agreement, any amendment to the
Company's certificate of incorporation, by-laws or the Rights Agreement, or any
action proposed to be taken by the Company that would be reasonably likely to
materially adversely affect the interests of the stockholders of the Company
with respect to the transactions contemplated by the Merger Agreement, will
require the concurrence of a majority of the Independent Directors.
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The Merger Agreement provides that from and after the Effective Time, the
board of directors of the Surviving Corporation shall consist of Messrs.
Gleason, Burns and Perrotti and Arthur J. Nagle and Sander M. Levy, Managing
Directors of Vestar Capital Partners, and the officers of the Surviving
Corporation shall consist of the officers of the Company immediately prior to
the Effective Time.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, the Company has
made customary representations and warranties to Acquisition Company and Merger
Subsidiary with respect to, among other things, corporate organization,
subsidiaries, capitalization, authority to enter into the Merger Agreement and
the transactions contemplated thereby, non-contravention, compliance with
applicable laws, filings with the Securities and Exchange Commission (the
"Commission" or "SEC") and financial statements, no undisclosed material
liabilities, absence of certain changes or events, litigation, disclosures in
proxy statement and tender offer documents, tax matters, employee matters,
environmental matters, real property, brokers' and finders' fees, receipt of the
Financial Advisor Opinion, stockholder vote required to approve the Merger
Agreement, applicability of state takeover statutes, the Commitment Letter
describing the Company's sources of financing (the "Financing"), the Rights
Agreement, Year 2000 compliance, certain material contracts and insurance.
In the Merger Agreement, each of Acquisition Company and Merger Subsidiary
has made customary representations and warranties to the Company with respect
to, among other things, corporate organization, authority to enter into the
Merger Agreement and the transactions contemplated thereby, non-contravention,
disclosures in proxy statement and tender offer documents, brokers' and finders'
fees, sufficient funds and operations. Acquisition Company has also represented
that it has delivered to the Company true, correct and complete copies of (i)
the Commitment Letter, (ii) the Unit Purchase Agreement, (iii) the Letter
Agreements and (iv) the Foundation Agreement.
Certain representations and warranties in the Merger Agreement are qualified
as to "materiality" or "Material Adverse Effect." For purposes of the Merger
Agreement and this Offer to Purchase, (a) "Company Material Adverse Effect"
means any event, change, occurrence, effect, fact or circumstance (which shall
in not event include events, changes, occurrences, effects, facts or
circumstances resulting from general economic conditions or conditions affecting
companies in the Company's industry generally) having, or which would reasonably
be expected to have, a material adverse effect on (i) the ability of the Company
to perform its obligations under the Merger Agreement or to consummate the
transactions contemplated thereby or (ii) the condition (financial or
otherwise), assets, liabilities (actual or contingent), properties, results of
operations, cash flows or business of the Company and its subsidiaries, taken as
a whole, and (b) "Acquisition Company Material Adverse Effect" means any event,
change, occurrence, effect, fact or circumstance having, or which would
reasonably be expected to have, a material adverse effect on (i) the ability of
Acquisition Company or Merger Subsidiary to perform their respective obligations
under the Merger Agreement or to consummate the transactions contemplated
thereby or (ii) the condition (financial or otherwise), assets, liabilities
(actual or contingent), properties, results of operations, cash flows, value or
business of Acquisition Company and its subsidiaries, taken as a whole.
CONDITIONS TO THE MERGER. The respective obligations of Acquisition Company
and Merger Subsidiary, on the one hand, and the Company, on the other hand, to
effect the Merger are subject to the satisfaction at or prior to the Effective
Time of each of the following conditions: (i) the Company and Acquisition
Company shall have accepted for payment and paid for all Shares validly tendered
pursuant to the Offer and not withdrawn; PROVIDED, HOWEVER, that neither the
Company nor Acquisition Company may invoke this condition if it shall have been
the cause of the failure to purchase Shares so tendered and not withdrawn in
violation of the terms of the Merger Agreement or the Offer; (ii) the Merger
Agreement shall have been approved and adopted by the requisite vote of holders
of shares required under the Company's certificate of incorporation in order to
consummate the Merger; (iii) all applicable waiting periods under the HSR Act
shall have expired or been terminated; and (iv) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court,
legislative, executive or regulatory authority or
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agency (each, a "Governmental Authority") or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect. The
obligation of the Company to effect the Merger is also subject to the following
condition: if the Foundation elects to receive Merger Consideration with respect
to more than 450,346 of its Remaining Shares (such Remaining Shares in excess of
450,346 Remaining Shares are referred to as the "Excess Shares") pursuant to the
Merger Agreement, (i) Vestar shall have made the capital contribution to
Acquisition Company in an aggregate amount equal to such Merger Consideration in
respect of all such Excess Shares in accordance with Section 2 of the Unit
Purchase Agreement, (ii) Acquisition Company shall have contributed the amount
of such capital contribution to Merger Subsidiary and (iii) at the Effective
Time, Merger Subsidiary shall have cash in an amount not less than the amount of
the capital contribution from Acquisition Company contemplated in clause (ii)
above.
INTERIM OPERATIONS. The Merger Agreement provides that after the date of
the Merger Agreement and prior to the purchase of Shares pursuant to the Offer,
subject to certain exceptions, the business of the Company and its subsidiaries
shall be conducted only in the ordinary and usual course of business and, to the
extent consistent therewith, each of the Company and its subsidiaries shall use
its commercially reasonable efforts to preserve in all material respects its
business organization intact and maintain its existing relations with customers,
suppliers, employees and business associates, and, unless consented to in
writing by Acquisition Company:
(a) the Company shall not, directly or indirectly, (i) amend its
certificate of incorporation, by-laws or similar organizational documents,
(ii) amend the Rights Agreement or redeem the rights issued thereunder or
(iii) split, combine or reclassify the outstanding Common Stock or any
outstanding capital stock of the subsidiaries of the Company;
(b) neither the Company nor any of its Subsidiaries shall: (i) declare,
set aside or pay any dividend or other distribution payable in cash, stock
or property with respect to its capital stock (other than regular quarterly
dividends not in excess of $.0625 per share of Common Stock of the Company
made in the ordinary course consistent with past practice or dividends from
any subsidiary of the Company to the Company or any other subsidiary of the
Company), (ii) issue or sell any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of
any class of the Company or its subsidiaries, other than issuances pursuant
to the exercise of Company Options outstanding on the date of the Merger
Agreement and issuances pursuant to the Rights Agreement, (iii) acquire,
sell, lease or dispose of any assets in excess of $1 million, other than in
the ordinary and usual course of business, (iv) incur or modify any material
debt, other than in the ordinary and usual course of business or (v) redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital
stock;
(c) neither the Company nor any of its subsidiaries shall, except in the
ordinary and usual course of business, terminate or amend any of its
employee benefit plans, arrangements or agreements maintained as of the date
of the Merger Agreement by the Company;
(d) except (i) for amendments to or terminations of the Executive
Agreements, (ii) for new severance agreements with certain executives of the
Company who are parties to such Executive Agreements, and (iii) as otherwise
contemplated by the Merger Agreement or as required by applicable law,
neither the Company nor any of its subsidiaries shall enter into, adopt or
amend any employee benefit plans or amend or enter into any employment or
severance agreement or (except for normal increases in the ordinary and
usual course of business consistent with past practice (but not in excess of
6%)) increase in any manner the compensation of any employees;
(e) neither the Company nor any of its subsidiaries shall (i) except as
may be required or contemplated by the Merger Agreement, assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the material obligations of any other person
(other than subsidiaries of the Company), except in the ordinary and usual
course of business, (ii) make any material loans, advances or capital
contributions to, or investments in, any other person
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(other than to subsidiaries of the Company), other than in the ordinary and
usual course of business or (iii) make capital expenditures in excess of an
aggregate of $5 million;
(f) neither the Company nor any of its subsidiaries shall materially
change any of the financial accounting methods used by it unless required by
GAAP or applicable law;
(g) neither the Company nor any of its subsidiaries shall make any tax
election that would reasonably be expected to have a Company Material
Adverse Effect or settle or compromise any material tax liability;
(h) the Company shall not settle or compromise any claim (including
arbitration) or litigation involving payments by the Company in excess of
$250,000 individually, or $1 million in the aggregate, which is not subject
to insurance reimbursement without the prior written consent of Acquisition
Company, which consent shall not be unreasonably withheld or delayed; and
(i) neither the Company nor any of its subsidiaries shall authorize or
enter into an agreement to do any of the foregoing.
STOCKHOLDERS' MEETING. As soon as practicable following the consummation of
the Offer, the Company, acting though the Board, shall, in accordance with
applicable law: (a) duly call, give notice of, convene and hold a special
meeting of its stockholders (the "Stockholders' Meeting") as soon as practicable
for the purpose of considering and taking action upon the Merger Agreement and
approving the Merger; (b) prepare and file with the Commission a preliminary
proxy or information statement (including any required amendments to the
Schedule 13E-3) relating to the Merger and the Merger Agreement and use its
reasonable best efforts to obtain and furnish the information required by the
Commission to be included in the Proxy Statement (as defined herein) and, after
consultation with Acquisition Company, to respond promptly to any comments made
by the Commission with respect to the preliminary proxy or information statement
and cause a definitive proxy or information statement (the "Proxy Statement") to
be mailed to its stockholders; and (c) subject to its fiduciary obligations
under applicable law, include in the Proxy Statement the recommendation of the
Board that stockholders of the Company vote in favor of the adoption of the
Merger Agreement.
VOTE OF ACQUISITION COMPANY AND MERGER SUBSIDIARY. Under the Merger
Agreement, Acquisition Company has agreed to vote, or cause to be voted, all
Shares owned by it, Merger Subsidiary or any of its other affiliates in favor of
the adoption of the Merger Agreement and approval of the Merger.
NO SOLICITATION. Pursuant to the Merger Agreement, the Company has agreed
that it shall not, and shall not authorize or permit any of its subsidiaries or
any of its or its subsidiaries' officers, directors, employees or agents to,
directly or indirectly, solicit, knowingly encourage, participate in or initiate
discussions or negotiations with, or provide any non-public information to, any
person (other than Acquisition Company, Merger Subsidiary or any of their
affiliates or representatives, the Continuing Stockholders or the Foundation)
concerning, other than the transactions contemplated by the Merger Agreement,
any proposal or inquiry relating to any merger, consolidation, tender offer,
exchange offer, sale of all or substantially all of the Company's assets, sale
of shares of capital stock or similar business combination transaction involving
the Company or any principal operating or business unit of the Company or its
subsidiaries (an "Acquisition Proposal"). However, if, after the date of the
Merger Agreement, the Special Committee receives an unsolicited written
Acquisition Proposal from any person and the Special Committee reasonably
concludes (except with respect to any written Acquisition Proposal submitted to
the Company by a person who had submitted an Acquisition Proposal after January
1, 1999 and prior to the date of the Merger Agreement, as to which such
conclusion will not be required), after consultation with its legal counsel,
that the failure to engage in discussions or negotiations with such Person would
be inconsistent with the Special Committee's (and the Board's) fiduciary duties
to the Company's stockholders under applicable law, then (i) the Company or the
Special Committee may, directly or indirectly, provide access to or furnish or
cause to be furnished information concerning the Company's business, properties
or assets to such person pursuant to an appropriate confidentiality
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agreement and the Company or the Special Committee may engage in discussions
related thereto, and (ii) the Company or the Special Committee may participate
in and engage in discussions and negotiations with such person regarding such
Acquisition Proposal. In the event that, after the date of the Merger Agreement
and prior to the expiration of the Offer, the Special Committee receives an
unsolicited written Acquisition Proposal and the Special Committee determines,
in good faith and after consultation with its financial advisor and legal
counsel, that the failure to do so would be inconsistent with the Special
Committee's (and the Board's) fiduciary duties to the Company's stockholders
under applicable law, the Board (acting on the recommendation of the Special
Committee) may do any or all of the following: (x) withdraw, modify or change
the Board's approval or recommendation of the Merger Agreement, the Offer or the
Merger, (y) approve or recommend to the Company's stockholders an Acquisition
Proposal and (z) terminate the Merger Agreement. The Board will not take the
action described in clause (z) above, prior to three business days after the
Board shall have given Acquisition Company written notice stating that the Board
intends to terminate the Merger Agreement and setting forth the information
specified below with respect to any Acquisition Proposal which the Board or the
Special Committee intends to accept or recommend.
Nothing contained in the applicable provisions of the Merger Agreement will
prohibit the Company or its Board, upon the recommendation of the Special
Committee, from taking and disclosing to the Company's stockholders a position
with respect to a tender or exchange offer by a third party pursuant to Rules
14d-9 and 14e-2(a) promulgated under the Exchange Act or from making such
disclosure to the Company's stockholders or otherwise which, in the judgment of
the Special Committee, after consultation with its legal counsel, is necessary
under applicable law or the rules of any stock exchange or failure to so
disclose would be inconsistent with its fiduciary duties to the Company's
stockholders under applicable law.
The Merger Agreement further provides that the Company will promptly, but in
any event within one business day, advise Acquisition Company in writing of any
Acquisition Proposal or any inquiry regarding the making of an Acquisition
Proposal, including any request for information, the material terms and
conditions of such request, Acquisition Proposal or inquiry and the identity of
the person making such request, Acquisition Proposal or inquiry. The Company
will keep Acquisition Company reasonably informed of the status and details,
including any amendments or proposed amendments, of any such request,
Acquisition Proposal or inquiry.
INDEMNIFICATION AND INSURANCE. The Merger Agreement provides that from and
after the Effective Time, the Surviving Corporation shall indemnify, defend and
hold harmless any person who is now, or has been at any time prior to the date
of the Merger Agreement, or who becomes prior to the Effective Time, an officer,
director, employee or agent (the "Indemnified Party") of the Company or any of
its subsidiaries against all losses, claims, damages, liabilities, costs and
expenses (including attorney's fees and expenses), judgments, fines, losses, and
amounts paid in settlement in connection with any actual or threatened action,
suit, claim, proceeding or investigation (whether arising before or after the
Effective Time) (each a "Claim") to the extent that any such Claim is based on,
or arises out of, (i) the fact that such person is or was a director, officer,
employee or agent of the Company or any of its subsidiaries or is or was serving
at the request of the Company or any of its subsidiaries as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (ii) the Merger Agreement or any of the transactions
contemplated thereby, in each case to the extent that any such Claim pertains to
any matter or fact arising, existing, or occurring prior to or at the Effective
Time, regardless of whether such Claim is asserted or claimed prior to, at or
after the Effective Time, to the full extent permitted under applicable law or
the Company's certificate of incorporation, by-laws or indemnification
agreements in effect at the date of the Merger Agreement, including provisions
relating to advancement of expenses incurred in the defense of any action or
suit. In the event any Indemnified Party becomes involved in any capacity in any
Claim, then from and after the Effective Time, the Surviving Corporation shall
periodically advance to such Indemnified Party its legal and other expenses
(including the cost of any investigation and preparation incurred in connection
therewith), subject to the provision by such Indemnified Party of an
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undertaking to reimburse the amounts so advanced in the event of a final
non-appealable determination by a court of competent jurisdiction that such
Indemnified Party is not entitled thereto.
The Merger Agreement provides that all rights to indemnification and all
limitations on liability existing in favor of an Indemnified Party as provided
in the Company's certificate of incorporation, by-laws or indemnification
agreements as in effect as of the date of the Merger Agreement shall survive the
Merger and shall continue in full force and effect, without any amendment
thereto, for a period of six years from the Effective Time to the extent such
rights are consistent with applicable law.
The Merger Agreement further provides that for a period of six years after
the Effective Time, the Surviving Corporation shall cause to be maintained in
effect, without any lapses in coverage, policies of directors' and officers'
liability insurance (or a "tail policy"), for the benefit of those persons who
are covered by the Company's directors' and officers' liability insurance
policies at the Effective Time, providing coverage with respect to matters
occurring prior to the Effective Time that is at least equal to the coverage
provided under the Company's current directors' and officers' liability
insurance policies, to the extent that such liability insurance can be
maintained at an annual cost to the Surviving Corporation of not greater than
200% of the premium for the current Company directors' and officers' liability
insurance, provided that if such insurance (or "tail" policy) cannot be so
maintained at such cost, the Surviving Corporation shall maintain as much of
such insurance as can be so maintained at a cost equal to 200% of the current
annual premiums of the Company for such insurance.
MATTERS RELATING TO THE COMMITMENT LETTER. The Merger Agreement provides
that Acquisition Company will be primarily responsible for any negotiations with
respect to any definitive agreements regarding the Financing (the "Definitive
Financing Agreements"); PROVIDED, HOWEVER, that (i) the Company shall have
received prior notice of, and shall be kept reasonably informed of the ongoing
status of, any such negotiations, (ii) the Company shall take all such actions
as are reasonably requested by Acquisition Company in connection with any such
negotiations, and (iii) Acquisition Company shall conduct any such negotiations
reasonably and in good faith. Acquisition Company will use its commercially
reasonable efforts to close the Financing on terms consistent with Annex A of
the Commitment Letter and to execute and deliver the Definitive Financing
Agreements on or before the expiration of the Offer. Acquisition Company will
use its commercially reasonable efforts to satisfy on or before the expiration
of the Offer all requirements of the Definitive Financing Agreements which are
conditions to closing the transactions constituting the Financing and to drawing
the cash proceeds thereunder. The Merger Agreement further provides that
following receipt by either the Company or any of its affiliates, on the one
hand, or Acquisition Company or any of its affiliates, on the other hand, of any
written or oral communication to the effect that BTCo is contemplating not
providing the Financing or is terminating or canceling or modifying in any
material respect the Commitment Letter, or that the Financing is unlikely to be
obtained, the Company or Acquisition Company, as the case may be, will
immediately communicate such event to the other party and provide such other
party with a true and complete copy of any such written communication.
CERTAIN EMPLOYEE BENEFIT MATTERS. With respect to any "employee benefit
plan" (as such term is defined in Section 3(3) of ERISA) established or
maintained by the Surviving Corporation and which is effective before the
Effective Time (each, a "Plan"), an employee's service with the Company and any
of its subsidiaries prior to the Effective Time will be treated as service with
the Surviving Corporation for purposes of eligibility, vesting and benefit
accruals; PROVIDED, HOWEVER, that the Surviving Corporation will not be
obligated to (i) make any particular benefit plan or benefit available to any
such employee, (ii) continue any particular benefit plan or benefit or (iii)
refrain from terminating or amending any particular benefit plan or benefit.
The Surviving Corporation will honor, in accordance with their terms, and
will make required payments when due under, all Plans maintained or contributed
to by the Company or any of its subsidiaries or to which the Company or any of
its subsidiaries is a party (including, but not limited to, employment,
incentive and severance agreements and arrangements), that are applicable to any
employee, director or
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stockholders of the Company or any of its subsidiaries (whether current, former
or retired) or their beneficiaries; PROVIDED, HOWEVER, that the Surviving
Corporation may amend or terminate any such Plan in accordance with its terms.
Acquisition Company, Merger Subsidiary and the Company each have acknowledged in
the Merger Agreement that the consummation of the Offer shall constitute a
"Change in Control" for purposes of each Plan in which such concept is relevant,
notwithstanding any provision of any such Plan to the contrary.
With respect to any welfare plans in which employees of the Company and any
of its subsidiaries are eligible to participate after the Effective Time, the
Surviving Corporation will (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to such employees and (ii) provide each such
employee with credit for any co-payments and deductibles paid prior to the
Effective Time in satisfying any applicable deductible or out-of-pocket
requirements under any plan.
As of December 9, 1999, employees of the Company are no longer given the
opportunity to purchase Shares pursuant to the Company's employee stock purchase
plan, dated on or about April 15, 1996. The Company plans to provide its
employees with any requisite notices of the termination of such opportunity on a
timely basis.
SALE OF ADDITIONAL SERIES A PREFERRED/WARRANT CONSIDERATION TO ACQUISITION
COMPANY. The Merger Agreement provides that in the event that additional shares
of Series A Preferred and Warrants will be sold to Acquisition Company at the
Effective Time, either as a result of (i) the Foundation's election (including a
failure to make an election) to receive Merger Consideration with respect to
each of its Remaining Shares pursuant to the Merger Agreement, or (ii) the
Foundation's election pursuant to the Merger Agreement to receive the Merger
Consideration with respect to more than 450,346 of the Remaining Shares, the
Surviving Corporation will sell to Acquisition Company, concurrently with the
consummation of the Merger, additional Series A Preferred/Warrant Consideration
at a rate of one share of Series A Preferred and one Warrant for each $23.00 in
cash payable by Acquisition Company ($20.70 for each share of Series A Preferred
and $2.30 for each Warrant).
CERTAIN BOARD ACTIONS PENDING THE EFFECTIVE TIME. The Merger Agreement
provides that, following the consummation of the Offer and prior to the
Effective Time, the affirmative vote of at least one of the Acquisition Company
Directors will be required for the Company to approve and authorize any of the
actions which would require a super-majority Board vote under the Stockholders'
Agreement.
TERMINATION. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after the
requisite stockholders' approval is obtained:
(a) By mutual written consent of the Company (acting through the Special
Committee), Acquisition Company and Merger Subsidiary.
(b) By either the Company (acting through the Special Committee), on the
one hand, or Acquisition Company, on the other hand, if: (i) shares of
Common Stock shall not have been purchased pursuant to the Offer on or prior
to March 15, 2000; PROVIDED, HOWEVER, that the right to terminate the Merger
Agreement under this clause (b)(i) shall not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the
cause of, or resulted in, the failure to purchase shares of Common Stock
pursuant to the Offer on or prior to such date; or (ii) any Governmental
Authority shall have issued an order, decree or ruling or taken any other
action, in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree or ruling shall have become final and nonappealable.
(c) By the Company (acting through the Special Committee) prior to the
purchase of shares of Common Stock pursuant to the Offer, as provided above
under "--No Solicitation" above, provided, that the Company shall have
complied with all provisions under "--No Solicitation" above, including the
notice provisions therein, and with the applicable requirements, including
the payment of the
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Termination Fee (as defined herein) and confirmation of the agreement to pay
Expenses, each as described below.
(d) By the Company (acting through the Special Committee): (i) in the
event that the Offer expires or is terminated in accordance with its terms
without any Shares being purchased thereunder, PROVIDED, THAT the failure of
the Company to fulfill any obligation under the Merger Agreement has not
been the cause of, or resulted in, the failure to purchase Shares pursuant
to the Offer; or (ii) if there shall have been a breach or failure to
perform on the part of Acquisition Company or Merger Subsidiary of any of
their representations, warranties, covenants or agreements contained in the
Merger Agreement, and such breach or failure to perform has a material
adverse effect on the ability of Acquisition Company or Merger Subsidiary to
consummate the Offer or the Merger, and, with respect to any such breach or
failure to perform that is reasonably capable of being remedied within the
time periods set forth below, the breach or failure to perform is not
remedied prior to the earlier of (x) 10 days after the Company has furnished
Acquisition Company with written notice of such breach or failure to perform
or (y) two business days prior to the date on which the Offer expires.
(e) By Acquisition Company or Merger Subsidiary: (i) if the Board
(acting through the Special Committee) (A) shall withdraw, modify or change
its recommendation so that it is not in favor of the Merger Agreement, the
Offer or the Merger or shall have resolved to do any of the foregoing,
(B) shall have recommended to the Company's stockholders an Acquisition
Proposal, or (C) shall terminate the Merger Agreement, as provided under
"--No Solicitation" above; (ii) if the Company shall have materially
breached any of its obligations under any provision of the Merger Agreement
summarized under "--No Solicitation" above; (iii) in the event that the
Offer expires or is terminated in accordance with its terms without any
Shares being purchased thereunder, PROVIDED, THAT the failure of Acquisition
Company to fulfill any obligation under the Merger Agreement has not been
the cause of, or resulted in, the failure to purchase shares of Common Stock
pursuant to the Offer; or (iv) if, prior to the purchase of Shares in the
Offer, the representations and warranties of the Company set forth in the
Merger Agreement, which are not qualified by "materiality" or "Company
Material Adverse Effect" shall not be true and accurate in all material
respects, and the representations and warranties that are qualified by
"materiality" or "Company Material Adverse Effect" shall not be true in any
respect, at any time after the date of the Merger Agreement (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need
only be true and accurate as of such date or with respect to such period),
or the Company shall have breached or failed to perform or comply in any
material respect with any obligation, agreement or covenant required by the
Merger Agreement to be performed or complied with by it, and, with respect
to any such breach or failure to perform that is reasonably capable of being
remedied within the time periods set forth below, the breach or failure to
perform is not remedied prior to the earlier of (x) 10 days after
Acquisition Company has furnished the Company with written notice of such
breach or failure to perform or (y) two business days prior to the date on
which the Offer expires.
FEES, EXPENSES AND OTHER PAYMENTS. Except as set forth below, all costs and
expenses (including any expenses related to any claims or litigation in
connection with the transactions contemplated by the Merger Agreement, or any
settlement thereof), including, without limitation, fees and disbursements of
counsel, financial advisors and accountants and other out-of-pocket expenses,
incurred or to be incurred by the parties to the Merger Agreement in connection
with the Offer, the Merger, the Merger Agreement and the other transactions
contemplated thereby, shall be borne solely and entirely by the party which has
incurred such costs and expenses; PROVIDED, HOWEVER, that all costs and expenses
related to the filing, printing and mailing of documents in connection with the
Offer, the Schedule 14D-9 and the Proxy Statement shall be borne by the Company.
Pursuant to the Merger Agreement, if the Company (acting through the Special
Committee) terminates the Merger Agreement pursuant to clause (c) under
"--Termination" above or Acquisition Company terminates the Merger Agreement
pursuant to clause (e)(i) or (e)(ii) under "--Termination" above, then, in each
case, the Company shall pay to Acquisition Company immediately
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following receipt of a request therefor, an amount equal to $4 million (the
"Termination Fee"). In addition, in the event that the Merger Agreement is
terminated for any reason other than (x) by the Company pursuant to clause
(d)(ii) under "--Termination" above or (y) by the Company or Acquisition Company
because the Company or Acquisition Company has been advised by BTCo that it will
not provide the debt financing contemplated by the Commitment Letter (other than
as a result of the occurrence of a Company Material Adverse Effect), then the
Company shall pay to Acquisition Company, promptly upon receipt, but in no event
later than two business days following receipt, of reasonable supporting
documentation, all actual and reasonably documented out-of-pocket expenses
incurred by or on behalf of Acquisition Company or its member (including
expenses incurred by or on behalf of the Continuing Stockholders and the
Foundation) in connection with or in anticipation of the Offer, the Merger, the
Merger Agreement and the consummation of the transactions contemplated thereby
in an amount not to exceed $2.5 million (or $1.25 million if the Merger
Agreement is terminated by reason of the termination of the Offer as a result of
the occurrence of any of the events set forth in clause (g) under "THE
OFFER--Conditions to the Offer") (the "Expenses"). In addition, the Company
shall pay in cash to Acquisition Company the Termination Fee if the Merger
Agreement is terminated (A) by the Company (acting through the Special
Committee) pursuant to (d)(i) under "--Termination" above if the Offer expires
or is terminated in accordance with its terms without any Shares being purchased
thereunder solely as a result of the Minimum Condition failing to be satisfied
by the expiration date of the Offer as it may have been extended (other than as
a result of a material or a willful breach by Acquisition Company or Merger
Subsidiary of their obligations under the Merger Agreement) or (B) by
Acquisition Company pursuant to (e)(iii) under "--Termination" above if the
Offer expires or is terminated in accordance with its terms without any Shares
being purchased thereunder solely as a result of the Minimum Condition failing
to be satisfied by the expiration date of the Offer as it may have been extended
pursuant hereto (other than as a result of a material or a willful breach by the
Company of its obligations under the Merger Agreement), in each case at any time
after an Acquisition Proposal has been made by a third party (such third party,
together with its affiliates and other persons acting in concert with such third
party are hereafter referred to as a "Third Party Acquirer"), which Acquisition
Proposal has been publicly disclosed prior to the termination of the Merger
Agreement, and, within one year after such a termination, the Company enters
into a definitive agreement with respect to, or consummates (i) a merger,
consolidation or other business combination with any such Third Party Acquirer
(or another party who makes an Acquisition Proposal at a time when the Company
is in discussions with any such Third Party Acquirer (such other party, together
with its affiliates and other persons acting in concert with such other party
are hereafter referred to as the "New Third Party Acquirer")), (ii) the sale or
transfer to such Third Party Acquirer (or any New Third Party Acquirer) of, or
the acquisition of beneficial ownership by such Third Party Acquirer (or any New
Third Party Acquirer) of, 40% or more of the Company Voting Securities (as
defined herein) or (iii) the sale or transfer of 40% or more (in market value)
of the assets of the Company and its subsidiaries, on a consolidated basis, to
any such Third Party Acquirer (or any New Third Party Acquirer), upon which
event the Termination Fee and Expenses shall become immediately payable in cash.
For purposes hereof, "Company Voting Securities" shall mean Common Stock or
securities or similar interests, warrants, options or other rights to acquire
Common Stock or securities convertible or exchangeable into shares of capital
stock of the Company which entitles the holder to vote generally in the election
of directors. If requested by Acquisition Company, at the consummation of the
Offer and/or the Closing, the Company shall pay in cash all expenses incurred by
or on behalf of Acquisition Company, including a transaction fee payable to
Vestar Capital Partners in an amount equal to $1 million in cash.
CERTAIN CONSIDERATION TO BE RECEIVED BY ACQUISITION COMPANY AND THE
FOUNDATION. In connection with the Merger and pursuant to the Merger Agreement,
Acquisition Company will exchange 1,833,792 of its Shares purchased in the Offer
into the Series A Preferred/Warrant Consideration, and the Foundation will
convert a minimum of 60,000 Shares (and at its election, up to an additional
485,000 Shares) into the Series A Preferred/Warrant Consideration. Set forth
below is a summary description of the Warrants and Series A Preferred.
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WARRANTS. Each of the Warrants will initially entitle its holder to acquire
one share of Common Stock for $23.00 per Share, subject to antidilution
adjustments. The number of Warrants to be issued pursuant to the Merger is equal
to the aggregate number of shares of Common Stock which will have been converted
in the Merger into the Series A Preferred/Warrant Consideration. The Warrants
are exercisable into non-voting convertible Common Stock of the Company by the
holder thereof at any time, in whole or in part, provided that such non-voting
Common Stock shall not be convertible into voting Common Stock until after the
first to occur of (i) an initial underwritten offering of equity securities of
the Company registered under the Securities Act after the Closing, (ii) a Sale
of the Company (as defined in the warrant agreement term sheet attached to the
Merger Agreement as Annex D), or (iii) a Change of Control (as defined in the
warrant agreement term sheet attached to the Merger Agreement as Annex D). The
non-voting Common Stock will be exercisable into voting Common Stock at any time
on or after the first to occur of (i), (ii), or (iii) above. The exercise price
of each Warrant will be an amount per Share equal to the Offer Price, subject to
anti-dilution adjustments.
The terms of the Warrants provide for certain capital contributions to be
made by Acquisition Company and the Foundation and their Permitted Transferees
upon the achievement of certain rates of return on their investments in the
Company. The obligation of Acquisition Company and its Permitted Transferees to
make the foregoing capital contributions will be guaranteed by Vestar.
SERIES A PREFERRED. Under the terms of the Surviving Corporation's amended
and restated certificate of incorporation (the "Surviving Corporation Charter"),
the Series A Preferred shall rank prior to the Common Stock with respect to
dividend rights and rights on liquidation, winding-up and dissolution. Holders
of shares of Series A Preferred shall be entitled to receive, when, as and if
declared by the Board, cash dividends per share (i) until the fifth anniversary
date of the issue date of such Series A Preferred (the "Issue Date"), at a rate
per annum equal to 13.17% of the issue price thereof ($20.70) (the "Issue
Price"), and (ii) after the fifth anniversary date of the Issue Date, at a rate
per annum equal to 11% of the Issue Price; PROVIDED, HOWEVER, that in the event
that any dividends on the Series A Preferred which have been declared and remain
unpaid (a "Dividend Default"), or the Company fails to redeem the Series A
Preferred as may be required by the terms of such Series A Preferred or fails to
make payment under any optional redemption pursuant to the terms thereof (a
"Redemption Default"), then such rate shall immediately increase to 400 basis
points above the dividend rate per annum in effect immediately prior to such
event until such Dividend Default or Redemption Default, as applicable, is cured
or waived by the affirmative vote or consent of the holders of at least a
majority of the then outstanding shares of Series A Preferred. All dividends
shall be fully cumulative, shall accumulate daily from the Issue Date and shall
be payable in arrears, in whole or in part, on each dividend payment date, if
any, fixed by the Company, commencing on the first dividend payment date, if
any, fixed after the Issue Date. All undeclared dividends and declared but
unpaid dividends shall compound on a quarterly basis from the Issue Date at a
rate per annum equal to the applicable dividend rate per annum.
The Company may redeem any or all of the Series A Preferred on or after the
Issue Date at declining redemption prices as set forth in the Surviving
Corporation Charter; PROVIDED, HOWEVER, that no such optional redemption of any
shares of Series A Preferred held by Acquisition Company shall be made unless
prior thereto the Company has received a written legal opinion of a nationally
recognized law firm to the effect that the proceeds from any such redemption, to
the extent of the liquidation preference of the Series A Preferred (exclusive of
any and all accumulated but unpaid dividends thereon), should be treated as a
distribution in part or full payment of such Series A Preferred in accordance
with Section 302(a) of the Code.
On the date of the consummation of an initial public offering of Common
Stock that is registered under the Securities Act, the Company shall, at the
election of the holders of a majority of the shares of Series A Preferred then
outstanding, either (i) redeem for cash a number of shares of Series A Preferred
having an aggregate liquidation preference (based upon the applicable redemption
price) equal to 50% of the net proceeds of such initial public offering, at a
price per share equal to the applicable redemption
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price thereof, and/or (ii) redeem a number of shares of Series A Preferred which
have been designated by such holders in exchange for and through the delivery of
a number of shares of Common Stock equal to (A) the aggregate applicable
redemption price of such shares of Series A Preferred, divided by (B) the public
offering price per share of Common Stock in such initial public offering. In
addition, the Company shall redeem certain portions of the Series A Preferred at
any time on or after the end of the fifth, sixth and seventh anniversary dates
of the Issue Date upon the election of the holders of a majority of the
outstanding shares of Series A Preferred.
Holders of Series A Preferred have no general voting rights, except as
otherwise required under Delaware law and except in certain circumstances as set
forth in the Surviving Corporation Charter. In addition, in the event of a
Dividend Default or Redemption Default, and, in each case, such Dividend Default
or Redemption Default, as applicable, shall not have been cured or waived by the
holders of at least a majority of the then outstanding shares of Series A
Preferred for two consecutive quarterly periods, then the holders of at least a
majority of the shares of Series A Preferred then outstanding, voting separately
and as a single class, shall have the right to elect one director to the Board,
provided, that, in the event that more than one of the foregoing defaults
occurs, the maximum number of directors that such holders shall be entitled to
elect is one.
APPRAISAL RIGHTS
Holders of Shares do not have appraisal rights in connection with the Offer.
However, if the Merger is consummated, holders of Shares at the Effective Time
who do not vote in favor of the adoption of the Merger Agreement will have the
right under the DGCL to dissent and demand appraisal of, and receive payment in
cash of the fair value of, their Shares outstanding immediately prior to the
Effective Time in accordance with Section 262 of the DGCL. ACCORDINGLY,
STOCKHOLDERS WHO INTEND TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD NOT TENDER
THEIR SHARES PURSUANT TO THE OFFER.
Under the DGCL, dissenting stockholders who comply with the applicable
statutory procedures will be entitled to receive a judicial determination of the
fair value of their Shares (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) and to receive payment of such fair
value in cash. Any such judicial determination of the fair value of the Shares
could be based upon factors other than or in addition to the price per Share to
be paid in the Offer and the Merger and the market value of the Shares.
Stockholders should recognize that the value so determined could be higher or
lower than the price per Share to be paid pursuant to the Offer or the Merger
Consideration.
In addition, several decisions by Delaware courts have held that in certain
circumstances a controlling stockholder of a corporation involved in a merger
has a fiduciary duty to other stockholders that requires that the merger be fair
to other stockholders. In determining whether a merger is fair to minority
stockholders, Delaware courts have considered, among other things, the type and
amount of the consideration to be received by the stockholders and whether there
was fair dealing among the parties. The Delaware Supreme Court stated in
WEINBERGER V. UOP, INC. and RABKIN V. PHILIP A. HUNT CHEMICAL CORP. that the
remedy ordinarily available to minority stockholders in a cash-out merger is the
right to appraisal described above. However, a damages remedy or injunctive
relief may be available if a merger is found to be the product of procedural
unfairness, including fraud, misrepresentation or other misconduct.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE
DGCL DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE
FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY APPRAISAL RIGHTS AVAILABLE
UNDER THE DGCL. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DGCL. A COPY OF SECTION 262 OF THE
DGCL IS ATTACHED HERETO AS EXHIBIT IV AND THE FOREGOING SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO EXHIBIT IV.
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CERTAIN TAX CONSEQUENCES
The following is a general summary of certain U.S. federal income tax
consequences of the Offer and the Merger relevant to a beneficial holder of
Shares whose Shares are tendered and accepted for payment pursuant to the Offer,
converted into cash in the Merger or converted into the right to Retained Shares
in the Merger (a "Holder"). This discussion is for general information only and
does not purport to consider all aspects of U.S. federal income taxation that
may be relevant to holders of Shares. The discussion is based on the provisions
of the Code, existing regulations promulgated thereunder, judicial decisions and
administrative rulings, all as in effect as of the date hereof and all of which
are subject to change, possibly with retroactive effect. The following does not
address the U.S. federal income tax consequences to all categories of Holders
that may be subject to special rules (E.G., holders who acquired their Shares
pursuant to the exercise of employee stock options or other compensation
arrangements with the Company, holders who perfect their appraisal rights under
the DGCL, foreign holders, insurance companies, tax-exempt organizations,
dealers in securities and persons who have acquired the Shares as part of a
straddle, hedge, conversion transaction or other integrated investment), nor
does it address the U.S. federal income tax consequences to persons who do not
hold the Shares as "capital assets" within the meaning of Section 1221 of the
Code (generally, property held for investment).
EACH HOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO IT OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND
EFFECT OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND POSSIBLE CHANGES
IN TAX LAWS.
The receipt of cash for Shares pursuant to the Offer or the Merger will be a
taxable transaction for U.S. federal income tax purposes and may also be a
taxable transaction under applicable state, local and foreign income and other
tax laws. For U.S. federal income tax purposes, a Holder who sells Shares
pursuant to the Offer or receives cash in exchange for Shares pursuant to the
Merger will generally recognize capital gain or loss equal to the difference, if
any, between the amount of cash received and the Holder's adjusted tax basis in
the Shares sold pursuant to the Offer or surrendered for cash pursuant to the
Merger. Gain or loss will be determined separately for each block of Shares
(I.E., Shares acquired at the same cost in a single transaction) tendered
pursuant to the Offer or surrendered for cash pursuant to the Merger. Such
capital gain or loss will be long-term capital gain or loss if the Holder has
held the Shares for more than one (1) year at the time of the consummation of
the Offer or the Merger. Net capital gain recognized by an individual investor
(or an estate or certain trusts) upon a disposition of a Share that has been
held for more than one year generally will be subject to a maximum tax rate of
20% or, in the case of a Share that has been held for one year or less, will be
subject to tax at ordinary income rates. Certain limitations apply to the use of
capital losses.
Continuing Stockholders who convert their Shares solely for the right to
receive Retained Shares in the Merger generally will not recognize any gain or
loss as a result of the conversion. The aggregate tax basis of their Retained
Shares will be the same as the aggregate tax basis of their Shares, and the
holding period of their Retained Shares will include the holding period of their
Shares.
FINANCING OF THE TRANSACTIONS
The Purchasers estimate that the total amount of funds required to purchase
all Shares validly tendered pursuant to the Offer, to consummate the Merger, to
refinance approximately $32.1 million of existing indebtedness and to pay all
related costs and expenses will be approximately $257.9 million, assuming the
Foundation elects to receive Merger Consideration with respect to all of its
Remaining Shares. See "THE OFFER--Fees and Expenses." The Company expects to
finance the purchase of Shares in the Offer and the Merger and the payment of
costs and expenses from borrowings under the Senior Credit Facility (as defined
herein) and cash on hand and Acquisition Company expects to obtain the funds
43
<PAGE>
necessary to purchase the Shares to be purchased by Acquisition Company pursuant
to the Unit Purchase Agreement.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THE FINANCING
CONDITION. See "THE OFFER--Conditions to the Offer."
BANK FINANCING. Pursuant to the Commitment Letter, BTCo has committed to
provide the Company and certain of its subsidiaries with a senior secured credit
facility (the "Senior Credit Facility") in the amount of $250 million from a
syndicate of banks and other lenders arranged and managed by BTCo, as
administrative agent (the "Agent"), sole lead arranger and book manager. The
Senior Credit Facility will be comprised of (i) $180 million of term loans to be
divided into two primary tranches in amounts to be determined ("Tranche A Term
Loans" and "Tranche B Term Loans," respectively, and, collectively, the "Term
Loans"), and (ii) $70 million of revolving credit facilities (collectively, the
"Revolving Credit Facility"). The Tranche A Term Loans will be divided into
three subtranches and the Tranche B Term Loans will be divided into two
subtranches, so that certain borrowings may be incurred by the Borrowers (as
defined herein) using foreign currencies and/or foreign banks. The principal
borrowers under the Senior Credit Facility will be the following subsidiaries of
the Company: The Gleason Works ("GWR"), Gleason Germany Holdings GmbH ("GGH")
and Gleason Works Holdings Limited ("GWH", and together with GWR and GGH, the
"Borrowers").
The Term Loans may only be incurred upon the consummation of the Offer, may
only be used to directly or indirectly finance the Transactions and the costs,
fees and expenses associated therewith of approximately $12.5 million, and will
have a maturity of six years in the case of Tranche A Term Loans and eight years
in the case of Tranche B Term Loans. It is anticipated that the equivalent of
approximately $90 million of Terms Loans will be made in Euros or Deutsche
Marks, and up to the equivalent of approximately $25 million will be made in
Sterling Pounds. To the extent repaid, Term Loans may not be reborrowed.
The Revolving Credit Facility will have a term of six years and may be used
for working capital and other general corporate purposes of the Company and its
subsidiaries, except that no more than $12.5 million plus the amount of
available cash on hand may be borrowed upon the consummation of the Offer. Of
the $70 million total amount of credit extensions permitted to be outstanding at
any time under the Revolving Credit Facility, up to $40 million may be in the
form of loans ("Revolving Credit Loans") and up to $35 million may be in the
form of letters of credit and/or bank guarantees. The Revolving Credit Facility
will also contain a subfacility for swingline loans to be provided by BTCo. The
full amount of the Revolving Credit Facility will be available in U.S. Dollars,
Euros, Deutsche Marks and/or Sterling Pounds.
INTEREST RATES AND FEES. In general, loans under the Senior Credit Facility
will bear interest at a fluctuating rate PER ANNUM equal to the sum of (a) the
applicable LIBOR rate (the applicable EURIBOR rate in the case of loans
denominated in foreign currencies) or, at the Company's election in the case of
U.S. Dollar denominated loans, BTCo's base rate, plus (b) a margin (i) in the
case of Tranche A Term Loans and Revolving Credit Loans, ranging from 2.00% to
3.25% (1% to 2.25% in the case of base rate loans), depending on the ratio (the
"Leverage Ratio") from time to time of the Company's consolidated total
indebtedness (defined to exclude letters of credit and bank guaranties, unless
drawn upon) to consolidated EBITDA for the trailing four quarters, and (ii) in
the case of Tranche B Term Loans, equal to 3.50%. The initial margin for Tranche
A Term Loans and Revolving Credit Loans will be 3.00% (2.00% in the case of any
such loans that are base rate loans).
In addition, the Company and the Borrowers have agreed to pay certain fees
in connection with the Senior Credit Facility, including, without limitation,
(i) arrangement fees, (ii) agency fees and (iii) commitment fees. The commitment
fees will accrue on the unutilized total commitments under the
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<PAGE>
Revolving Credit Facility at a PER ANNUM rate ranging from 0.50% and 0.375%
depending on the Leverage Ratio and will initially be 0.50%.
VOLUNTARY PREPAYMENTS. Voluntary prepayments may be made at any time,
without premium or penalty, subject to requirements as to prior notice and
minimum amounts and certain other conditions. Voluntary prepayments on Term
Loans will be applied proportionately among all tranches of Term Loans in direct
order of maturity.
SCHEDULED AMORTIZATION. A portion of the Term Loans will be subject to
quarterly amortization requirements in accordance with a schedule to be agreed
upon. It is anticipated that the amortization of the Tranche B Term Loans will
be nominal during the first six years.
MANDATORY PREPAYMENTS. Subject to exceptions to be agreed upon, mandatory
repayments of the Term Loans (and after all Term Loans have been repaid in full,
mandatory reductions to the commitments under the Revolving Credit Facility)
will be required to be made with (i) 100% of the net proceeds from non-ordinary
course asset sales and property insurance and condemnation proceeds (subject to
reinvestment provisions to be agreed upon and an annual basket to be agreed
upon), (ii) 100% of the net proceeds from issuances of debt not permitted under
the terms of the Senior Credit Facility as in effect upon the consummation of
the Offer, (iii) 50% of the net proceeds from equity issuances or capital
contributions to the Company (other than any such proceeds received in
connection with the exercise of employee options or warrants and, subject to a
cap to be agreed upon, any such proceeds received from the private sale or
issuance of equity that are used to make permitted capital expenditures or
acquisitions), and (iv) 50% of annual excess cash flow (to be increased to 75%
of annual excess cash flow if the Leverage Ratio is greater than 3.75x1.00).
CONDITIONS PRECEDENT TO CLOSING OF SENIOR CREDIT FACILITY. The availability
of the Senior Credit Facility will be subject to the satisfaction or waiver by
the majority lenders of conditions precedent typical for this type of facility,
including, without limitation, the following: (i) the Agent shall have completed
its environmental due diligence and such due diligence shall not have disclosed
any materially adverse environmental conditions; (ii) all of the conditions
precedent to the consummation of the Transactions (other than the Merger) shall
have been satisfied in all material respects and all documentation, terms and
structure for the Transactions shall be reasonably satisfactory to the Agent;
(iii) subject to certain exceptions, all existing debt for borrowed money of the
Company and its subsidiaries shall have been repaid in full and all liens
securing such debt shall have been released in satisfaction of the Agent; (iv)
Acquisition Company shall have received at least $53.3 million of new cash
equity, and Acquisition Company and/or the Company shall have received
additional equity of at least $17.1 million in the form of cash or the rollover
(or commitment to rollover) by certain existing stockholders of equity
positions; (v) all necessary governmental and material third party approvals in
connection with the Senior Credit Facility and the Transactions (other than the
Merger) shall have been obtained and remain in effect; (vi) nothing shall have
occurred since December 7, 1999 (and the Agent shall have become aware of no
facts or conditions not previously known) which the Agent or the majority
lenders reasonably determine could reasonably be expected to have a material
adverse effect on their rights or remedies, the ability of the Company and its
subsidiaries to perform their obligations under the Senior Credit Facility or on
the Company and its subsidiaries taken as a whole; (vii) no litigation shall be
pending or threatened with respect to the Transactions or the Financing or that
would have a material adverse effect; (viii) the corporate and capital structure
(and all material agreements related thereto) of the Company and its
subsidiaries shall be reasonably satisfactory to the Agent and the majority
lenders; and (ix) there shall not have occurred and be continuing a material
disruption of or material adverse change in financial, banking, capital or
currency markets, or in the syndication market for credit facilities similar in
nature to the Senior Credit Facility, that would have a material adverse effect
on the syndication of the Senior Credit Facility, in each case as reasonably
determined by BTCo in its sole discretion.
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<PAGE>
GUARANTY. All obligations under the Senior Credit Facility will be
unconditionally guaranteed by the Company, GWR and each of the Company's other
domestic subsidiaries (including GWR, GGH, GWH and any other foreign subsidiary
which has "checked the box" for U.S. tax purposes) (collectively, the
"Guarantors").
SECURITY. The obligations of the Borrowers and the Guarantors in respect of
the Senior Credit Facility will be secured by a first priority perfected
security interest (subject to permitted liens) in (i) all outstanding equity
interests of each Guarantor and 65% of the stock of each direct foreign
subsidiary of the Company or any Guarantor and (ii) all other tangible and
intangible assets of the Company and each Guarantor, except for leasehold
interests and other exceptions customary for transactions of this type.
FINANCIAL COVENANTS. The Senior Credit Facility will contain the following
financial covenants which will be tested on a quarterly basis: (i) a maximum
Leverage Ratio test; and (ii) minimum interest coverage ratio test (to be
defined as the ratio of consolidated interest expense to consolidated EBITDA, in
each case for the trailing four quarters).
OTHER COVENANTS. The Senior Credit Facility will contain covenants typical
for such types of facilities, including, without limitation, (i) restrictions on
capitalized lease obligations and other indebtedness, (ii) restrictions on
mergers, acquisitions, joint ventures, partnerships and acquisitions and
dispositions of assets, (iii) restrictions on sale-leaseback transactions, (iv)
restrictions on dividends, stock repurchases and material amendments of
organizational, corporate and other documents, (v) restrictions on transactions
with affiliates and formation of subsidiaries, (vi) restrictions on investments,
(vii) maintenance of existence and properties, (viii) restrictions on liens and
other encumbrances, (ix) maintenance of adequate insurance coverage, (x) ERISA
covenants, (xi) obtaining of interest rate protection, (xii) restrictions on
capital expenditures, (xiii) financial reporting requirements, (xiv) compliance
with laws, and (xv) in the case of the Company, "special purpose corporation"
type covenants.
EVENTS OF DEFAULT. The Senior Credit Facility will contain events of
default typical for these types of facilities (subject in each case to mutually
agreeable grace periods and materiality thresholds), including, without
limitation, (i) non-payment of amounts under the Senior Credit Facility, (ii)
material misrepresentations, (iii) covenant defaults, (iv) cross-defaults to
other indebtedness, (v) judgment defaults, (vi) bankruptcy and (vii) a change of
control of the Company.
UNIT PURCHASE AGREEMENT. In order to enable Acquisition Company to purchase
Shares pursuant to the Offer, Vestar has agreed to make a capital contribution
of $53,316,898 to Acquisition Company for 1,000 units of Acquisition Company
upon the consummation of the Offer if (i) Vestar determines, in its sole
discretion, that the conditions to the Offer as set forth in Annex A to the
Merger Agreement are satisfied, (ii) the Company enters into definitive
financing arrangements with respect to the financing for the purchase of such
portion of shares of Common Stock which the Company is agreeing to pay for and
purchase pursuant to the Offer and for the payment of the Merger Consideration
pursuant to the Merger, on terms satisfactory to Vestar in its sole discretion,
and (iii) Acquisition Company has the legally enforceable contractual right to
designate at least one director to the Board. The Unit Purchase Agreement also
provides that to the extent the Foundation elects to receive Merger
Consideration for more than 450,346 shares of Common Stock, Vestar will make a
capital contribution to Acquisition Company at the Effective Time in an
aggregate amount equal to such Merger Consideration in respect of all such
Excess Shares in order to enable Acquisition Company to purchase shares of
Series A Preferred and Warrants pursuant to the Merger Agreement.
The Unit Purchase Agreement will terminate if (i) the Offer expires without
Acquisition Company or the Company accepting for payment or purchasing any
shares of Common Stock pursuant to the Offer or (ii) the Merger Agreement is
terminated in accordance with its terms.
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<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information, based upon reports filed by such
persons with the Commission, with respect to ownership of the shares of Common
Stock owned by the directors and executive officers of the Company and with
respect to ownership by the persons believed by the Company to be the beneficial
owners of more than 5% of its outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES OF SHARES PERCENT
COMMON STOCK UNDERLYING OF
SHAREHOLDER OWNED(1) OPTIONS TOTAL CLASS
- ----------- ------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Martin L. Anderson........................... -- (2) 22,000 22,000 *
J. David Cartwright.......................... -- (2) 24,000 24,000 *
John W. Guffey, Jr........................... 4,000(2) 22,000 26,000 *
William P. Montague.......................... 4,000(2) 12,000 16,000 *
Silas L. Nichols............................. -- (2) 6,000 6,000 *
Robert L. Smialek............................ 4,000(2) 12,000 16,000 *
James S. Gleason............................. 117,142(3) 286,800 403,942 4.1%
David J. Burns............................... 20,266 78,772 99,038 1.0
John J. Perrotti............................. 14,678.1(4) 60,000 74,678.1 *
Edward J. Pelta.............................. 5,222 12,500 17,722 *
Gary J. Kimmet............................... 15,446 16,250 31,696 *
John W. Pysnack.............................. 4,637 18,000 22,637 *
Putnam Investment Management, Inc............ 508,300(5) -- 508,300(5) 5.3
Artisan Partners, L.P........................ 1,179,100(6) -- 1,179,100(6) 12.3
Gleason Foundation........................... 1,197,346(5) -- 1,197,346 12.4
Dimensional Fund Advisors, Inc............... 772,600(5) -- 772,600(5) 8.1
All directors and executive officers
as a group (12 persons).................... 189,391.1(2)(3)(4) 570,322 759,713.1(2)(3)(4) 6.4
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) For all Shares listed, the person possesses sole voting power and, except as
indicated in Notes 4 and 6, sole investment power.
(2) Excludes 7,248, 11,142, 7,057, 3,236, 2,435 and 3,230 phantom shares
credited to the stock accounts of Messrs. Anderson, Cartwright, Guffey,
Montague, Nichols and Smialek, respectively, pursuant to the Directors Fees
Deferral Plan. Pursuant to the Merger Agreement, at the Effective Time, the
phantom shares will be cancelled and the stock accounts of the directors
will each be credited with a cash amount equal to the product of (i) the
Merger Consideration and (ii) the number of phantom shares of Common Stock
so cancelled.
(3) Does not include 65,056 Shares held in a trust of which Mr. Gleason is an
income beneficiary.
(4) Includes 1,270.6 Shares beneficially owned by Mr. Perrotti's two minor
children, as to which Mr. Perrotti is custodian under the New York Gift to
Minors Act.
(5) Sole dispositive and voting power.
(6) Shared dispositive and voting power.
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TRANSACTIONS AND ARRANGEMENTS CONCERNING THE SHARES
To the Company's knowledge, the only transactions in the Shares effected
during the past 60 days by the Company or its executive officers, directors,
affiliates or subsidiaries is as follows: (i) on November 19, 1999, Mr. Burns
purchased pursuant to the Company's Dividend Reinvestment Plan 68.9 shares of
Common Stock at $18.3273 per share, and Chase Brokerage Services acted as broker
for the purchase of such shares on the open market; (ii) on November 19, 1999,
Mr. Perrotti purchased pursuant to the Company's Dividend Reinvestment Plan (A)
45.6 shares of Common Stock at $18.3273 per share, (B) 2.2 shares of Common
Stock at $18.3273 per share as custodian for his daughter, Christine J.
Perrotti, under the New York Uniform Gift to Minors Act, and (C) 2.2 shares of
Common Stock at $18.3273 per share as custodian for his son, Jason Perrotti,
under the New York Uniform Gift to Minors Act, and Chase Brokerage Services
acted as broker for the purchase of such shares on the open market; and (iii) on
November 17, 1999, the Non Exempt Trust for the benefit of Mr. Gleason under
Article Third (F) of the Trust Under Agreement, dated March 8, 1989, with
Lawrence C. Gleason, a trust formed under the laws of New York, sold 654 shares
of Common Stock at $17.1875 per share on the NYSE.
Since the commencement of the Company's second full fiscal year preceding
the date of this Offer to Purchase, certain additional purchases of Common Stock
were made by the Company and the Company's executive officers and directors as
set forth on Schedule I attached hereto.
In 1997, the Company used approximately $1.35 million in cash to repurchase
shares of its Common Stock under a program authorized by the Board in July 1996.
In 1998, the Company used $10.2 million to repurchase 583,200 shares of Common
Stock. In the first nine months of 1999, the Company used $7.2 million to
repurchase 432,700 shares of Common Stock. In October 1998, the Board authorized
the repurchase of up to 10% of the outstanding shares of Common Stock, of which
317,134 shares remained available for purchase as of September 30, 1999.
In December 1997, a stock offering for the sale of 1,724,484 shares of
Common Stock at an offering price of $25.25 per Share was completed by the
Company. The sale consisted of 770,104 Shares sold by The Retirement Plan of The
Gleason Works, 494,380 Shares sold by the Foundation and 460,000 Shares sold by
the Company. The net proceeds to the Company from such sale were $11.0 million.
As set forth in this Offer to Purchase, pursuant to the Letter Agreements,
the Continuing Stockholders have agreed not to tender any of the shares of
Common Stock beneficially owned by them or any Option Shares issuable upon the
exercise of Company Options owned by them pursuant to the Offer. Similarly,
pursuant to the Foundation Agreement, the Foundation has agreed not to tender
any of the Shares owned by it pursuant to the Offer. The Company currently
expects that each of the directors of the Company (other than Messrs. Gleason
and Burns) intend to tender all Shares beneficially owned by him pursuant to the
Offer.
Except as set forth in this Offer to Purchase, neither the Company nor, to
the Company's knowledge, any of its affiliates, directors or executive officers
or any person controlling the Company, is a party to any contract, arrangement,
understanding or relationship with any other person relating, directly or
indirectly, to, or in connection with, the Offer with respect to any securities
of the Company (including, without limitation, any contract, arrangement,
understanding or relationship concerning the transfer or the voting of any such
securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies, consents or authorizations). Except as described in this Offer to
Purchase, since the Company's second full fiscal year preceding the date of this
Offer to Purchase, no contracts or negotiations concerning a merger,
consolidation, or acquisition, a tender offer for or other acquisition of any
securities of the Company, an election of directors of the Company, or a sale or
other transfer of a material amount of assets of the Company, has been entered
into or has occurred between any affiliates of the Company or between the
Company or any of its affiliates and any unaffiliated person.
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<PAGE>
CERTAIN EFFECTS OF THE TRANSACTIONS
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and will reduce the number of holders
of Shares and could adversely affect the liquidity and market value of the
remaining Shares held by the public.
Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the NYSE for continued listing on
the NYSE and may, therefore, be delisted therefrom. According to the NYSE's
published guidelines, the NYSE may delist the Shares if, among other things: (i)
the number of total stockholders falls below 400; (ii) the number of total
stockholders falls below 1,200 and the average monthly trading volume is less
than 100,000 shares (for the most recent 12 months); (iii) the number of
publicly held Shares (exclusive of Shares held by officers and directors of the
Company and their immediate families and other concentrated holdings of 10% or
more ("Excluded Holders")) should fall below 600,000; or (iv) the aggregate
market value of such publicly held Shares (exclusive of the Excluded Holders)
should fall below $8 million. If, as a result of the purchase of Shares pursuant
to the Offer, the Shares no longer meet the requirements of the NYSE for
continued listing and the listing of the Shares is discontinued, the market for
the Shares could be adversely affected.
If the NYSE were to delist the Shares, it is possible that the Shares would
continue to trade on other securities exchanges or in the over-the-counter
market and that price quotations for the Shares would be reported by such
exchanges or through the National Association of Securities Dealers Automated
Quotation System or other sources. The extent of the public market for the
Shares and the availability of such quotations would depend, however, upon such
factors as the number of holders of such Shares remaining at such time, the
interest in maintaining a market in the Shares on the part of securities firms,
the possible termination of registration of such Shares under the Exchange Act
as described below, and other factors.
The Shares are currently "margin securities" as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing brokers
to extend credit on the collateral of the Shares. Depending upon factors similar
to those described above regarding listing and market quotations, following
consummation of the Offer it is possible that the Shares may no longer
constitute "margin securities" for purposes of the margin regulations of the
Federal Reserve Board, in which event such Shares could no longer be used as
collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are neither listed on a national
securities exchange nor held by 300 or more holders of record. Termination of
registration of the Shares under the Exchange Act would substantially reduce the
information required to be furnished by the Company to its stockholders and to
the Commission and would make certain provisions of the Exchange Act no longer
applicable to the Company, such as the short-swing profit recovery provisions of
Section 16(b), the requirement of furnishing a proxy statement in connection
with stockholders' meetings pursuant to Section 14(a) and the requirements of
Rule 13e-3 with respect to "going private" transactions. Furthermore, the
ability of "affiliates" of the Company and persons holding "restricted
securities" of the Company to dispose of such securities pursuant to Rule 144 or
Rule 144A promulgated under the Securities Act of 1933, as amended, may be
impaired or eliminated.
THE COMPANY MAY, DEPENDING ON THE NUMBER OF SHARES OUTSTANDING FOLLOWING THE
OFFER, MAKE AN APPLICATION FOR THE TERMINATION OF THE LISTING OF THE SHARES ON
THE NYSE AND OF THE REGISTRATION OF THE SHARES UNDER THE EXCHANGE ACT AS SOON AS
POSSIBLE AFTER THE COMPLETION OF THE OFFER IF THE REQUIREMENTS FOR SUCH
TERMINATION ARE MET. IF THE NYSE LISTING AND THE EXCHANGE ACT REGISTRATION OF
THE SHARES ARE NOT TERMINATED PRIOR TO THE MERGER, THEN THE LISTING OF THE
SHARES ON THE NYSE AND THE REGISTRATION OF THE SHARES UNDER THE EXCHANGE ACT
WILL BE TERMINATED FOLLOWING THE CONSUMMATION OF THE MERGER.
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<PAGE>
THE OFFER
TERMS OF THE OFFER
Upon the terms and subject to the conditions set forth in the Offer
(including, if the Offer is extended or amended, the terms and conditions of
such extension or amendment), Acquisition Company will accept for payment and
pay for the first 2,318,126 Shares validly tendered, and the Company will accept
for payment and pay for the remaining Shares validly tendered, prior to the
Expiration Date (as defined herein) and not properly withdrawn in accordance
with "--Withdrawal Rights." The term "Expiration Date" shall mean 12:00
Midnight, New York City time, on January 27, 2000, unless and until Acquisition
Company, in its sole discretion (and, at the direction of Acquisition Company,
the Company in accordance with the terms of the Merger Agreement), shall have
extended the period of time during which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date at which the Offer,
as so extended by Acquisition Company (and, at the direction of Acquisition
Company, the Company) shall expire. Except as otherwise set forth in this Offer
to Purchase, Acquisition Company, after consulting with the Company (acting
through the Special Committee), shall make all determinations with respect to
the terms and conditions (including, without limitation, with respect to the
satisfaction or waiver of conditions) of the Offer, provided, that Acquisition
Company shall not (i) decrease the Offer Price or change the form of
consideration payable pursuant to the Offer (other than by adding
consideration), (ii) decrease the number of Shares sought, (iii) waive the
Minimum Condition or the condition set forth in subparagraph (f) under
"--Conditions to the Offer" below, (iv) impose any additional conditions or
amend any other term or condition of the Offer (other than by increasing the
Offer Price) or (v) extend the expiration date of the Offer beyond March 15,
2000, in each case without the prior written consent of the Company (acting
through the Special Committee). Notwithstanding the foregoing, if all conditions
to the Offer have not been satisfied or waived on the Expiration Date,
Acquisition Company may, in its sole discretion (and, at the direction of
Acquisition Company, the Company shall), extend the Offer for additional
periods; PROVIDED, HOWEVER, that Acquisition Company may not extend the Offer
beyond March 15, 2000, without the prior written consent of the Company (acting
through the Special Committee).
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition and the Financing Condition. Such conditions and the other
conditions set forth in "--Conditions to the Offer" below are for the sole
benefit of Acquisition Company and the Company, and Acquisition Company and the
Company have agreed that all determinations with respect to the satisfaction or
waiver of such conditions shall be made by Acquisition Company on its behalf and
on behalf of the Company. If either the Minimum Condition or the Financing
Condition is not satisfied or if any or all of the other events set forth in
"--Conditions to the Offer" below shall have occurred or shall be determined in
good faith by Acquisition Company to have occurred prior to the acceptance of
Shares for payment pursuant to the Offer, neither of the Purchasers shall be
required to accept for payment or, subject to the applicable rules of the
Commission, including Rule 14e-1(c) under the Exchange Act (relating to the
obligation of Acquisition Company and the Company to pay for, or return tendered
Shares promptly after termination or withdrawal of the Offer), pay for any
Shares pursuant to the Offer, and Acquisition Company may delay its and the
Company's acceptance for payment of or, subject to the restriction referred to
above, its and the Company's payment for, any tendered Shares, and, subject to
the provisions of the Merger Agreement, Acquisition Company may amend or
terminate the Offer and not accept and cause the Company not to accept for
payment any tendered Shares.
Notwithstanding any other provision of the Offer, subject to the provisions
of the Merger Agreement, the Company shall not be required to accept for payment
or, subject to any applicable rules and regulations of the Commission, including
Rule 14e-1(c) under the Exchange Act (relating to the obligation of the Company
to pay for, or return tendered Shares promptly after termination or withdrawal
of the Offer), pay for any Shares pursuant to the Offer, and the Company may
delay its acceptance for payment of or, subject to the restriction referred to
above, its payment for, any tendered Shares, and, subject to the provisions of
the Merger Agreement, the Company may amend or terminate the Offer and not
accept for payment any tendered Shares, if the Unit Purchase shall not have
occurred or if the Company is not
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<PAGE>
reasonably satisfied that the proceeds from the Unit Purchase will be promptly
deposited with the Depositary following the Expiration Date. The foregoing
condition is for the sole benefit of the Company and may be waived by the
Company.
Any extension, delay, termination, waiver or amendment of the Offer will be
followed as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 13e-4(e) and 14e-1
under the Exchange Act, which require that material changes be promptly
disseminated to stockholders in a manner reasonably calculated to inform them of
such changes) and without limiting the manner in which the Purchasers may choose
to make any public announcement, the Purchasers have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a press release to the Dow Jones News Service.
If the Purchasers are delayed in their payment for the Shares or are unable
to pay for Shares pursuant to the Offer for any reason, then, without prejudice
to the Purchasers' rights under the Offer, the Depositary may retain tendered
Shares on behalf of the Purchasers, and such Shares may not be withdrawn except
to the extent tendering stockholders are entitled to withdrawal rights as
described in "--Withdrawal Rights." However, the ability of the Purchasers to
delay the payment for Shares which the Purchasers have accepted for payment is
limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder
pay the consideration offered or return the securities deposited by, or on
behalf of, holders of securities promptly after the termination or withdrawal of
the Offer.
If the Purchasers make a material change in the terms of the Offer or the
information concerning the Offer or waive a material condition of the Offer, the
Purchasers will extend the Offer to the extent required by Rules 13e-3(e),
13e-4(e), 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum
period during which the Offer must remain open following material changes in the
terms of the Offer or information concerning the Offer, other than a change in
price or a change in percentage of securities sought, will depend upon the facts
and circumstances then existing, including the relative materiality of the
changed terms or information. In a public release, the Commission has stated its
view that an offer must remain open for a minimum period of time following a
material change in the terms of the Offer and that waiver of a material
condition is a material change in the terms of the Offer. The release states
that an offer should remain open for a minimum of five business days from the
date a material change is first published, sent or given to security holders and
that, if material changes are made with respect to information not materially
less significant than the offer price and the number of shares being sought, a
minimum of 10 business days may be required to allow for adequate dissemination
to stockholders and investor response. As used in this Offer to Purchase,
"business day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
The requirement to extend the Offer will not apply to the extent that the number
of business days remaining between the occurrence of the change and the
then-scheduled Expiration Date equals or exceeds the minimum extension period
that would be required because of such amendment. If, prior to the Expiration
Date, the Purchasers increase the consideration offered to holders of Shares
pursuant to the Offer, such increased consideration will be paid to all holders
whose Shares are purchased in the Offer whether or not such Shares were tendered
prior to such increase.
The Company has provided Acquisition Company with the Company's stockholder
list and security position listings for the purpose of disseminating the Offer
to holders of Shares. This Offer to Purchase, the related Letter of Transmittal
and other relevant materials will be mailed to record holders of Shares whose
names appear on the Company's stockholder list and will be furnished to brokers,
dealers, commercial banks, trust companies or similar persons whose names, or
the names of whose nominees, appear on the stockholder list or, if applicable,
who are listed as participants in a clearing agency's security position listing.
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<PAGE>
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the Purchasers will purchase, by accepting for payment, and will pay
for, as soon as practicable after the Expiration Date, all Shares validly
tendered prior to the Expiration Date and not properly withdrawn in accordance
with "--Withdrawal Rights," with Acquisition Company accepting for payment and
paying for the first 2,318,126 Shares validly tendered and the Company accepting
for payment and paying for all Shares validly tendered in excess of such
2,318,126 Shares. Subject to applicable rules of the Commission and the Merger
Agreement, the Purchasers expressly reserve the right, in Acquisition Company's
sole discretion, to delay acceptance for payment of, or payment for, Shares in
order to comply in whole or in part with any applicable law. See "--Conditions
to the Offer."
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) the certificates
evidencing such Shares or a timely Book Entry Confirmation (as defined herein)
with respect thereto, (ii) the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message (as defined
herein), and (iii) any other documents required by the Letter of Transmittal.
For purposes of the Offer, the Purchasers will be deemed to have accepted
for payment and thereby purchased Shares properly tendered to the Purchasers and
not withdrawn, if, as and when the Purchasers give oral or written notice to the
Depositary of the Purchasers' acceptance of such Shares for payment pursuant to
the Offer. In all cases, payment for Shares accepted pursuant to the Offer will
be made by deposit of the purchase price therefor with the Depositary, which
will act as agent for tendering stockholders for the purpose of receiving
payments from the Purchasers and transmitting payments to tendering
stockholders.
If any tendered Shares are not accepted for payment pursuant to the Offer
for any reason, or if certificates submitted represent more Shares than are
tendered, certificates for Shares not purchased or tendered will be returned to
the tendering stockholder without expense to the tendering stockholder, or such
other person as the tendering stockholder shall specify in the Letter of
Transmittal, as promptly as practicable following the expiration, termination or
withdrawal of the Offer. In the case of Shares tendered by book-entry transfer
into the Depositary's account at the Book-Entry Transfer Facility (as defined
below) pursuant to the procedures set forth in "--Procedures for Tendering
Shares," such Shares will be credited to such account maintained at the
Book-Entry Transfer Facility as the tendering stockholder shall specify in the
Letter of Transmittal, as promptly as practicable following the expiration,
termination or withdrawal of the Offer. If no such instructions are given with
respect to Shares delivered by book-entry transfer, any such Shares not tendered
or not purchased will be returned by crediting the account at the Book-Entry
Transfer Facility designated in the Letter of Transmittal as the account from
which such Shares were delivered.
If, prior to the Expiration Date, the Purchasers shall increase the
consideration to be paid per Share pursuant to the Offer, the Purchasers shall
pay such increased consideration for all such Shares purchased pursuant to the
Offer, whether or not such Shares were tendered prior to such increase in
consideration.
Subject to the terms of the Merger Agreement, the Purchasers reserve the
right to transfer or assign, in whole at any time or in part from time to time,
to one or more affiliates of either of the Purchasers, the right to purchase all
or any portion of the Shares tendered pursuant to the Offer, but any such
transfer or assignment will not relieve the Purchasers of their obligations
under the Offer and will in no way prejudice the rights of tendering
stockholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
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<PAGE>
PROCEDURES FOR TENDERING SHARES
VALID TENDER. For Shares to be validly tendered pursuant to the Offer, the
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message, and any other required documents, must be received
by the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date. In addition, either (i) the
certificates evidencing tendered Shares along with the Letter of Transmittal
must be received by the Depositary or Shares must be tendered pursuant to the
procedures for book-entry transfer set forth below and a Book-Entry Confirmation
must be received by the Depositary, in each case prior to the Expiration Date,
or (ii) the tendering stockholder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE
CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two (2) business days after the date
of this Offer to Purchase. Any financial institution that is a participant in
the Book-Entry Transfer Facility's system may make book-entry delivery of Shares
by causing the Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account in accordance with such Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Shares may be effected
through book-entry transfer into the Depositary's account at the Book-Entry
Transfer Facility, the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message, and any other required documents must, in any case, be
transmitted to and received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date, or the
tendering stockholder must comply with the guaranteed delivery procedures
described below. DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY. SHARES WILL BE DEEMED DELIVERED.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of the
confirmation of a book-entry transfer of Shares into the Depositary's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation"), which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the participant in the Book-Entry Transfer Facility tendering the Shares
that such participant has received and agrees to be bound by the terms of the
Letter of Transmittal and that the Purchasers may enforce such agreement against
such participant.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a participant in the Security Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee Program or the Stock
Exchange Medallion Program (each, an "Eligible Institution"), unless (i) the
Letters of Transmittal are signed by the registered holder(s) of Shares, which
term, for the purposes of this document, shall include any participant in the
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Shares) tendered hereby and such holder(s) has (have) not
completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" on the Letters of Transmittal or (ii) if
such Shares are tendered for the account of an Eligible Institution.
If the certificates for Shares are registered in the name of a person other
than the signer of the Letter of Transmittal, or if payment is to be made, or
certificates for Shares not tendered or not accepted for payment or not tendered
are to be returned to a person other than the registered holder of the
certificates
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<PAGE>
surrendered, then the tendered certificates for such Shares must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name or names of the registered holders or owners appear on the certificates,
with the signatures on the certificates or stock powers guaranteed as described
above. See Instructions 1 and 5 to the Letter of Transmittal.
GUARANTEED DELIVERY. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such Shares may nevertheless be
tendered if all of the following conditions are met:
(i) the tender is made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Depositary receives a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in
the form provided by the Purchasers herewith; and
(iii) in the case of a guarantee of Shares, the certificates for (or a
Book-Entry Confirmation with respect to) such Shares, in proper form for
transfer, together with a properly completed and duly executed Letter of
Transmittal or facsimile thereof, with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message, and any other
required documents, are received by the Depositary within three NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery. An
"NYSE trading day" is any day on which the NYSE is open for business.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
BINDING AGREEMENT. The Purchasers' acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Purchasers upon the terms and subject to the
conditions of the Offer.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by Acquisition Company, in its sole discretion, which determination
will be final and binding. Acquisition Company reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of Acquisition Company's counsel, be unlawful. Acquisition Company
also reserves the absolute right, in its sole discretion, subject to the
provisions of the Merger Agreement, to waive any conditions of the Offer or any
defect or irregularity in any tender of Shares, whether or not similar defects
or irregularities are waived in the case of other stockholders. No tender of
Shares will be deemed to have been validly made until all defects or
irregularities relating thereto have been cured or waived.
Subject to the terms of the Merger Agreement, Acquisition Company's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the instructions thereto) will be final and binding. None of the
Purchasers, the Depositary, the Information Agent or any other person will be
under any duty to give notification of any defects or irregularities in tenders
or will incur any liability for failure to give any such notification.
APPOINTMENT. By executing the Letter of Transmittal as set forth above
(including delivery through an Agent's Message), the tendering stockholder
irrevocably appoints designees of Acquisition Company as such stockholder's
attorneys-in-fact and proxies in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of such
stockholder's rights with respect to the Shares tendered thereby and accepted
for payment by the Purchasers and with respect to any and all non-cash
dividends, distributions, rights, other Shares or other securities issued or
issuable in respect of such purchased Shares (collectively, "Distributions").
All such proxies will be considered coupled with an interest in the tendered
Shares. Such appointment will be effective if, when, and only to the extent that
the
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Purchasers accept such Shares for payment pursuant to the Offer. All such powers
of attorney and proxies will be irrevocable and will be deemed granted in
consideration of the acceptance for payment by the Purchasers of Shares tendered
in accordance with the terms of the Offer. Upon such acceptance for payment, all
prior powers of attorney, proxies and consents given by such stockholder with
respect to such Shares (and any and all Distributions) will, without further
action, be revoked and no subsequent powers of attorney, proxies, consents or
revocations may be given by such stockholder (and, if given, will not be deemed
effective). The designees of the Purchasers will thereby be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion deem proper at any annual or special meeting of the Company's
stockholders, or any adjournment or postponement thereof or otherwise in such
manner as each such attorney-in-fact and proxy or his substitute shall in his
sole discretion deem proper with respect to, to execute any written consent
concerning any matter as each such attorney-in-fact and proxy or his substitute
shall in his sole discretion deem proper with respect to, and to otherwise act
as each such attorney-in-fact and proxy or his substitute shall in his sole
discretion deem proper with respect to, all of the Shares (and any and all
Distributions) tendered hereby and accepted for payment by the Purchasers by
written consent or otherwise and the Purchasers reserve the right to require
that, in order for Shares (or other Distributions) to be deemed validly
tendered, immediately upon the Purchasers' acceptance for payment of such
Shares, the Purchasers must be able to exercise full voting, consent and other
rights with respect to such Shares (and any and all Distributions), including
voting at any meeting of the Company's stockholders, provided that such
requirement shall not apply to Shares purchased by the Company with respect to
any record date for the determination of stockholders entitled to vote which is
set after the date of purchase of Shares by the Company.
BACKUP WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH
RESPECT TO PAYMENT OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE
OFFER, A TENDERING STOCKHOLDER, OR ITS ASSIGNEE (IN EITHER CASE, THE "PAYEE"),
MUST PROVIDE THE DEPOSITARY WITH SUCH STOCKHOLDER'S CORRECT TAXPAYER
IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT SUBJECT TO BACKUP
FEDERAL INCOME TAX WITHHOLDING BY COMPLETING AND SIGNING THE SUBSTITUTE FORM W-9
PROVIDED IN THE LETTER OF TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH
RESPECT TO A STOCKHOLDER, THE DEPOSITARY IS REQUIRED TO WITHHOLD AND DEPOSIT
WITH THE INTERNAL REVENUE SERVICE 31% OF ANY PAYMENTS MADE TO SUCH STOCKHOLDER.
SEE INSTRUCTION 10 TO THE LETTER OF TRANSMITTAL.
WITHDRAWAL RIGHTS
Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares may be withdrawn at any time prior to the Expiration Date and, unless
theretofore accepted for payment and paid for by the Purchasers pursuant to the
Offer, may also be withdrawn at any time after February 11, 2000, or at such
later time as may apply if the Offer is extended.
If the Purchasers extend the Offer, are delayed in their acceptance for
payment of, or payment for, Shares or are unable to accept for payment or pay
for Shares pursuant to the Offer for any reason, then, without prejudice to the
Purchasers' rights under the Offer, the Depositary may, nevertheless, on behalf
of the Purchasers, retain tendered Shares, and such Shares may not be withdrawn
except to the extent tendering stockholders are entitled to exercise, and duly
exercise, withdrawal rights as described herein. Any such delay will be by an
extension of the Offer to the extent required by law. UNDER NO CIRCUMSTANCES
WILL INTEREST ON THE PURCHASE PRICE OF SHARES BE PAID BY THE PURCHASERS,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING PAYMENT.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If the certificates for the Shares to be withdrawn have been delivered
or otherwise identified to the Depositary, then, prior to the physical release
of such certificates, the serial numbers shown on such certificates must be
submitted to the Depositary and, unless
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<PAGE>
such Shares have been tendered for the account of an Eligible Institution, the
signatures on the notice of withdrawal must be guaranteed by an Eligible
Institution. If Shares have been tendered pursuant to the procedures for
book-entry transfer as set forth in "--Procedures for Tendering Shares," any
notice of withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares.
Any Shares properly withdrawn will thereafter be deemed not validly tendered
for purposes of the Offer. However, withdrawn Shares may be retendered by again
following one of the procedures described in "--Procedures for Tendering Shares"
at any time prior to the Expiration Date.
PRICE RANGE OF THE SHARES; DIVIDENDS
The Shares are listed and traded on the NYSE under the symbol "GLE". The
following table sets forth, for the quarters indicated, the high and low sales
prices per Share as reported on the Dow Jones News Service and the cash
quarterly dividends per Share.
<TABLE>
<CAPTION>
HIGH LOW DIVIDENDS
------------ ----------- ---------
<S> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1997*:
First Quarter............................................. $18 15/16 $16 1/8 $.0625
Second Quarter............................................ 23 1/4 15 9/16 .0625
Third Quarter............................................. 29 21/32 23 1/8 .0625
Fourth Quarter............................................ 29 1/4 24 5/16 .0625
FISCAL YEAR ENDED DECEMBER 31, 1998:
First Quarter............................................. 35 3/8 23 .0625
Second Quarter............................................ 35 1/2 27 .0625
Third Quarter............................................. 30 16 .0625
Fourth Quarter............................................ 23 1/4 14 1/4 .0625
FISCAL YEAR ENDED DECEMBER 31, 1999:
First Quarter............................................. 19 13/16 15 7/8 .0625
Second Quarter............................................ 21 1/4 16 3/16 .0625
Third Quarter............................................. 19 5/8 16 1/16 .0625
Fourth Quarter (through December 14, 1999)................ 23 5/8 16 5/8 .0625
</TABLE>
- ------------------------
* Adjusted to reflect a two-for-one stock split in September 1997.
On December 8, 1999, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the reported closing
price on the NYSE was $18 per Share. On December 14, 1999, the last full trading
day prior to the commencement of the Offer, the reported closing price per Share
on the NYSE was $23 1/2. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR THE SHARES.
Under the terms of the Merger Agreement, neither the Company nor any of its
subsidiaries shall declare, set aside or pay dividend or other distribution with
respect to the Common Stock (other than regular quarterly dividends not in
excess of $.0625 per share of Common Stock made in the ordinary course
consistent with past practice or dividends from any subsidiary of the Company to
the Company or any other subsidiary of the Company) without the prior written
consent of Acquisition Company. The Company does not presently intend to pay any
further dividends with respect to the Shares, assuming consummation of the
Offer.
EFFECT OF THE TRANSACTIONS ON THE MARKET FOR THE SHARES; EXCHANGE ACT
REGISTRATION
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares
and could adversely affect the liquidity and market value of the remaining
Shares held by the public and have other consequences with respect to NYSE
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<PAGE>
listing, Exchange Act registration and availability of margin credit. See
"SPECIAL FACTORS--Certain Effects of the Transactions."
CERTAIN INFORMATION CONCERNING THE COMPANY
GENERAL. The information concerning the Company contained in this Offer to
Purchase, including that set forth below under the caption "Selected
Consolidated Financial Information," has been furnished by the Company or has
been taken from or based upon publicly available documents and records on file
with the Commission and other public sources. None of Acquisition Company,
Merger Subsidiary or the Information Agent assumes responsibility for the
accuracy or completeness of the information concerning the Company contained in
such documents and records or for any failure by the Company to disclose events
which may have occurred or may affect the significance or accuracy of any such
information but which are unknown to Acquisition Company, Merger Subsidiary or
the Information Agent.
The Company is a Delaware corporation with its principal executive offices
located at 1000 University Avenue, P.O. Box 22970, Rochester, New York 14692.
The Company's principal business activity is the development, manufacture and
sale of gear production machinery and related equipment. The gears produced by
the Company's machines are used in drive trains of automobiles, sport utility
vehicles, trucks, buses, aircraft, marine, agricultural and construction
machinery. The Company has manufacturing operations in Rochester, New York;
Rockford, Illinois; Plymouth, England; Munich and Ludwigsburg, Germany;
Bangalore, India; and Biel, Switzerland, and has sales and service offices
throughout the United States and Europe and in the Asia-Pacific region.
Certain information concerning the directors and executive officers of the
Company is set forth in Schedule I hereto.
AVAILABLE INFORMATION. The Company is subject to the informational filing
requirements of the Exchange Act and is required to file reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Information as of particular dates
concerning the Company's directors and officers, their remuneration, options
granted to them, the principal holders of the Company's securities and any
material interests of such persons in transactions with the Company is required
to be disclosed in proxy statements distributed to the Company's stockholders
and filed with the Commission. These reports, proxy statements and other
information should be available for inspection at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of this material may also be
obtained by mail, upon payment of the Commission's customary fees, from the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains a website on the internet at http://www.sec.gov
that contains reports, proxy statements and other information relating to the
Company which have been filed via the Commission's EDGAR System.
HISTORICAL FINANCIAL INFORMATION. Set forth below is certain summary
consolidated financial information with respect to the Company and its
subsidiaries excerpted or derived from the audited financial statements
contained in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 and its unaudited Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999, each as filed with the Commission pursuant to
the Exchange Act.
More comprehensive financial information and other information is included
in such reports and in other documents filed by the Company with the Commission.
The following summary is qualified in its entirety by reference to such reports
and other documents and all of the financial information and related notes
contained therein. Such reports, documents and financial information may be
inspected and copies may be obtained from the Commission in the manner set forth
above.
57
<PAGE>
GLEASON CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
SEPTEMBER 30, 1999 -------------------------
(UNAUDITED) 1998 1997
------------------------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................. $ 246,611 $ 409,326 $ 338,673
Cost of products sold..................... 168,909 280,109 233,495
Selling, general and administrative
expenses................................ 55,083 72,761 58,603
Research and development expenses......... 6,593 10,558 8,139
Restructuring costs....................... 1,200 -- --
Loss on settlement of pension plan........ -- 2,031 --
Interest expense, net..................... 662 979 1,127
Other (income), net....................... (1,287) (384) (870)
--------- ---------- ----------
Income before income taxes................ 15,451 43,272 38,179
Provision for income taxes................ 6,465 17,155 14,084
--------- ---------- ----------
Net income................................ $ 8,986 $ 26,117 $ 24,095
========= ========== ==========
Earnings per common share
Basic................................... $ 0.93 $ 2.52 $ 2.41
Diluted................................. 0.90 2.43 2.32
Weighted average number of common shares
outstanding:
Basic................................... 9,687,252 10,358,854 9,978,569
Diluted................................. 9,938,302 10,737,697 10,382,628
Cash dividends declared................... $ 0.1875 $ 0.25 $ 0.25
Book value per share...................... 13.37 12.87 10.96
Ratio of earnings to fixed charges........ 8.67x 15.74x 43.17x
</TABLE>
58
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, 1999 -------------------
(UNAUDITED) 1998 1997
------------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assets
Current assets
Cash and equivalents.................................. $ 7,474 $ 13,229 $ 12,478
Trade accounts receivable............................. 78,201 89,095 101,024
Inventories........................................... 76,380 58,614 55,991
Other current assets.................................. 15,314 16,094 13,367
-------- -------- --------
Total current assets.................................... 177,369 177,032 182,860
Property, plant and equipment, net...................... 125,723 132,322 124,373
Goodwill................................................ 18,558 16,682 18,036
Other assets............................................ 14,508 14,433 20,384
-------- -------- --------
Total assets............................................ $336,158 $340,469 $345,653
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings................................. $ 7,380 $ 1,853 $ 5,760
Current portion of long-term debt..................... 318 8 1,613
Trade accounts payable................................ 28,175 33,421 30,810
Income taxes.......................................... 6,102 6,790 13,640
Other current liabilities............................. 63,412 62,485 70,614
-------- -------- --------
Total current liabilities............................... 105,387 104,557 122,437
Long-term debt.......................................... 24,363 28,906 38,244
Pension plans and other retiree benefits................ 65,856 66,163 60,235
Other liabilities....................................... 12,397 12,872 10,516
-------- -------- --------
Total liabilities....................................... $208,003 $212,498 $231,432
-------- -------- --------
Stockholders' equity
Preferred Stock, par value $1.00 per share; 500,000
shares authorized, none issued
Common Stock, par value $1.00 per share; 20,000,000
shares authorized, 11,594,140 shares issued at
September 30, 1999 and December 31, 1998 and 1997,
respectively.......................................... 11,594 11,594 11,594
Additional paid-in capital............................ 11,914 12,443 12,061
Retained earnings..................................... 138,488 131,323 107,797
Accumulated other comprehensive income................ (6,059) (5,688) (4,790)
-------- -------- --------
155,937 149,672 126,662
Less treasury stock of 2,007,961 shares at
September 30, 1999 and 1,650,899 shares and
1,169,313 shares at December 31, 1998 and 1997,
respectively, at cost............................... 27,782 21,701 12,441
-------- -------- --------
Total stockholders' equity.............................. 128,155 127,971 114,221
-------- -------- --------
Total liabilities and stockholders' equity.............. $336,158 $340,469 $345,653
======== ======== ========
</TABLE>
59
<PAGE>
CERTAIN PROJECTIONS. Certain sets of Projections of the Company's future
operating performance were prepared by management in August through December
1999. The Company does not as a matter of course make public forecasts as to
future operations and the Projections set forth below are included in this Offer
to Purchase only because such information was provided to Acquisition Company
and to its prospective lenders and to the Special Committee and its financial
and legal advisors as described below.
PROJECTIONS OF THIS TYPE ARE BASED ON ESTIMATES AND ASSUMPTIONS THAT ARE
INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC, INDUSTRY AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY
OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE PROJECTED RESULTS WOULD BE REALIZED OR THAT ACTUAL RESULTS
WOULD NOT BE SIGNIFICANTLY HIGHER OR LOWER THAN THOSE PROJECTED. IN ADDITION,
THE PROJECTIONS WERE PREPARED BY THE COMPANY NOT WITH A VIEW TO PUBLIC
DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
REGARDING PROJECTIONS AND FORECASTS AND ARE INCLUDED IN THIS OFFER TO PURCHASE
ONLY BECAUSE SUCH INFORMATION WAS FURNISHED TO ACQUISITION COMPANY. THE
INCLUSION OF THIS INFORMATION SHOULD NOT BE REGARDED AS AN INDICATION THAT
ANYONE WHO RECEIVED THIS INFORMATION CONSIDERED IT A RELIABLE PREDICTOR OF
FUTURE OPERATING RESULTS AND THIS INFORMATION SHOULD NOT BE RELIED UPON AS SUCH.
THE PROJECTIONS ARE BASED UPON A VARIETY OF ASSUMPTIONS RELATING TO THE
BUSINESSES OF THE COMPANY WHICH, ALTHOUGH CONSIDERED REASONABLE BY THE COMPANY,
MAY NOT BE REALIZED, AND ARE SUBJECT TO SIGNIFICANT UNCERTAINTIES AND
CONTINGENCIES, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. NONE OF THE
PURCHASERS, THE SPECIAL COMMITTEE OR ANY OTHER PERSON OR PARTY ASSUMES
RESPONSIBILITY FOR THE ACCURACY OR VALIDITY OF THE FOLLOWING PROJECTIONS.
In August 1999, the Company prepared projections which contemplated a
turnaround in the Company's business in the year 2000 and thereafter ("Case I").
A summary of Case I is as follows:
CASE I
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $364,415 $376,580 $394,020 $405,565 $416,030
Cost of products sold..................... 252,428 261,743 270,130 275,031 280,711
-------- -------- -------- -------- --------
Gross margin.............................. 111,987 114,837 123,890 130,534 135,319
Selling, general and administrative
expenses................................ 75,109 75,337 74,158 74,868 74,959
Research and development expenses......... 8,838 8,820 10,496 10,578 10,660
Restructuring costs....................... 2,100 0 0 0 0
Interest expense (income), net............ 701 600 (300) (1,000) (2,000)
Other (income)............................ (1,336) (384) (384) (384) (384)
-------- -------- -------- -------- --------
Income before income taxes................ 26,574 30,464 39,921 46,472 52,084
Provision for income taxes................ 11,198 12,033 15,769 18,356 20,573
-------- -------- -------- -------- --------
Net income................................ $ 15,376 $ 18,430 $ 24,152 $ 28,115 $ 31,511
======== ======== ======== ======== ========
EBITDA.................................... $ 50,889 $ 54,830 $ 62,387 $ 67,338 $ 70,850
</TABLE>
The following are the material assumptions relating to the Case I
projections:
1. Sales growth of 3% to 5% per year across all major product lines
(machines, tools and aftermarket products and services) is assumed.
Growth is driven by new products and services and improved demand from
certain geographic markets, primarily Asia and South America, partially
offset by a reduction in the relative number of machines and tools
required to manufacture the equivalent level of gears (output) because of
recent technology advancements.
60
<PAGE>
Pricing was assumed to be held flat during the forecast period (as has
been the case for the Company in recent years).
2. Operating margins (earnings before interest and taxes divided by net
sales) increase from 7.7% in 1999 to 12% by 2003. Improvements in margins
are expected to come from manufacturing productivity savings and
increased fixed overhead absorption as a result of higher sales,
partially offset by increasing labor costs and inflation. Additional cost
savings are projected from the sale of the Company's Italian operations
and the related consolidation of these activities into other Gleason
operating units and savings from the global enterprise resource planning
("ERP") software project (assumed to begin implementation in 1999). These
projections also assume lower period costs associated with the
implementation of the ERP software in 2000 compared to 1999.
3. The Company's effective tax rate is forecasted to be 42.1% in 1999 and
39.5% thereafter. The higher 1999 rate results from losses in Italy and
Japan for which no tax benefits are expected to be recorded. No such
losses were forecasted in the succeeding years.
In September 1999, the Company prepared a conservative version of the
Company's financial projections ("Case II") which reflects sales for year 2000
based upon the Company's annualized rate of incoming orders over the preceding
nine-month period prior to the preparation of Case II (approximately
$340 million). Such projections assume economic conditions and the Company's
markets remain relatively unchanged from that position. A summary of Case II is
as follows:
CASE II
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
----------------------------------------------------
1999 2000 2001 2002 2003
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $364,415 $339,800 $353,253 $364,631 $380,186
Cost of products sold..................... 252,428 244,577 249,630 254,535 261,250
-------- -------- -------- -------- --------
Gross margin.............................. 111,987 95,223 103,623 110,096 118,936
Selling, general and administrative
expenses................................ 75,109 73,859 70,659 71,368 71,646
Research and development expenses......... 8,838 8,761 10,070 10,152 10,234
Restructuring costs....................... 2,100 4,850 0 0 0
Interest expense (income), net............ 701 600 (300) (1,000) (2,000)
Other (income)............................ (1,336) (384) (384) (384) (384)
-------- -------- -------- -------- --------
Income before income taxes................ 26,574 7,537 23,578 29,960 39,440
Provision for income taxes................ 11,198 2,977 9,313 11,834 15,579
-------- -------- -------- -------- --------
Net income................................ $ 15,376 $ 4,560 $ 14,265 $ 18,126 $ 23,861
======== ======== ======== ======== ========
EBITDA.................................... $ 50,889 $ 36,753 $ 46,044 $ 50,826 $ 58,206
</TABLE>
The following are the material assumptions relating to Case II:
1. The forecast for 1999 used in this case was the same as in Case I.
2. Sales levels for 2000 were based upon the annualized incoming order rate
over the preceding nine-month period prior to the preparation of Case II,
increasing 3% to 4% per year thereafter. The growth of 3% to 4% per year
was assumed across all major product lines (machines, tools and
aftermarket products and services). Growth is driven by new products and
services and improved demand from certain geographic markets, primarily
Asia and South America, partially offset by a reduction in the relative
number of machines and tools required to manufacture the equivalent level
of gears (output) because of recent technology advancements. A slight
decrease
61
<PAGE>
in unit pricing for a limited number of machines was forecasted; pricing
for all other products was assumed to be held constant.
3. Operating margins are forecasted to decrease to 3.7% in 2000 as a result
of a decline in sales. Margins increase each year thereafter up to a
level of 9.8% by 2003. Variable margins on products are assumed to be the
same as those in Case I with the exception of where price decreases were
forecasted. Because of the lower sales level assumed in 2000, a workforce
reduction of 180 persons with a restructuring cost of $4.9 million
(separately identified on the Operating Statement) is included in this
projection. Cost savings resulting from this workforce reduction totaling
$2.6 million in 2000 and $5.2 million in each year thereafter are
included in the forecast. Similar cost savings as disclosed in Case I
were included in this forecast. Additional spending in 2000 (compared to
Case I) of $1.8 million related to the Company's ERP project and its
intellectual property suit were included in this projection.
4. The Company's effective tax rate is forecasted to be 42.1% in 1999 and
39.5% thereafter. The higher 1999 rate results from losses in Italy and
Japan for which no tax benefits are expected to be recorded. No such
losses were forecasted in the succeeding years.
62
<PAGE>
In October 1999, at the request of one of the banks which Acquisition
Company and the Continuing Stockholders were considering as a potential lender
for the Transactions, the Company prepared a set of projections for fiscal year
2000 based on an economic recession (the "Recession Case"). A summary of the
Recession Case is as follows:
RECESSION CASE
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
-----------------------
1999 2000
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $364,415 $305,382
Cost of products sold....................................... 252,428 221,649
-------- --------
Gross margin................................................ 111,987 83,733
Selling, general and administrative expenses................ 75,109 68,582
Research and development expenses........................... 8,838 7,164
Restructuring costs......................................... 2,100 0
Interest expense (income), net.............................. 701 (200)
Other (income).............................................. (1,336) (384)
-------- --------
Income before income taxes.................................. 26,574 8,571
Provision for income taxes.................................. 11,198 3,385
-------- --------
Net income.................................................. $ 15,376 $ 5,185
======== ========
EBITDA...................................................... $ 50,889 $ 28,837
</TABLE>
The foregoing Recession Case is based on the following material assumptions:
1. Sales in 2000 assumes a significant decline in machine revenues and an
approximate 10% decline in sales across the tooling and aftermarket
product lines. Sales levels were based on pro forma sales (giving effect
to acquisitions made since such time) in the 1993/94 period (the last
global recession experienced by the Company) adjusted for product lines
added since that time and increased sales due to gains in market share
for certain products relative to those years. Pricing for machines was
assumed to decline 5% to 10% across the various models and pricing for
all other product lines was assumed to be held constant.
2. Operating margins are assumed to decrease sharply in 2000 because of
lower sales and price decreases. Cost savings are forecasted at
$4.1 million as a result of a workforce reduction of 310 persons.
Restructuring costs totaling $11.2 million in order to complete the cost
savings initiative are assumed but are not reflected in the operating
statement above. Incremental cost savings (compared to Case I) from
reductions in discretionary spending totaling $1.5 million are also
included in the forecast.
3. For purposes of this forecast, interest income in year 2000 should be
disregarded as such number was not reforecasted based on a recession
scenario.
In October and November 1999, as the Company undertook its annual budgeting
process, the Company updated its Projections for calendar years 1999 and 2000
(the "Updated Projections"). Management provided Bear Stearns with all of the
material information relating to the Updated Projections for
63
<PAGE>
calendar year 1999 and a copy of the Updated Projections for calendar year 2000.
A summary of the Updated Projections is as follows:
UPDATED PROJECTIONS
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
-----------------------
1999 2000
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $359,814 $364,075
Cost of products sold....................................... 248,832 253,271
-------- --------
Gross margin................................................ 110,982 110,804
Selling, general and administrative expenses................ 75,262 76,038
Research and development expenses........................... 8,481 8,855
Restructuring costs......................................... 2,100 --
Interest expense, net....................................... 842 600
Other (income).............................................. (1,378) (384)
-------- --------
Income before income taxes.................................. 25,675 25,696
Provision for income taxes.................................. 10,637 10,150
-------- --------
Net income.................................................. $ 15,038 $ 15,546
======== ========
EBITDA...................................................... $ 49,930 $ 50,062
</TABLE>
The following are the material assumptions relating to the Updated
Projections:
1. Sales forecast for 1999 was reduced from $364.4 million to
$359.8 million because of movement of machine shipments out of the 1999
year because of, among other things, shipping delays. Sales forecast for
2000 are based upon the expected incoming order rate for 1999. In
aggregate, no major changes in 2000 have been assumed in the markets and
regions the Company serves compared to 1999.
2. Operating margins were forecasted to decrease slightly to 7.6% compared
to 7.7% in the most recent forecast for 1999. Operating margins for 2000
were forecasted to be 7.2 % (somewhat lower than in 1999) because of
slightly lower gross margins resulting from greater discounting on
certain machine orders expected to ship in 2000.
3. The Company's effective tax rate was assumed to be 41.4% in 1999 and
39.5% in 2000.
4. There were no other material changes in this forecast compared to the
prior forecast.
In early December, the Company revised the Updated Projections (the "Revised
Updated Projections") based on more recent information regarding the shipments
expected for the remainder of 1999 and the completion of its annual budgeting
process for 2000. Management advised Bear Stearns of all the
64
<PAGE>
material differences between the Revised Updated Projections and the Updated
Projections and further advised Bear Stearns that these differences would be
reflected in management's final annual operating plan. The Revised Updated
Projections set forth below reflect the annual operating plan dated December 8,
1999. A summary of the Revised Updated Projections is as follows:
REVISED UPDATED PROJECTIONS
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
-----------------------
1999 2000
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................... $348,758 $379,320
Cost of products sold....................................... 240,521 262,103
-------- --------
Gross margin................................................ 108,237 117,217
Selling, general and administrative expenses................ 74,683 81,654
Research and development expenses........................... 8,395 8,066
Restructuring costs......................................... 2,100 0
Interest expense, net....................................... 853 262
Other (income).............................................. (1,316) (138)
-------- --------
Income before income taxes.................................. 23,522 27,373
Provision for income taxes.................................. 10,026 11,719
-------- --------
Net income.................................................. $ 13,496 $ 15,654
======== ========
EBITDA...................................................... $ 47,810 $ 52,066
</TABLE>
The following are the material assumptions relating to the Revised Updated
Projections:
1. Sales forecast for 1999 was reduced by approximately $11 million
from the most recent forecast because a number of machines (many of which
are new models) which were expected to be shipped in 1999 were being
delayed beyond the end of the year. The sales forecast for 2000 increased
accordingly because of the movement of these machines from 1999 to 2000.
In addition, the 2000 sales forecast was increased by another
approximately $4 million as the Company formally completed its planning
cycle for 2000.
2. Operating margins for 1999 were forecasted to be 7.2% compared to
7.6% in the most recent forecast. Margins were lower because of the lower
sales forecasted in the year. Operating margins for 2000 were forecasted
to be 7.3% compared to 7.1% in the most recent forecast. Operating
margins improved slightly because of the increased sales, partially
offset by higher spending, including higher costs associated with the
Company's ERP project because of implementation delays.
3. The Company's effective tax rate was assumed to be 42.6% in 1999
and 42.8% in 2000. The effective tax rate for 1999 was higher than the
most recent forecast because of a greater percentage of income is
projected to come from higher tax jurisdictions. The effective tax rate
in 2000 is higher than the most recent forecast because of larger
projected losses in the Company's Japanese subsidiary where no tax
benefit is reflected.
65
<PAGE>
CERTAIN INFORMATION CONCERNING VESTAR, ACQUISITION COMPANY, MERGER SUBSIDIARY
AND CERTAIN AFFILIATES
Acquisition Company, a Delaware limited liability corporation and a wholly
owned subsidiary of Vestar, was organized by Vestar for the sole purposes of
entering into the Merger Agreement and consummating the Transactions, including
making the Offer, and has conducted no activities to date other than those
incident to its formation, entering into the Merger Agreement and certain other
agreements contemplated thereby, and the commencement of the Offer. Vestar is
the sole managing member of Acquisition Company. Vestar Associates IV, L.P., a
Delaware limited partnership, is the sole general partner of Vestar, and Vestar
Associates Corporation IV, a Delaware corporation, is the sole general partner
of Vestar Associates IV, L.P. Each of Vestar, Vestar Associates IV, L.P. and
Vestar Associates Corporation IV are principally engaged in the business of
investing in securities.
Until immediately prior to the time Acquisition Company purchases Shares
pursuant to the Offer, it is not anticipated that Acquisition Company will have
any significant assets or liabilities or engage in any significant activities
other than those incident to its formation and capitalization and the
transactions contemplated by the Offer and the Merger.
Merger Subsidiary, a Delaware corporation and a wholly owned subsidiary of
Acquisition Company, was organized for the sole purpose of entering into the
Merger Agreement and consummating the Transactions, and has conducted no
activities to date other than those incident to its formation and entering into
the Merger Agreement.
The principal offices of each of Vestar, Acquisition Company and Merger
Subsidiary are located at 245 Park Avenue, 41(st) Floor, New York, New York
10167. The telephone number for each of Vestar, Acquisition Company and Merger
Subsidiary is (212) 351-1600.
Except as set forth in this Offer to Purchase, (i) none of Acquisition
Company, Merger Subsidiary, Vestar Associates IV, L.P., Vestar Associates
Corporation IV or, to the best knowledge of Acquisition Company, Merger
Subsidiary, Vestar Associates IV, L.P., Vestar Associates Corporation IV, any of
the persons listed on Schedule II hereto or any associate or majority owned
subsidiary of any of the foregoing, beneficially owns or has a right to acquire
any Shares or other equity securities of the Company, (ii) none of Acquisition
Company, Merger Subsidiary, Vestar Associates IV, L.P., Vestar Associates
Corporation IV or, to the best of knowledge of Acquisition Company, Merger
Subsidiary, Vestar Associates IV, L.P., Vestar Associates Corporation IV, any of
the other persons or entities referred to in clause (i) above, has effected any
transaction in the Shares or any other equity securities of the Company during
the past 60 days, (iii) none of Acquisition Company, Merger Subsidiary, Vestar
Associates IV, L.P., Vestar Associates Corporation IV or, to the best of
knowledge of Acquisition Company, Merger Subsidiary, Vestar Associates IV, L.P.,
Vestar Associates Corporation IV, any of the other persons or entities referred
to in clause (i) above, has any contract, arrangement, understanding or
relationship with any person with respect to any securities of the Company,
including but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any securities of the
Company, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss or the giving or withholding of proxies,
(iv) there have been no transactions which could require reporting under the
rules and regulations of the Commission between Acquisition Company, Merger
Subsidiary, Vestar Associates IV, L.P., Vestar Associates Corporation IV or, to
the best of knowledge of Acquisition Company, Merger Subsidiary, Vestar
Associates IV, L.P., Vestar Associates Corporation IV, any of the other persons
or entities referred to in clause (i) above, on the one hand, and the Company or
any of its executive officers, directors or affiliates, on the other hand, and
(v) there have been no contacts, negotiations or transactions between
Acquisition Company, Merger Subsidiary, Vestar Associates IV, L.P., Vestar
Associates Corporation IV or, to the best of knowledge of Acquisition Company,
Merger Subsidiary, Vestar Associates IV, L.P., Vestar Associates Corporation IV,
any of the other persons or entities referred to in clause (i) above, on the one
hand, and the Company or any of its subsidiaries or affiliates, on the other
hand, concerning a
66
<PAGE>
merger, consolidation, acquisition, tender offer or other acquisition of
securities, election of directors or a sale or other transfer of a material
amount of assets of the Company.
For certain other information concerning the directors and executive
officers of Vestar Associates Corporation IV, see Schedule II.
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, subject to the provisions
of the Merger Agreement, the Company shall not be required to accept for payment
or, subject to any applicable rules and regulations of the Commission, including
Rule 14e-1(c) under the Exchange Act (relating to the obligation of the Company
to pay for, or return tendered Shares promptly after termination or withdrawal
of the Offer), pay for any Shares pursuant to the Offer, and the Company may
delay its acceptance for payment of or, subject to the restriction referred to
above, its payment for, any tendered Shares, and, subject to the provisions of
the Merger Agreement, the Company may amend or terminate the Offer and not
accept for payment any tendered Shares, if the Unit Purchase shall not have
occurred or if the Company is not reasonably satisfied that the proceeds from
the Unit Purchase will be promptly deposited with the Depositary following the
Expiration Date. The foregoing condition is for the sole benefit of the Company
and may be waived by the Company.
The following conditions are for the sole benefit of Acquisition Company and
the Company, and Acquisition Company and the Company have agreed that all
determinations with respect to the satisfaction or waiver of the following
conditions shall be made by Acquisition Company on its behalf and on behalf of
the Company. Notwithstanding any other provisions of the Offer, subject to the
provisions of the Merger Agreement, other than the Company's agreement described
below to permit Acquisition Company to waive certain conditions on the Company's
behalf, neither Acquisition Company nor the Company shall be required to accept
for payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to the obligation of
Acquisition Company and the Company to pay for, or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
pursuant to the Offer, and Acquisition Company may delay its and the Company's
acceptance for payment of or, subject to the restriction referred to above, its
and the Company's payment for, any tendered Shares, and, subject to the
provisions of the Agreement, Acquisition Company may amend or terminate the
Offer and not accept and cause the Company not to accept for payment any
tendered Shares, if (i) any applicable waiting period or approval under the HSR
Act and any applicable foreign antitrust law, regulation or rule has not expired
or been terminated or obtained, (ii) the Minimum Condition has not been
satisfied, (iii) the Company has not received the proceeds of the Financing
contemplated by the Commitment Letter or other financing which is on terms
substantially similar to those set forth in the Commitment Letter sufficient to
finance (x) the purchase of such portion of the Shares which the Company is
agreeing to pay for and purchase pursuant to the Offer, (y) the payment of the
Merger Consideration pursuant to the Merger, and (z) the fees and expenses
required to be paid by the Company in connection with the transactions
contemplated by the Merger Agreement, or (iv) at any time on or after
December 8, 1999, and prior to the acceptance of Shares for payment pursuant to
the Offer, any of the following events shall occur:
(a) there shall be instituted or pending or threatened in writing by any
Governmental Authority any suit, action or proceeding which (i) seeks to
prohibit or impose any material limitations on Acquisition Company's or the
Continuing Stockholders' ownership or operation (or that of any of their
affiliates) of all or a material portion of the Company's business or assets,
(ii) seeks to compel Acquisition Company or any of its Subsidiaries or
affiliates or the Company to dispose of or hold separate any material portion of
the business or assets of the Company and its Subsidiaries, taken as a whole,
(iii) seeks to impose material limitations on the ability of either Acquisition
Company or the Company to, or render either Acquisition Company or the Company
unable to, accept for payment, pay for or purchase some or all of the Shares
pursuant to the Offer and the Merger, (iv) seeks to restrain or prohibit the
making or consummation of the
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Offer or the Merger or the performance of any of the transactions contemplated
by the Merger Agreement, (v) seeks to obtain from the Company any damages
(including damages against the Company's directors or officers for which they
may seek indemnification from the Company) that would reasonably be expected to
have a Company Material Adverse Effect or seeks to obtain a material amount of
damages from Acquisition Company or Merger Subsidiary, (vi) challenges the
acquisition by either Acquisition Company or the Company of any Shares pursuant
to the Offer, or (vii) seeks to impose material limitations on the ability of
Acquisition Company, the Continuing Stockholders or the Foundation effectively
to exercise full rights of ownership of the Shares including, without
limitation, the right to vote the Shares purchased by it on all matters properly
presented to the Company's stockholders;
(b) there shall have been any statute, rule, regulation, judgment, order or
injunction promulgated, entered, enforced, enacted or issued by any Governmental
Authority applicable to the Offer or the Merger other than the application of
the waiting period provision of the HSR Act to the Offer or the Merger which is
reasonably likely to result, directly or indirectly, in any of the consequences
referred to in clauses (i) through (vii) of paragraph (a) above;
(c) the representations and warranties of the Company set forth in the
Merger Agreement which are not qualified by "materiality" or "Company Material
Adverse Effect" shall not be true and accurate in all material respects, and the
representations and warranties that are qualified by "materiality" or "Company
Material Adverse Effect" shall not be true and accurate in all respects, in each
case as of the date of consummation of the Offer as though made on or as of such
date (except for those representations and warranties that address matters only
as of a particular date or only with respect to a specific period of time which
need only be true and accurate as of such date or with respect to such period),
or the Company shall have breached or failed to perform or comply in any
material respect with any obligation, agreement or covenant required by the
Merger Agreement to be performed or complied with by it and, with respect to any
such breach or failure to perform that is reasonably capable of being remedied
within the time periods set forth below, the breach or failure to perform is not
remedied prior to the earlier of (i) 10 days after Acquisition Company has
furnished the Company with written notice of such breach or failure to perform
or (ii) two business days prior to the date on which the Offer expires;
(d) the Merger Agreement shall have been terminated in accordance with its
terms;
(e) the Board or the Special Committee (i) shall withdraw, modify or change
its recommendation so that it is not in favor in the Merger Agreement, the Offer
or the Merger or shall have resolved to do any of the foregoing, (ii) shall have
recommended to the Company's stockholders an Acquisition Proposal or
(iii) shall terminate the Merger Agreement as provided under "SPECIAL
FACTORS--The Merger Agreement--No Solicitation" provisions of the Merger
Agreement;
(f) the Company shall not have received by the expiration date of the Offer
such certificates of officers of the Company and/or opinions of nationally
recognized valuation and/or appraisal firms (in form and substance reasonably
satisfactory to the Company) as the Special Committee and the Board may
reasonably require, substantially to the effect that the value of the Company's
assets shall exceed its liabilities following the consummation of the Offer and
the Merger and that the Offer and the Merger shall not impair the Company's
capital within the meaning of Section 160 of the DGCL or impair the ability of
the Company to pay its obligations as they come due; or
(g) there shall have occurred (i) any general suspension of trading in
securities on the NYSE, which suspension or limitation shall continue for at
least three consecutive trading days, (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States (whether
or not mandatory), (iii) a commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States that would reasonably be expected to have a material adverse impact on
the capital markets of the United States, (iv) any limitation (whether or not
mandatory) by any United States Governmental Authority on the extension of
credit generally by banks or other lending institutions, (v) a change in general
financial, bank or capital market conditions which
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materially and adversely affects the ability of financial institutions in the
United States to extend credit or syndicate loans, (vi) a decline of at least
30% in the Standard & Poor's 500 Index from the close of business on the date of
the Agreement, or (vii) in the case of any of the foregoing existing at the time
of the execution of the Agreement, a material acceleration or worsening thereof;
which, in the good faith judgment of Acquisition Company, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments for Shares.
The foregoing conditions are for the sole benefit of Acquisition Company and
the Company, and, subject to the provisions of the Merger Agreement, may be
waived by Acquisition Company on its behalf and on behalf of the Company. The
failure by Acquisition Company at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any right, and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
CERTAIN LEGAL MATTERS
GENERAL. Except as described herein, the Purchasers are not aware of any
license or regulatory permit that appears to be material to the business of the
Company and its subsidiaries, taken as a whole, that might be adversely affected
by the acquisition of Shares by the Purchasers pursuant to the Offer, the Merger
or otherwise or any approval or other action by any governmental, administrative
or regulatory agency or authority, domestic or foreign, that would be required
prior to the acquisition of Shares by the Purchasers pursuant to the Offer, the
Merger or otherwise. Should any such approval or other action be required, the
Purchasers presently contemplate that such approval or other action will be
sought, except as described below under "--State Antitakeover Statutes." While,
except as otherwise described in this Offer to Purchase, the Purchasers do not
presently intend to delay the acceptance for payment of, or payment for, Shares
tendered pursuant to the Offer pending the outcome of any such matter, there can
be no assurance that any such approval or other action, if needed, would be
obtained or would be obtained without substantial conditions or that failure to
obtain any such approval or other action might not result in consequences
adverse to the Purchasers' businesses or that certain parts of the Purchasers'
businesses might not have to be disposed of, or other substantial conditions
complied with, in the event that such approvals were not obtained or such other
actions were not taken or in order to obtain any such approval or other action.
If certain types of adverse action are taken with respect to the matters
discussed below, the Purchasers could decline to accept for payment, or pay for,
any Shares tendered. See "--Conditions to the Offer" for certain conditions to
the Offer, including conditions with respect to governmental actions.
STATE ANTITAKEOVER STATUTES. Section 203 of the DGCL, in general, prohibits
a Delaware corporation, such as the Company, from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers) with an
"Interested Stockholder" (defined generally as a person that is the beneficial
owner of 15% or more of the outstanding voting stock of the subject corporation)
for a period of three years following the date that such person became an
Interested Stockholder unless, prior to the date such person became an
Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder. The Company does not believe
that provisions of Section 203 of the DGCL are applicable to any of the
transactions contemplated by the Merger Agreement, since the Merger Agreement
and the transactions contemplated thereby were approved by the Board prior to
the execution thereof.
A number of states have adopted laws and regulations that purport to apply
to attempts to acquire corporations that are incorporated in such states, or
whose business operations have substantial economic effects in such states, or
which have substantial assets, security holders, employees, principal executive
offices or principal places of business in such states. In EDGAR V. MITE CORP.,
the Supreme Court of the United States (the "Supreme Court") invalidated on
constitutional grounds the Illinois Business Takeover statute, which, as a
matter of state securities law, made certain corporate acquisitions more
difficult.
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However, in 1987, in CTS CORP. V. DYNAMICS CORP. OF AMERICA, the Supreme Court
held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquirer from voting on the
affairs of a target corporation without the prior approval of the remaining
stockholders. The state law before the Supreme Court was by its terms applicable
only to corporations that had a substantial number of stockholders in the state
and were incorporated there.
The Purchasers do not believe that the antitakeover laws and regulations of
any state other than the State of Delaware will by their terms apply to the
Offer, and, except as set forth above with respect to Section 203 of the DGCL,
the Purchasers have not attempted to comply with any state antitakeover statute
or regulation. The Purchasers reserve the right to challenge the applicability
or validity of any state law purportedly applicable to the Offer and nothing in
this Offer to Purchase or any action taken in connection with the Offer is
intended as a waiver of such right. If it is asserted that any state
antitakeover statute is applicable to the Offer and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer, the
Purchasers might be required to file certain information with, or to receive
approvals from, the relevant state authorities, and the Purchasers might be
unable to accept for payment or pay for Shares tendered pursuant to the Offer or
may be delayed in consummating the Offer. In such case, the Purchasers may not
be obligated to accept for payment, or pay for, any Shares tendered pursuant to
the Offer.
ANTITRUST. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), certain acquisition transactions may not
be consummated unless certain information has been furnished to the FTC and the
Antitrust Division of the Department of Justice (the "DOJ") and certain waiting
period requirements have been satisfied. Acquisition Company is a newly formed
entity which is controlled by Vestar for purposes of the HSR Act and the rules
promulgated thereunder by the FTC. Vestar does not have assets of $10 million or
more at this time. If Vestar shall make any acquisition or receive capital prior
to the consummation of the Offer, then the value of such acquisition or capital
shall be counted for purposes of determining whether Vestar is a "$10 million
person" as such term is defined under the HSR Act and the rules promulgated
thereunder by the FTC.
In the event that a filing is required to be made under the HSR Act and the
rules promulgated thereunder by the FTC, the Purchasers expect to promptly file
a Notification and Report Form with respect to the Offer under the HSR Act. The
waiting period under the HSR Act with respect to the Offer will expire at 11:59
p.m., New York City time, on the fifteenth day after the date on which the
Purchasers' forms are filed, unless early termination of the waiting period is
granted. The DOJ or the FTC may extend the waiting period by requesting
additional information or documentary material from the Purchasers. If such a
request is made, such waiting period will expire at 11:59 p.m., New York City
time, on the tenth day after substantial compliance by the Purchasers with such
request. Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of Acquisition
Company. In practice, complying with a request for additional information or
material can take a significant amount of time. In addition, if the DOJ or the
FTC raises substantive issues in connection with a proposed transaction, the
parties frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. If a filing
under the HSR Act is required, the Purchasers will not accept for payment Shares
tendered pursuant to the Offer unless and until the waiting period requirements
imposed by the HSR Act with respect to the Offer have been satisfied.
The FTC and the DOJ frequently scrutinize the legality under the Antitrust
Laws (as defined below) of transactions such as the proposed acquisition of
Shares by Acquisition Company pursuant to the Offer. At any time before or after
the purchase by Acquisition Company of Shares pursuant to the Offer, either of
the DOJ or the FTC could take such action under the Antitrust Laws as it deems
necessary or desirable in the public interest, including seeking to enjoin the
purchase of Shares pursuant to the Offer or seeking
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the divestiture of Shares purchased by Acquisition Company or the divestiture of
substantial assets of Acquisition Company, its subsidiaries or the Company.
Private parties and state governments may also bring legal action under the
Antitrust Laws under certain circumstances.
Although the Purchasers believe that the acquisition of Shares pursuant to
the Offer would not violate the Antitrust Laws, there can be no assurance that a
challenge to the Offer on antitrust grounds will not be made or, if such a
challenge is made, what the outcome will be. See "--Conditions to the Offer" for
certain conditions to the Offer, including conditions with respect to litigation
and certain government actions.
As used in this Offer to Purchase, "Antitrust Laws" shall mean and include
the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, and all other Federal and state
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws that are designed or intended to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade.
The German Act Against Restraints of Competition prohibits completion of the
transaction until the German Federal Cartel Office (the "Cartel Office") has
been notified about the transaction and the Cartel Office has approved the
transaction. Upon receipt of the notification, the Cartel Office conducts a
preliminary review with a maximum duration of one month. Upon conclusion of the
preliminary review, the Cartel Office may either approve the transaction or
initiate an in-depth review with a maximum four month duration from the date of
notification if further examination is necessary to determine whether the
transaction is compatible with the Act Against Restraints of Competition. The
parties are preparing a joint filing to the Cartel Office, which is expected to
be submitted during the week of December 20, 1999. The Purchasers believe that
the transaction will be cleared during the preliminary review phase. However,
the Purchasers cannot guarantee that the Cartel Office will not conduct an
in-depth review to further examine the transaction under the Act Against
Restraints of Competition.
CERTAIN LITIGATION. On December 9 through 13, 1999, seven purported class
action lawsuits, each by a stockholder of the Company against the Company,
Vestar Capital Partners and each of the Company's directors, were filed in the
Court of Chancery of the State of Delaware in and for New Castle County, under
the captions MAROTTA V. NICHOLS, ET AL, C.A. No. 17643NC, WEISS V. NICHOLS, ET
AL, C.A. No. 17644NC, STEINER V. NICHOLS, ET AL, C.A. No. 17648NC, BRODY V.
NICHOLS, ET AL, C.A. No. 17654NC, HARPER V. NICHOLS, ET AL, C.A. No. 17652NC,
FREBERG V. NICHOLS, ET AL, C.A. No. 17650NC and LICHTENSTEIN V. NICHOLS, ET AL,
C.A. No. 17658NC (collectively, the "Complaints"). Except for HARPER V. NICHOLS,
ET AL, the Complaints are substantially similar to each other and allege, among
other things, that (i) the Merger represents an improper attempt to eliminate
the public stockholders of the Company to permit the defendants to retain for
themselves the Company's valuable business and assets, (ii) the $23.00 per Share
price offered for the Common Stock pursuant to the Transactions is
unconscionable, unfair and grossly inadequate, provides value substantially
below the fair value of the Company, and was not the result of arm's-length
negotiations, (iii) the directors of the Company violated their fiduciary duties
to the stockholders of the Company and (iv) Vestar Capital Partners knowingly
aided and abetted the breaches of such fiduciary duties. The Complaints seek,
among other things, an order (i) certifying that the lawsuits may be maintained
as class actions, (ii) preliminarily and permanently enjoining the consummation
of the Merger, (iii) rescinding the Merger, in the event the Merger is
consummated, (iv) awarding to the members of the purported class all damages
caused to them, including as a result of any profits or special benefits
obtained by the defendants, and (v) awarding the named plaintiffs their costs,
including counsel and expert fees. HARPER V. NICHOLS, ET AL, alleges, among
other things, that (i) the Offer is timed to take advantage of the currently
depressed price of the Common Stock, (ii) Vestar and the other defendants are
intent on paying the lowest possible price to members of the purported class,
even though they are duty-bound to maximize stockholder value, and (iii) as a
result of such actions, members of the purported class have been and will be
damaged because they will not receive their fair proportion of the value of the
Company's assets and business and will be prevented from obtaining fair
consideration for their shares of Common Stock. HARPER V. NICHOLS, ET AL, seeks,
among other things, an order (i) certifying that the lawsuit may be maintained
as a class action, (ii)
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preliminarily and permanently enjoining the consummation of the Offer, (iii)
rescinding the Offer, in the event the Offer is consummated, (iv) awarding to
the members of the purported class all damages suffered and to be suffered by
them, and (v) awarding the named plaintiff his costs, including counsel and
expert fees. The Company, the defendant directors and Acquisition Company
believe the Complaints are without merit and intend to defend the lawsuits
vigorously.
THE RIGHTS AGREEMENT. On May 4, 1999, the Board authorized the Company to
enter into the Rights Agreement between the Company and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent. In connection therewith, the Board authorized
and declared a dividend distribution of one Right for each outstanding share of
Common Stock, payable to the stockholders of record on June 15, 1999 (the
"Record Date"), and authorized the issuance of one Right for each share of
Common Stock issued between the Record Date (whether originally issued or
delivered from the Company's treasury) and the Distribution Date (as defined
herein), each Right initially representing the right to purchase one share of
Common Stock upon the terms and subject to the conditions set forth in the
Rights Agreement, as amended by the Amendment described herein. The following
descriptions of the Rights, the Rights Agreement and the Amendment do not
purport to be complete and are qualified in their entirety by reference to the
Rights Agreement and the Amendment.
According to the Rights Agreement, the Rights will separate from the Common
Stock upon the earliest to occur of (i) a person or group of affiliated or
associated persons having acquired beneficial ownership of 15% or more of the
outstanding common stock (except pursuant to a Permitted Offer (as defined in
the Rights Agreement)) or (ii) 10 days (or such later date as the Board may
determine) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would result in
a person or group becoming an Acquiring Person (as defined herein) (the earliest
of such dates being called the "Distribution Date"). Under the Rights Agreement,
a person or group whose acquisition of Common Stock causes a Distribution Date
pursuant to clause (i) above is an "Acquiring Person."
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on June 12, 2009, unless earlier redeemed by the
Company as described herein.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, and under certain other
circumstances as set forth in the Rights Agreement, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price") which redemption shall be effective upon the action of the Board.
In addition, following a Shares Acquisition Date (as defined in the Rights
Agreement), the Company may redeem the then-outstanding Rights in whole, but not
in part, at the Redemption Price, provided that such redemption is in connection
with a merger or other business combination transaction or series of
transactions involving the Company in which all holders of Common Stock are
treated alike but not involving an Acquiring Person or its affiliates or
associates. The payment of the Redemption Price may be deferred under certain
circumstances as contemplated in the Rights Agreement. See "SPECIAL
FACTORS--Interests of Certain Persons in the Transactions--Rights Agreement
Amendment."
FEES AND EXPENSES
Except as otherwise provided herein, all fees and expenses incurred in
connection with the Offer, the Merger, the Merger Agreement and the other
transactions contemplated thereby will be paid by the party incurring such fees
and expenses, except that the Company will pay for all fees and expenses
relating to the filing, printing and mailing of the documents in connection with
the Offer, the Schedule 14D-9 and the proxy statement.
Pursuant to the Merger Agreement, the Company will pay to Vestar Capital
Partners upon the consummation of the Offer, a transaction fee of $1.0 million,
plus reasonable out-of-pocket expenses
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incurred by Vestar Capital Partners for services rendered by Vestar Capital
Partners in connection with the consummation of the Offer and the Merger.
The Purchasers have retained Georgeson Shareholder Communications Inc. to
act as the Information Agent in connection with the Offer. The Information Agent
may contact holders of Shares by mail, telephone, facsimile, telegraph and
personal interview and may request brokers, dealers and other nominee
stockholders to forward Offer materials to beneficial owners. The Information
Agent will receive reasonable and customary compensation for services relating
to the Offer and will be reimbursed for certain reasonable out-of-pocket
expenses. The Purchasers also have agreed to indemnify the Information Agent
against certain liabilities and expenses in connection with the Offer, including
certain liabilities under the federal securities laws.
ChaseMellon Shareholder Services, L.L.C. has been retained to act as the
Depositary in connection with the Offer. The Depositary has not been retained to
make solicitations or recommendations in its role as Depositary. The Depositary
will receive reasonable and customary compensation for services relating to the
Offer and will be reimbursed for certain reasonable out-of-pocket expenses. The
Purchasers also have agreed to indemnify the Depositary against certain
liabilities and expenses in connection with the Offer, including certain
liabilities under the federal securities laws.
It is estimated that the fees and expenses incurred by the Purchasers in
connection with the Offer, the Merger and the other transactions contemplated by
the Merger Agreement will be approximately as set forth below:
<TABLE>
<S> <C>
Financing and Commitment Fees............................... $ 5,400,000
Filing Fees................................................. 40,000
Special Committee's Financial Advisor's Fee................. 1,800,000
Special Committee Fees...................................... 58,500
Vestar Capital Partners Transaction Fee..................... 1,000,000
Legal Fees and Expenses..................................... 3,250,000
Accounting Fees and Expenses................................ 750,000
Printing and Mailing Costs.................................. 200,000
Miscellaneous............................................... 51,500
-----------
Total..................................................... $12,550,000
</TABLE>
Under certain circumstances, the Company is obligated to reimburse
Acquisition Company and the Foundation for certain Expenses and to pay
Acquisition Company the Termination Fee. See "SPECIAL FACTORS--The Merger
Agreement--Fees and Expenses."
Except as set forth above, the Purchasers will not pay any fees or
commissions to any broker or dealer or any other person for soliciting tenders
of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust
companies will, upon request only, be reimbursed by the Purchasers for customary
mailing and handling expenses incurred by them in forwarding material to their
customers.
RECAPITALIZATION ACCOUNTING
The Transactions have been structured to qualify for recapitalization
accounting treatment.
MISCELLANEOUS
The Purchasers are not aware of any jurisdiction in which the making of the
Offer is prohibited by any administrative or judicial action pursuant to any
valid state statute. If the Purchasers become aware of any valid state statute
prohibiting the making of the Offer or the acceptance of the Shares pursuant
thereto, the Purchasers will make a good faith effort to comply with any such
state statute or seek to have such statute declared inapplicable to the Offer.
If, after such good faith effort, the Purchasers cannot comply
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with any such state statute, the Offer will not be made to (nor will tenders be
accepted from or on behalf of) holders of Shares in such state. In any
jurisdiction where the securities, blue sky or other laws require the Offer to
be made by a licensed broker or dealer, the Offer will be deemed to be made on
behalf of the Purchasers by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASERS NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Company, Acquisition Company and certain of the Continuing Stockholders
have filed with the Commission a Rule 13e-3 Transaction Statement on
Schedule 13E-3, the Company has filed with the Commission an Issuer Tender Offer
Statement on Schedule 13E-4 and a Tender Offer Solicitation/ Recommendation
Statement on Schedule 14D-9, and Acquisition Company and Merger Subsidiary have
filed with the Commission a Tender Offer Statement on Schedule 14D-1, together
with exhibits in each case, pursuant to Rules 13e-3, 13e-4, 14d-3, 14d-9 and
14d-l, respectively, under the Exchange Act, furnishing certain additional
information with respect to the Offer. Such Schedules and any amendments
thereto, including exhibits, should be available for inspection and copies
should be obtainable in the same manner set forth in "--Certain Information
Concerning the Company" (except that such material will not be available at the
regional offices of the Commission).
GLEASON CORPORATION
TORQUE ACQUISITION CO., L.L.C.
December 15, 1999
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SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF
THE COMPANY
1. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The following table
sets forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years, of each
director and executive officer of the Company. Unless otherwise indicated, each
such person is a citizen of the United States and the business address of each
such person is c/o Gleason Corporation, 1000 University Avenue, P.O. Box 22970,
Rochester, New York 14692.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ---- ------------------------------------------------------------
<S> <C>
Martin L. Anderson................... Director of Supply Chain Programs, Babson College
(1996-present); Affiliate Director of the International
Motor Vehicle Program, Massachusetts Institute of Technology
(1996-present); Associate Director of the International
Motor Vehicle Program, Massachusetts Institute of Technology
(1993-1996)
David J. Burns....................... Director since May 1997; President and Chief Operating
Officer of the Company (May 1999-present); Executive Vice
President of the Company (August 1995-April 1999); Vice
President--Machine Products Group of the Company (1992-1995)
J. David Cartwright.................. Former President of Cooper Tools, a division of Cooper
Industries, Inc., a worldwide manufacturer of electrical
products, tools and hardware (1994-present); President,
Champion Spark Plug Company, a former division of Cooper
Industries, Inc. (1992-1994)
James S. Gleason..................... Chairman and Chief Executive Officer of the Company for more
than the past five years
John W. Guffey, Jr................... Former Chairman and Chief Executive Officer of Coltec
Industries Inc., a diversified manufacturing company
primarily serving the aerospace and general industrial
markets (1995-1999); President and Chief Operating Officer
of Coltec Industries Inc. (1991-1994)
William P. Montague.................. President of Mark IV Industries, Inc., whose core
technologies include power transmission, fluid transfer and
filtration systems, and components for global industrial and
automotive markets (1996-present); Executive Vice President
and Chief Financial Officer of Mark IV(prior to 1996);
Director of Mark IV Industries, Inc. and Gibraltar Steel
Corporation
Silas L. Nichols..................... President, ABB Flexible Automation Inc. (Manufacturing
Industry & Robotics Group of ABB Asea Brown Boveri Ltd.), a
provider of robot-based automation solutions (1996-present);
Executive Vice President & General Manager, ABB Customer
Service Division (1992-1996)
Robert L. Smialek.................... Former Chairman, President and Chief Executive Officer of
Insilco Corporation, a diversified manufacturer of
industrial and specialty consumer products (1993-1999);
Director of BICC General (formerly General Cable Corp.)
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ---- ------------------------------------------------------------
<S> <C>
Gary J. Kimmet....................... Vice President, Worldwide Sales and Marketing, The Gleason
Works (1999-present), Vice President, Regional Operations,
Americas (1996-1999); Vice President, Engineering
(1988-1996)
Edward J. Pelta...................... Vice President, General Counsel and Secretary of the Company
(1999-present); Assistant Secretary and Corporate Counsel
since 1998; prior thereto Vice President, General Counsel
and Secretary (1997-1998), General Counsel and Assistant
Secretary (1995-1997); and Senior Counsel and Assistant
Secretary (1994-1995) of Alstom Signaling Inc.
John J. Perrotti..................... Vice President--Finance of the Company (since 1995); and
Treasurer of the Company (since 1997); Vice
President-Controller of the Company (1993-1995).
John W. Pysnack...................... Controller of the Company (1995-present); Director of
Accounting and Reporting of the Company (1995); Finance
Manager of the Company (1991-1994)
</TABLE>
S-2
<PAGE>
SCHEDULE II
INFORMATION CONCERNING DIRECTORS AND
EXECUTIVE OFFICERS OF VESTAR ASSOCIATES CORPORATION IV
AND ACQUISITION COMPANY
1. MANAGERS AND EXECUTIVE OFFICERS OF VESTAR ASSOCIATES CORPORATION IV. The
following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments, of each
manager and executive officer of Vestar Associates Corporation IV ("VAC IV").
Unless otherwise indicated, each such person has been associated with an
affiliate of VAC IV for each of the past five years. In addition, unless
otherwise indicated, each such person is a citizen of the United States, and the
business address of each such person is 245 Park Avenue, 41(st) Floor, New York,
New York 10022.
DIRECTORS
<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- ---- ------------------------------------------
<S> <C>
Daniel S. O'Connell President and Chief Executive Officer of
VAC IV
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- ---- ---------------------------------------------
<S> <C>
Daniel S. O'Connell President and Chief Executive Officer of
VAC IV
Norman W. Alpert Managing Director of VAC IV
Nicholas A. Dovidio Managing Director of VAC IV
James L. Elrod, Jr. Managing Director of VAC IV. From 1994
through 1997, Mr. Elrod served as the Chief
Financial Officer and Chief Operating Officer
of Physicians Health Services.
James P. Kelley Managing Director of VAC IV
Sander M. Levy Managing Director of VAC IV
Prakash A. Melwani* Managing Director and Secretary of VAC IV
Arthur J. Nagle Managing Director of VAC IV
Robert L. Rosner Managing Director of VAC IV
John R. Woodard Managing Director of VAC IV. From March 1996
to February 1998, Mr. Woodard served as a
Managing Director of The Blackstone Group.
From 1990 to March 1996, he was a Vice
President of Vestar Capital Partners.
J. Christopher Henderson Vice President
David M. Hooper** Vice President
Todd N. Khoury Vice President
Brian P. Schwartz Vice President and Chief Financial Officer of
VAC IV
Steven M. Silver Vice President
</TABLE>
- ------------------------
* British National Overseas Citizen
** Citizen of the Republic of Ireland
S-3
<PAGE>
2. ACQUISITION COMPANY. The following sets forth the executive officers of
Acquisition Company. Unless otherwise indicated, each such person is a citizen
of the United States and the business address of each such person is 245 Park
Avenue, 41(st) Floor, New York, New York 10022.
<TABLE>
<S> <C>
Sander M. Levy President and Director
Arthur J. Nagle Vice President and Director
Brian K. Ratzan Secretary
</TABLE>
S-4
<PAGE>
SCHEDULE III
INFORMATION REGARDING TRANSACTIONS IN THE COMPANY'S SHARES
The following table sets forth transactions in the Company's equity
securities by certain of the Company's executive officers and directors as
listed below since the commencement of the Company's second full fiscal year
preceding the date of the Offer. Unless otherwise indicated, all transactions
were conducted in the public market. All information set forth below relating to
number of shares of Common Stock purchased (or sold) and price per share prior
to September 26, 1997 has been adjusted to reflect a two-for-one stock split in
September 1997.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK PRICE
PURCHASED PER
NAME (OR SOLD) FOOTNOTE DATE SHARE
- ---- ------------ -------- ---- ---------
<S> <C> <C> <C> <C>
DIRECTORS
- ---------------------------
David J. Burns............. 37.94 (4) 2/28/97 $ 18.13
37.43 (4) 5/30/97 $ 18.44
3,250 (8) 7/14/97 $ 7.91
5,992 (8) 7/14/97 $ 7.47
2,898 (9) 7/14/97 $ 24.31
2,000 (2) 8/6/97 $ 25.00
35.18 (4) 8/29/97 $ 27.41
37.25 (4) 11/28/97 $ 25.94
12,000 (3) 12/9/97 $ 26.03
900 (6) 2/11/98 $ 30.19
31.06 (4) 2/27/98 $ 33.00
35.10 (4) 5/29/98 $ 29.25
44.54 (4) 8/28/98 $ 23.10
50.95 (4) 11/20/98 $ 20.25
13,000 (3) 12/8/98 $ 19.03
1,755 (6) 2/10/99 $ 17.69
69.90 (4) 2/26/99 $ 16.38
3,008 (8) 3/26/99 $ 7.47
1,336 (9) 3/26/99 $ 16.81
72.40 (4) 5/28/99 $ 17.31
68.70 (4) 8/27/99 $ 18.31
68.88 (4) 11/19/99 $ 18.33
James S. Gleason........... 5,200 (8) 8/18/97 $ 6.25
1,292 (9) 8/18/97 $ 25.13
25,000 (3) 12/9/97 $ 26.03
5,800 (8) 2/9/98 $ 6.25
1,339 (9) 2/9/98 $ 27.06
1,710 (6) 2/11/98 $ 30.19
24,000 (8) 2/12/98 $ 6.25
500 (2)(9) 2/12/98 $ 29.50
23,500 (2)(9) 2/12/98 $ 29.75
35,000 (3) 12/8/98 $ 19.03
1,867 (6) 2/10/99 $ 17.69
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK PRICE
PURCHASED PER
NAME (OR SOLD) FOOTNOTE DATE SHARE
- ---- ------------ -------- ---- ---------
<S> <C> <C> <C> <C>
302 (10) 2/11/99 $ 17.59
5,802 (9) 2/17/99 $ 17.13
15,000 (8) 2/17/99 $ 6.63
25,000 (8) 2/18/99 $ 6.63
8,000 (2) 2/18/99 $ 16.50
17,000 (2) 2/22/99 $ 16.31
Edward J. Pelta............ 1,000 (7) 7/7/98 $ 14.88
4,000 (3) 8/3/98 $ 24.75
8,500 (3) 12/8/98 $ 19.03
587 (6) 2/10/99 $ 17.69
3,635 (5) 9/16/99 $ 18.63
John J. Perrotti........... 32.44 (4) 2/28/97 $ 18.13
32.00 (4) 5/30/97 $ 18.44
21.60 (4) 8/29/97 $ 27.41
22.88 (4) 11/28/97 $ 25.94
10,000 (3) 12/9/97 $ 26.03
775 (6) 2/11/98 $ 30.19
21.39 (4) 2/27/98 $ 33.00
24.18 (4) 5/29/98 $ 29.25
30.68 (4) 8/28/98 $ 23.10
35.09 (4) 11/20/98 $ 20.25
11,000 (3) 12/8/98 $ 19.03
1,814 (6) 2/10/99 $ 17.69
50.45 (4) 2/26/99 $ 16.38
47.90 (4) 5/28/99 $ 17.31
45.45 (4) 8/27/99 $ 18.31
45.57 (4) 11/19/99 $ 18.33
John J. Perrotti, Custodian
for
Christine J. Perrotti...... 2.11 (4) 2/28/97 $ 18.13
2.09 (4) 5/30/97 $ 18.44
1.41 (4) 8/29/97 $ 27.41
1.49 (4) 11/28/97 $ 25.94
1.18 (4) 2/27/98 $ 33.00
1.33 (4) 5/29/98 $ 29.25
1.69 (4) 8/28/98 $ 23.10
1.93 (4) 11/20/98 $ 20.25
2.39 (4) 2/26/99 $ 16.38
2.27 (4) 5/28/99 $ 17.31
2.15 (4) 8/27/99 $ 18.31
2.16 (4) 11/19/99 $ 18.33
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK PRICE
PURCHASED PER
NAME (OR SOLD) FOOTNOTE DATE SHARE
- ---- ------------ -------- ---- ---------
<S> <C> <C> <C> <C>
John J. Perrotti, Custodian
for Jason Perrotti......... 2.11 (4) 2/28/97 $ 18.13
2.09 (4) 5/30/97 $ 18.44
1.41 (4) 8/29/97 $ 27.41
1.49 (4) 11/28/97 $ 25.94
1.18 (4) 2/27/98 $ 33.00
1.33 (4) 5/29/98 $ 29.25
1.69 (4) 8/28/98 $ 23.10
1.93 (4) 11/20/98 $ 20.25
2.39 (4) 2/26/99 $ 16.38
2.27 (4) 5/28/99 $ 17.31
2.15 (4) 8/27/99 $ 18.31
2.16 (4) 11/19/99 $ 18.33
John W. Pysnack............ 1,250 (5) 12/9/97 $ 26.03
5,000 (3) 12/9/97 $ 26.03
360 (6) 2/11/98 $ 30.19
385 (5) 12/8/98 $ 19.03
5,000 (3) 12/8/98 $ 19.03
1,048 (6) 2/10/99 $ 17.69
Gary J. Kimmet............. 118 (9) 7/2/97 $ 11.99
724 (8) 7/2/97 $ 7.91
1,170 (9) 7/24/97 $ 24.19
3,600 (8) 7/24/97 $ 12.09
960 (2) 7/29/97 $ 24.50
1,500 (3) 12/9/97 $ 26.00
2,400 (8) 8/24/98 $ 24.25
774 (9) 8/24/98 $ 24.25
750 (3) 12/8/98 $ 19.03
1,000 (2) 3/16/99 $ 17.69
Martin L. Anderson......... 6,000 (3) 6/1/97 $ 18.91
6,000 (3) 6/1/98 $ 29.78
6,000 (3) 6/1/99 $ 16.53
David J. Cartwright........ 6,000 (3) 6/1/97 $ 18.91
6,000 (3) 6/1/98 $ 29.78
6,000 (3) 6/1/99 $ 16.53
John W. Guffey, Jr......... 6,000 (3) 6/1/97 $ 18.91
6,000 (3) 6/1/98 $ 29.78
6,000 (3) 6/1/99 $ 16.53
William P. Montague........ 6,000 (3) 6/1/98 $ 29.78
6,000 (3) 6/1/99 $ 16.53
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK PRICE
PURCHASED PER
NAME (OR SOLD) FOOTNOTE DATE SHARE
- ---- ------------ -------- ---- ---------
<S> <C> <C> <C> <C>
Silas L. Nichols........... 6,000 (3) 6/1/99 $ 16.53
Robert L. Smialek.......... 1,000 (1) 12/10/97 $ 25.75
1,000 (1) 12/11/97 $ 25.75
6,000 (3) 6/1/98 $ 29.78
1,500 (1) 2/10/99 $ 17.63
500 (1) 2/10/99 $ 17.50
6,000 (3) 6/1/99 $ 16.53
</TABLE>
- ------------------------
(1) Open market purchase.
(2) Open market sale.
(3) Grant of stock options.
(4) Dividend Reinvestment.
(5) Award/grant of MBG shares.
(6) Granted as part of a bonus.
(7) Transfer from spouse.
(8) Acquisition of shares pursuant to exercise of stock option.
(9) Shares transferred to Company in exercise of options.
(10) Shares transferred to Company to pay taxes on lapse of restricted shares.
The following table sets forth purchases of Common Stock made by the Company
since the commencement of the Company's second full fiscal year preceding the
date of the Offer. All such purchases were conducted in the public market.
<TABLE>
<CAPTION>
PRICE PER NUMBER OF
DATE SHARE SHARES VALUE
- ---- --------- --------- -----------
<S> <C> <C> <C>
1/27/97 $ 16.69 4,000 $ 66,750.00
1/29/97 $ 16.60 14,000 $232,374.80
1/30/97 $ 16.50 4,000 $ 66,000.00
1/31/97 $ 16.81 4,000 $ 67,250.00
4/18/97 $ 15.88 27,000 $428,625.00
4/21/97 $ 15.88 20,000 $317,500.00
7/21/98 $ 26.25 500 $ 13,125.00
7/21/98 $ 25.88 500 $ 12,937.50
7/22/98 $ 24.56 1,000 $ 24,562.50
7/31/98 $ 24.69 300 $ 7,406.25
8/3/98 $ 24.69 2,000 $ 49,375.00
8/4/98 $ 24.50 2,000 $ 49,000.00
8/4/98 $ 24.13 2,000 $ 48,250.00
8/5/98 $ 23.25 5,000 $116,250.00
8/5/98 $ 23.19 2,000 $ 46,375.00
8/11/98 $ 24.00 3,000 $ 72,000.00
8/26/98 $ 23.69 3,000 $ 71,062.50
8/28/98 $ 23.50 3,000 $ 70,500.00
8/31/98 $ 22.42 3,800 $ 85,193.72
9/1/98 $ 21.75 5,000 $108,750.00
9/1/98 $ 21.81 2,000 $ 43,625.00
9/1/98 $ 21.94 1,700 $ 37,293.75
9/1/98 $ 21.88 100 $ 2,187.50
</TABLE>
S-8
<PAGE>
<TABLE>
<CAPTION>
PRICE PER NUMBER OF
DATE SHARE SHARES VALUE
- ---- --------- --------- -----------
<S> <C> <C> <C>
9/2/98 $ 22.13 3,800 $ 84,075.00
9/3/98 $ 21.63 300 $ 6,487.50
9/4/98 $ 21.63 3,800 $ 82,175.00
9/8/98 $ 22.00 3,400 $ 74,800.00
9/9/98 $ 21.94 900 $ 19,743.75
9/9/98 $ 22.00 2,500 $ 55,000.00
9/10/98 $ 21.50 3,400 $ 73,100.00
9/10/98 $ 21.13 5,000 $105,625.00
9/10/98 $ 21.13 10,000 $211,250.00
9/11/98 $ 20.69 1,000 $ 20,687.50
9/11/98 $ 20.75 1,200 $ 24,900.00
9/11/98 $ 20.81 1,200 $ 24,975.00
9/14/98 $ 20.56 3,300 $ 67,856.25
9/15/98 $ 20.25 5,000 $101,250.00
9/15/98 $ 20.50 8,300 $170,150.00
9/17/98 $ 20.50 700 $ 14,350.00
9/18/98 $ 20.81 25,000 $520,312.50
9/18/98 $ 20.69 25,000 $517,187.50
9/21/98 $ 19.81 2,000 $ 39,625.00
9/21/98 $ 20.31 2,100 $ 42,656.25
9/22/98 $ 19.25 2,100 $ 40,425.00
9/22/98 $ 19.44 2,000 $ 38,875.00
9/23/98 $ 19.00 29,100 $552,900.00
9/23/98 $ 19.25 25,000 $481,250.00
9/24/98 $ 18.50 10,000 $185,000.00
9/25/98 $ 17.00 10,000 $170,000.00
9/25/98 $ 17.50 14,100 $246,750.00
9/28/98 $ 16.25 20,000 $325,000.00
9/28/98 $ 17.19 5,000 $ 85,937.50
9/29/98 $ 16.38 5,000 $ 81,875.00
9/30/98 $ 16.13 5,000 $ 80,625.00
10/1/98 $ 15.13 15,000 $226,875.00
10/1/98 $ 15.38 5,000 $ 76,875.00
10/1/98 $ 15.50 10,000 $155,000.00
10/2/98 $ 15.38 100 $ 1,537.50
10/2/98 $ 15.50 4,100 $ 63,550.00
10/2/98 $ 15.44 800 $ 12,350.00
10/5/98 $ 15.69 7,600 $119,225.00
10/8/98 $ 15.63 7,500 $117,187.50
10/8/98 $ 15.13 20,000 $302,500.00
10/9/98 $ 15.25 7,500 $114,375.00
10/9/98 $ 14.75 20,000 $295,000.00
10/13/98 $ 14.81 40,000 $592,500.00
10/13/98 $ 14.75 5,100 $ 75,225.00
10/13/98 $ 14.94 2,100 $ 31,368.75
10/13/98 $ 15.00 300 $ 4,500.00
10/14/98 $ 14.75 40,000 $590,000.00
10/14/98 $ 14.88 1,800 $ 26,775.00
10/14/98 $ 14.75 8,200 $120,950.00
</TABLE>
S-9
<PAGE>
<TABLE>
<CAPTION>
PRICE PER NUMBER OF
DATE SHARE SHARES VALUE
- ---- --------- --------- -----------
<S> <C> <C> <C>
10/16/98 $ 14.88 20,000 $297,500.00
10/16/98 $ 15.00 10,000 $150,000.00
10/19/98 $ 15.00 11,000 $165,000.00
10/19/98 $ 14.63 20,000 $292,500.00
10/20/98 $ 14.75 11,000 $162,250.00
10/21/98 $ 15.25 5,000 $ 76,250.00
10/22/98 $ 16.00 9,500 $152,000.00
10/28/98 $ 19.00 5,000 $ 95,000.00
10/28/98 $ 18.75 6,100 $114,375.00
10/29/98 $ 18.75 800 $ 15,000.00
11/23/98 $ 19.25 9,600 $184,800.00
12/2/98 $ 18.75 3,000 $ 56,250.00
12/7/98 $ 18.00 100 $ 1,800.00
12/7/98 $ 18.00 4,900 $ 88,200.00
1/19/99 $ 18.25 3,000 $ 54,750.00
1/25/99 $ 17.75 300 $ 5,325.00
1/25/99 $ 18.00 1,300 $ 23,400.00
1/25/99 $ 17.94 600 $ 10,762.50
1/26/99 $ 17.94 3,300 $ 59,287.47
2/5/99 $ 16.38 3,000 $ 49,125.00
2/5/99 $ 16.44 5,000 $ 82,187.50
2/8/99 $ 16.56 2,700 $ 44,718.75
2/9/99 $ 17.38 2,300 $ 39,962.50
2/10/99 $ 17.25 4,000 $ 69,000.00
2/10/99 $ 17.38 1,800 $ 31,275.00
2/10/99 $ 17.44 1,000 $ 17,437.50
2/11/99 $ 17.63 1,200 $ 21,150.00
2/11/99 $ 17.75 3,800 $ 67,450.00
2/11/99 $ 17.69 1,600 $ 28,300.00
2/11/99 $ 17.56 1,100 $ 19,318.75
2/12/99 $ 17.25 4,400 $ 75,900.00
2/16/99 $ 17.06 5,200 $ 88,725.00
2/16/99 $ 17.13 1,800 $ 30,825.00
2/16/99 $ 17.19 600 $ 10,312.50
2/17/99 $ 17.00 50,000 $850,000.00
2/17/99 $ 17.13 7,600 $130,150.00
2/18/99 $ 16.25 8,000 $130,000.00
2/18/99 $ 16.38 20,000 $327,500.00
2/18/99 $ 16.50 20,000 $330,000.00
2/19/99 $ 16.38 60,000 $982,500.00
2/22/99 $ 16.38 20,000 $327,500.00
2/23/99 $ 16.38 20,000 $327,500.00
2/24/99 $ 16.13 17,000 $274,125.00
2/25/99 $ 16.06 400 $ 6,425.00
2/25/99 $ 16.13 10,200 $164,475.00
2/26/99 $ 16.25 55,900 $908,425.31
3/1/99 $ 16.31 500 $ 8,156.25
3/1/99 $ 16.56 1,500 $ 24,843.75
3/2/99 $ 16.69 3,300 $ 55,068.75
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
PRICE PER NUMBER OF
DATE SHARE SHARES VALUE
- ---- --------- --------- -----------
<S> <C> <C> <C>
3/2/99 $ 16.56 1,100 $ 18,218.75
3/3/99 $ 16.31 26,500 $432,281.25
3/3/99 $ 16.38 2,000 $ 32,750.00
3/5/99 $ 16.31 5,700 $ 92,981.25
3/8/99 $ 16.38 1,600 $ 26,200.00
3/9/99 $ 16.38 600 $ 9,825.00
3/10/99 $ 17.00 3,600 $ 61,200.00
3/11/99 $ 17.50 900 $ 15,750.00
3/15/99 $ 17.56 1,000 $ 17,562.50
3/15/99 $ 17.63 2,200 $ 38,775.00
3/16/99 $ 17.69 1,100 $ 19,456.25
3/17/99 $ 17.31 2,600 $ 45,012.50
3/17/99 $ 17.38 2,200 $ 38,225.00
3/18/99 $ 17.25 12,500 $215,625.00
3/18/99 $ 17.31 700 $ 12,118.75
3/19/99 $ 17.38 6,600 $114,675.00
3/22/99 $ 17.19 5,400 $ 92,812.50
3/23/99 $ 16.75 300 $ 5,025.00
3/24/99 $ 16.69 2,300 $ 38,381.25
3/24/99 $ 16.63 600 $ 9,975.00
3/24/99 $ 16.75 300 $ 5,025.00
3/25/99 $ 16.69 2,000 $ 33,375.00
3/25/99 $ 16.75 3,700 $ 61,975.00
3/26/99 $ 16.75 500 $ 8,375.00
3/29/99 $ 17.00 1,000 $ 17,000.00
3/30/99 $ 17.00 1,300 $ 22,100.00
3/31/99 $ 17.00 2,000 $ 34,000.00
</TABLE>
The following table sets forth information regarding repurchases in the
Company's securities from employees of the Company since the commencement of the
Company's second full fiscal year preceding the date of the Offer. All such
purchases were conducted in privately negotiated transactions based on the then
market price.
<TABLE>
<CAPTION>
PRICE PER NUMBER OF
DATE SHARE SHARES VALUE
- ---- --------- --------- -----------
<S> <C> <C> <C>
1/30/97 $ 16.50 10 $165.00
1/30/97 $ 16.50 10 $165.00
1/30/97 $ 16.50 10 $165.00
1/30/97 $ 16.50 10 $165.00
2/3/97 $ 17.00 10 $170.00
2/6/97 $ 17.75 10 $177.50
2/12/97 $ 18.22 10 $182.19
2/18/97 $ 18.66 10 $186.56
2/21/97 $ 18.50 10 $185.00
2/25/97 $ 18.25 10 $182.50
2/26/97 $ 18.38 10 $183.75
2/26/97 $ 18.38 10 $183.75
2/26/97 $ 18.38 10 $183.75
3/19/97 $ 17.25 10 $172.50
3/26/97 $ 16.88 10 $166.88
</TABLE>
S-11
<PAGE>
<TABLE>
<CAPTION>
PRICE PER NUMBER OF
DATE SHARE SHARES VALUE
- ---- --------- --------- -----------
<S> <C> <C> <C>
4/8/97 $ 16.53 10 $165.31
4/28/97 $ 16.00 10 $160.00
5/8/97 $ 16.84 10 $168.44
6/3/97 $ 19.19 10 $191.88
6/6/97 $ 20.44 10 $204.38
6/11/97 $ 20.59 10 $205.94
6/12/97 $ 20.75 10 $207.50
6/16/97 $ 20.91 10 $209.06
6/18/97 $ 21.31 10 $213.13
6/18/97 $ 21.31 10 $213.13
6/18/97 $ 21.31 10 $213.13
6/19/97 $ 21.78 10 $217.81
6/19/97 $ 21.78 10 $217.81
6/25/97 $ 22.20 10 $222.03
6/26/97 $ 21.94 10 $219.38
6/26/97 $ 21.94 10 $219.38
6/26/97 $ 21.94 10 $219.38
7/08/97 $ 24.22 10 $242.19
7/08/97 $ 24.22 10 $242.19
7/09/97 $ 24.22 10 $242.19
7/09/97 $ 24.22 10 $242.19
7/10/97 $ 24.13 10 $241.25
7/14/97 $ 24.31 10 $243.13
7/15/97 $ 24.25 10 $242.50
7/21/97 $ 24.31 10 $243.13
7/21/97 $ 24.31 10 $243.13
7/24/97 $ 24.34 10 $243.44
7/24/97 $ 24.34 10 $243.44
7/24/97 $ 24.34 10 $243.44
7/24/97 $ 24.34 10 $243.44
7/25/97 $ 24.44 10 $243.28
7/25/97 $ 24.33 10 $243.28
7/28/97 $ 24.44 10 $244.38
7/28/97 $ 24.33 10 $244.38
7/30/97 $ 24.48 10 $244.84
8/05/97 $ 24.75 10 $247.50
8/05/97 $ 24.75 10 $247.50
8/12/97 $ 25.09 10 $250.94
8/12/97 $ 25.09 10 $250.94
8/12/97 $ 25.09 10 $250.94
8/15/97 $ 25.13 10 $251.25
8/15/97 $ 25.13 10 $251.25
8/15/97 $ 25.08 10 $250.78
8/18/97 $ 25.22 10 $252.18
8/20/97 $ 25.97 10 $259.69
8/25/97 $ 25.66 10 $256.56
8/26/97 $ 25.63 10 $256.25
8/27/97 $ 28.13 10 $281.25
8/27/97 $ 25.88 10 $258.75
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
PRICE PER NUMBER OF
DATE SHARE SHARES VALUE
- ---- --------- --------- -----------
<S> <C> <C> <C>
8/27/97 $ 25.88 10 $258.75
9/03/97 $ 28.13 10 $281.25
9/03/97 $ 25.88 10 $258.75
10/03/97 $ 28.41 5 $142.03
10/07/97 $ 28.56 5 $142.81
10/09/97 $ 27.75 5 $138.75
11/06/97 $ 29.16 10 $291.56
11/13/97 $ 27.88 10 $278.75
11/13/97 $ 27.88 10 $278.75
11/19/97 $ 27.66 10 $276.56
11/20/97 $ 27.41 10 $274.06
12/08/97 $ 26.25 10 $262.50
12/19/97 $ 26.33 10 $263.28
1/08/98 $ 27.53 5 $137.66
2/18/98 $ 30.97 10 $309.69
2/27/98 $ 32.88 10 $328.75
3/04/98 $ 34.13 10 $341.25
3/05/98 $ 34.19 10 $341.88
3/09/98 $ 33.31 10 $333.13
3/10/98 $ 32.03 10 $320.31
3/20/98 $ 32.22 10 $322.19
3/20/98 $ 32.41 10 $324.06
4/01/98 $ 34.44 10 $344.38
4/23/98 $ 34.09 10 $340.94
6/03/98 $ 29.88 10 $298.75
6/08/98 $ 30.31 10 $303.13
6/11/98 $ 29.91 10 $299.06
6/25/98 $ 28.41 10 $284.06
1/22/99 $ 18.25 10 $182.50
4/19/99 $ 20.00 10 $200.00
6/25/99 $ 16.72 10 $167.20
9/2/99 $ 19.32 10 $193.19
11/16/99 $ 17.44 10 $174.38
</TABLE>
S-13
<PAGE>
EXHIBIT I
[LOGO]
December 8, 1999
Special Committee of the Board of Directors
Gleason Corporation
1000 University Avenue
Rochester, NY 14692
Ladies and Gentlemen:
We understand that Gleason Corporation ("Gleason"), Torque Acquisition Co.,
L.L.C. ("Acquisition Company"), and Torque Merger Sub, Inc. ("Merger Sub" and
together with Acquisition Company, the "Purchasers") propose to enter into an
agreement (the "Merger Agreement") to be dated on or about December 8, 1999,
pursuant to which (i) Gleason and Acquisition Company will commence a joint
tender offer (the "Offer") for all issued and outstanding shares of Gleason
common stock at a price of $23.00 per share in cash (the "Offer Price"),
(ii) following consummation of the Offer and subject to the terms of the Merger
Agreement, Merger Sub would be merged with and into Gleason (the "Merger") and,
at the effective time of such Merger, each share of Gleason common stock not
acquired in the Offer (other than treasury shares, shares as to which appraisal
rights have been perfected under Delaware law and shares which are to be
converted as described in clause (iii) below), would be converted into the right
to receive the Offer Price, and (iii) (A) certain shares owned by the Gleason
Foundation (the "Foundation"), Mr. James Gleason and certain other management
stockholders (the "Continuing Stockholders"), Acquisition Company, Merger Sub
and their affiliates will be converted into the right to receive shares of
common stock of Gleason at the effective time of the Merger and (B) certain
shares owned by Acquisition Company and the Foundation will be converted into
the right to receive shares of a new series of preferred stock of Gleason,
together with warrants to acquire common stock of Gleason, in each case, at the
effective time of the Merger (collectively, the "Transaction").
You have asked us to render our opinion as to whether the Offer Price is
fair, from a financial point of view, to the stockholders of Gleason (other than
the Foundation, Mr. Gleason and the Continuing Stockholders and Acquisition
Company, Merger Sub and their affiliates (collectively, the "Acquiring Group")).
This opinion does not address the common or preferred stock (and warrants) of
Gleason to be received by the Acquiring Group upon conversion of shares of
common stock of Gleason held by the Acquiring Group in connection with the
Merger.
In the course of performing our review and analyses for rendering this opinion,
we have:
- reviewed a draft of the Merger Agreement;
- reviewed Gleason's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1995 through 1998, and Quarterly Reports on Form 10-Q for the
periods ended March 31, 1999, June 30, 1999 and September 30, 1999;
- reviewed Gleason's Current Reports on Form 8-K filed on June 30, 1995 and
August 14, 1997 and Gleason's Proxy Statement filed on May 4, 1999;
- reviewed certain operating and financial information, including
projections and alternative forecasts (together, the "Projections"),
provided to us by management relating to Gleason's business and prospects;
- met with certain members of Gleason's senior management to discuss
Gleason's business, operations, historical financial results and future
prospects, including the Projections;
I-1
<PAGE>
- reviewed the historical prices, valuation parameters and trading volume of
the common shares of Gleason;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which we deemed generally comparable
to Gleason;
- reviewed the financial terms, to the extent publicly available, of recent
acquisitions of companies which we deemed generally comparable to Gleason;
- performed discounted cash flow analyses based on the Projections;
- conducted such other studies, analyses, inquiries and investigations as we
deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the Projections. With respect to the Projections, we have
assumed that they have been reasonably prepared on bases reflecting currently
available estimates and judgments of the senior management of Gleason as to the
potential future performance of Gleason. We have not assumed any responsibility
for the independent verification of any such information or of the Projections
provided to us, and we have further relied upon the assurances of the senior
management of Gleason that they are unaware of any facts that would make the
information or the Projections provided to us incomplete or misleading. In
arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets, liabilities or solvency of Gleason, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions, and the information made available to us,
as of the date hereof. We have assumed that the final form of the Merger
Agreement will be substantially similar to the last draft reviewed by us.
We have acted as a financial advisor to the Special Committee of the Board
of Directors in connection with the Transaction and will receive a fee for such
services. Gleason, on behalf of the Special Committee, has also agreed to
indemnify Bear Stearns against certain liabilities in connection with our
engagement. Bear Stearns has not been previously engaged by Gleason or the
Special Committee of the Board of Directors to provide any investment banking or
financial advisory services in connection with any mergers, acquisitions or
business combinations or in connection with any offerings of equity and debt. In
the ordinary course of business, Bear Stearns may actively trade the securities
of Gleason for our own account and for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is intended for the benefit and use of the
Special Committee of the Board of Directors of Gleason and does not constitute a
recommendation to the Special Committee of the Board of Directors or Board of
Directors of Gleason or any holders of Gleason common stock as to whether to
tender their shares or vote in connection with the Transaction. This opinion
does not address the underlying business decision to pursue or effect the
Transaction. This letter is not to be used for any other purpose, or reproduced,
disseminated, quoted to or referred to at any time, in whole or in part, without
our prior written consent; provided, however, that this letter may be included
in its entirety in any tender document or proxy statement to be distributed to
the holders of Gleason common stock in connection with the Transaction.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Offer Price is fair, from a financial point of view, to the
stockholders of Gleason (other than the Acquiring Group).
Very truly yours,
<TABLE>
<S> <C>
BEAR, STEARNS & CO. INC.
By: /s/ JAMES A. FERENCY
-------------------------------------------
Senior Managing Director
</TABLE>
I-2
<PAGE>
EXHIBIT II
HISTORICAL FINANCIAL INFORMATION CONCERNING THE COMPANY
INDEX TO FINANCIAL STATEMENTS OF GLEASON CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Audited Consolidated Financial Statements of Gleason
Corporation and Subsidiaries (December 31, 1998)
Consolidated Balance Sheets............................... II-2
Consolidated Statements of Operations..................... II-3
Consolidated Statements of Cash Flows..................... II-4
Consolidated Statements of Stockholders' Equity........... II-5
Notes to Audited Consolidated Financial Statements........ II-6
Unaudited Consolidated Financial Statements of Gleason
Corporation and Subsidiaries (September 30, 1999)
Consolidated Balance Sheets............................... II-23
Consolidated Statements of Operations--Three Months....... II-24
Consolidated Statements of Operations--Nine Months........ II-25
Consolidated Statements of Cash Flows..................... II-26
Notes to Unaudited Consolidated Financial Statements...... II-27
</TABLE>
II-1
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents...................................... $ 13,229 $ 12,478
Trade accounts receivable................................. 89,095 101,024
Inventories............................................... 58,614 55,991
Other current assets...................................... 16,094 13,367
-------- --------
Total current assets........................................ 177,032 182,860
Property, plant and equipment--net.......................... 132,322 124,373
Goodwill.................................................... 16,682 18,036
Other assets................................................ 14,433 20,384
-------- --------
Total assets................................................ $340,469 $345,653
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings..................................... $ 1,853 $ 5,760
Current portion of long-term debt......................... 8 1,613
Trade accounts payable.................................... 33,421 30,810
Income taxes.............................................. 6,790 13,640
Other current liabilities................................. 62,485 70,614
-------- --------
Total current liabilities................................... 104,557 122,437
Long-term debt.............................................. 28,906 38,244
Pension plans and other retiree benefits.................... 66,163 60,235
Other liabilities........................................... 12,872 10,516
-------- --------
Total liabilities........................................... 212,498 231,432
Stockholders' equity
Preferred Stock, par value $1 per share; authorized
500,000 shares; issued: none
Common Stock, par value $1 per share; authorized
20,000,000 shares; issued: 11,594,140 shares in 1998 and
in 1997................................................. 11,594 11,594
Additional paid-in capital................................ 12,443 12,061
Retained earnings......................................... 131,323 107,797
Accumulated other comprehensive income.................... (5,688) (4,790)
-------- --------
149,672 126,662
Less treasury stock of 1,650,899 shares in 1998 and
1,169,313 shares in 1997, at cost....................... 21,701 12,441
-------- --------
Total stockholders' equity.................................. 127,971 114,221
-------- --------
Total liabilities and stockholders' equity.................. $340,469 $345,653
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
II-2
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................ $ 409,326 $ 338,673 $ 248,089
Costs and expenses
Cost of products sold.................................. 280,109 233,495 167,958
Selling, general and administrative expenses........... 72,761 58,603 42,614
Research and development expenses...................... 10,558 8,139 7,243
Loss on settlement of pension plan..................... 2,031 -- --
Interest expense--net.................................. 979 1,127 513
Other (income)--net.................................... (384) (870) (982)
---------- ---------- ----------
366,054 300,494 217,346
Income before income taxes............................... 43,272 38,179 30,743
Provision for income taxes............................... 17,155 14,084 11,083
---------- ---------- ----------
Net income............................................... $ 26,117 $ 24,095 $ 19,660
========== ========== ==========
Earnings per common share:
Basic.................................................. $ 2.52 $ 2.41 $ 1.90
Diluted................................................ 2.43 2.32 1.84
Weighted average number of common shares outstanding:
Basic.................................................. 10,358,854 9,978,569 10,334,720
Diluted................................................ 10,737,697 10,382,628 10,681,644
Cash dividends declared per common share................. $ .25 $ .25 $ .25
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
II-3
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $26,117 $24,095 $19,660
Adjustments to reconcile net income to net cash from
operating activities:
Loss on settlement of pension plan...................... 2,031 -- --
Depreciation and amortization........................... 20,948 14,169 10,707
(Gain) loss on disposals of property, plant and
equipment............................................. 422 (452) 113
Provision for deferred income taxes..................... 3,950 653 2,286
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............ 14,213 (5,552) (954)
(Increase) decrease in inventories.................... (358) 13,928 374
(Increase) decrease in other current assets........... (285) 725 1,321
Increase (decrease) in accounts payable............... (1,193) 3,078 786
Increase (decrease) in other current operating
liabilities......................................... (11,808) 10,929 4,318
Other, net............................................ 1,092 (165) (1,033)
------- ------- -------
Net cash provided by operating activities................. 55,129 61,408 37,578
Cash flows from investing activities:
Capital expenditures...................................... (25,754) (15,913) (10,281)
Acquisition of businesses, net of cash acquired........... -- (30,569) --
Proceeds from disposals of property, plant and
equipment............................................... 272 1,720 206
Proceeds from collection of notes receivable.............. 27 71 54
------- ------- -------
Net cash (used in) investing activities................... (25,455) (44,691) (10,021)
Cash flows from financing activities:
Net (repayments of) short-term borrowings................. (4,055) (787) (1,185)
Net proceeds (repayments) under term loan and revolving
credit agreements....................................... (11,594) 33,855 (20,646)
Net (repayments of) long-term debt........................ (1,509) (51,337) (5)
Dividends paid............................................ (2,591) (2,485) (2,585)
Purchase of treasury stock................................ (10,210) (1,371) (6,219)
Net stock issued.......................................... 702 11,298 78
------- ------- -------
Net cash (used in) financing activities................... (29,257) (10,827) (30,562)
Effect of exchange rate changes on cash and equivalents..... 334 (611) 278
------- ------- -------
Increase (decrease) in cash and equivalents................. 751 5,279 (2,727)
Cash and equivalents, beginning of year..................... 12,478 7,199 9,926
------- ------- -------
Cash and equivalents, end of year........................... $13,229 $12,478 $ 7,199
======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
II-4
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
-------- ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.......... $11,593 $ 5,952 $ 69,112 $(3,249) $(10,117) $ 73,291
Shares issued under Stock Plans....... 1 (221) 298 78
Purchase of treasury stock............ (6,219) (6,219)
Comprehensive income:
Net income.......................... 19,660
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments..................... 7
Change in minimum pension
liability adjustment............ 632
Total comprehensive income.......... 20,299
Dividends declared.................... (2,585) (2,585)
------- ------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1996.......... 11,594 5,731 86,187 (2,610) (16,038) 84,864
Shares issued under Stock Plans....... (293) 634 341
Purchase of treasury stock............ (1,371) (1,371)
Net proceeds from stock offering...... 6,623 4,334 10,957
Comprehensive income:
Net income.......................... 24,095
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments..................... (1,740)
Change in minimum pension
liability adjustment............ (440)
Total comprehensive income.......... 21,915
Dividends declared.................... (2,485) (2,485)
------- ------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1997.......... 11,594 12,061 107,797 (4,790) (12,441) 114,221
Shares issued under Stock Plans....... (248) 950 702
Income tax benefits realized from
stock option exercises.............. 630 630
Purchase of treasury stock............ (10,210) (10,210)
Comprehensive income:
Net income.......................... 26,117
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments..................... 454
Change in minimum pension
liability adjustment............ (1,352)
Total comprehensive income.......... 25,219
Dividends declared.................... (2,591) (2,591)
------- ------- -------- ------- -------- --------
BALANCE AT DECEMBER 31, 1998.......... $11,594 $12,443 $131,323 $(5,688) $(21,701) $127,971
======= ======= ======== ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
II-5
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include the accounts of
the Company and its wholly owned and majority-owned subsidiaries. All
significant intercompany transactions are eliminated in consolidation.
REVENUE RECOGNITION: Sales generally are recognized by the Company when
products are shipped or services have been provided. Sales are reported net of
returns and allowances.
FOREIGN CURRENCY TRANSLATION: All asset and liability accounts of foreign
operations are translated at the current exchange rate, income statement items
are translated at average exchange rates and the resulting translation
adjustments, designated as "foreign currency translation adjustments", are
reported as a component of "other comprehensive income" in the stockholders'
equity section of the Company's Consolidated Balance Sheets. Gains and losses
from foreign currency transactions are reported in operations and had a minimal
impact on the Company in 1998, 1997 and 1996.
CASH AND EQUIVALENTS: The Company considers all highly liquid investments with
a maturity of three months or less when purchased to be cash equivalents.
TRADE ACCOUNTS RECEIVABLE: Trade accounts receivable are shown net of
allowances for doubtful accounts of $2,903,000 and $3,018,000 at December 31,
1998 and 1997, respectively.
STOCK SPLIT: On August 28, 1997 the Company's Board of Directors declared a
two-for-one (2-for-1) stock split on the Company's Common Stock, including
shares held in treasury, effected in the form of a 100% common stock
distribution payable on September 26, 1997 to holders of record on
September 12, 1997. The distribution increased the number of shares issued from
5,797,070 to 11,594,140, which included an increase in treasury stock from
814,614 to 1,629,228. As a result of the stock split, $5,797,070 was transferred
from additional paid-in capital to common stock, representing the par value of
the additional shares issued. Common stock, additional paid-in-capital and all
share and per share data have been restated to reflect the stock split.
COMPREHENSIVE INCOME: Effective January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
No. 130), which establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income is comprised of two components:
net income and other comprehensive income. Comprehensive income includes all
changes in equity during a period except those resulting from transactions with
owners of the Company. Cumulative foreign currency translation adjustments and
minimum pension liability adjustments are the components reported in other
comprehensive income. Cumulative foreign currency translation adjustments
totaled ($3,435,000) and ($3,889,000) at December 31, 1998 and 1997,
respectively. Cumulative minimum pension liability adjustments totaled
($2,253,000) and ($901,000), (net of applicable income taxes of $1,256,000 and
$468,000), at December 31, 1998 and 1997, respectively. Prior year financial
statements have been reclassified to conform to the requirements of FAS
No. 130. The adoption of FAS No. 130 did not have an effect on the Company's
results of operations or financial position.
INTERNAL USE SOFTWARE: In February 1998, the American Institute of Certified
Public Accountants' Accounting Standards Executive Committee issued Statement of
Position No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP No. 98-1). SOP No. 98-1 requires certain costs
incurred during the application development stage in connection with developing
or
II-6
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
obtaining internal-use software to be capitalized and amortized over the
estimated useful life. Costs incurred in other stages are expensed. The Company
adopted SOP 98-1 during 1998, and its application had no material effect on the
Company's financial position as of December 31, 1998 or its results of
operations for the period then ended.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS No. 133),
which provides new guidelines for accounting for derivative instruments. FAS
No. 133 requires companies to recognize all derivatives on the balance sheet at
fair value. Gains or losses resulting from changes in the values of the
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The Company is currently analyzing
what impact the new guideline will have on the Company. This Statement is
effective for fiscal periods beginning after June 15, 1999.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Estimates are based on currently available information.
Actual results could differ from the estimates.
RECLASSIFICATION: Certain reclassifications have been made to prior years'
financial statements to conform to the 1998 presentation.
Additional accounting policies are described in the applicable notes.
NOTE 2--EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (FAS No. 128), effective for periods ending after
December 15, 1997. All earnings per share amounts have been restated to present
basic and diluted earnings per share. The computation of basic earnings per
share is determined by dividing the weighted average number of common shares
outstanding during the year into net earnings. Diluted earnings per share
reflect the additional dilution related to common share equivalents. Common
share equivalents include stock options and hypothetical shares associated with
the Company's Plan for Deferral of Directors' Fees.
II-7
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 2--EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Numerator:
- ---------------------------------------------------------
Numerator for basic and diluted earnings per share:
Net income............................................. $ 26,117 $ 24,095 $ 19,660
========== ========== ==========
Denominator:
- ---------------------------------------------------------
Denominator for basic earnings per share:
Weighted average shares outstanding.................. 10,358,854 9,978,569 10,334,720
Common share equivalents............................. 378,843 404,059 346,924
---------- ---------- ----------
Denominator for diluted earnings per share:
Weighted average shares outstanding.................. 10,737,697 10,382,628 10,681,644
========== ========== ==========
Earnings per share:
Basic.................................................. $ 2.52 $ 2.41 $ 1.90
Diluted................................................ $ 2.43 $ 2.32 $ 1.84
</TABLE>
NOTE 3--ACQUISITIONS
On July 31, 1997, the Company purchased all of the general and limited
partnership interests of Hermann Pfauter GmbH & Co., a manufacturer of
cylindrical gear production equipment, and Pfauter-Maag Cutting Tools L.P., a
cutting tool manufacturer (collectively referred to as "Pfauter"). Pfauter has
major operations in Germany, Italy and the United States.
The acquisition was completed for a total consideration of $91.8 million,
including $34.8 million in cash and the assumption of $57.0 million in bank
debt. The acquisition was financed through the Company's term loan and revolving
credit facility.
The Company accounted for the acquisition under the purchase method. The
aggregate cost of the acquisition, including professional fees and other related
costs totaling $2.8 million, was allocated to assets purchased and liabilities
assumed based upon the fair values at the date of acquisition. The excess of the
purchase price over the fair values of the net assets acquired was
$18.1 million, which was recorded as
II-8
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 3--ACQUISITIONS (CONTINUED)
goodwill, and is being amortized on a straight-line basis over 30 years. The
aggregate cost of the acquisition was allocated as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Current assets, excluding cash.............................. $ 77,605
Property, plant and equipment............................... 63,595
Other assets................................................ 3,219
Goodwill.................................................... 18,122
Current liabilities, including short-term borrowings........ (75,776)
Long-term debt.............................................. (29,384)
Pension and other retiree benefits.......................... (21,218)
Other liabilities........................................... (5,034)
--------
Total acquisition cost, net of cash acquired................ $ 31,129
========
</TABLE>
In the allocation of the acquisition costs, current liabilities and other
liabilities included $7.0 million and $2.0 million, respectively, of costs
associated with the restructuring of Pfauter's operations. These costs represent
the Company's estimate of the expenses associated with the consolidation of
certain sales and manufacturing operations and elimination of redundant
activities. The Company expects these restructuring activities will be completed
in 1999.
In 1998 the Company reduced the goodwill recorded at the time of acquisition
by $1.5 million. This reduction was the result of the Company realizing certain
deferred tax assets related to the Pfauter acquisition (Refer to Note 9--Income
Taxes).
Results of operations of Pfauter have been included in the Consolidated
Statements of Operations since July 31, 1997. Unaudited pro forma information
for 1997 and 1996 assume that the Pfauter acquisition had taken place on
January 1, 1996.
<TABLE>
<CAPTION>
PRO FORMA
(UNAUDITED)
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net sales............................................... $424,285 $426,306
Net income.............................................. 23,442 21,053
Earnings per share:
Basic................................................. $ 2.35 $ 2.04
Diluted............................................... 2.26 1.97
</TABLE>
The pro forma financial information is not necessarily indicative of the
results that would have been obtained if the acquisition had been effected on
the assumed date or the results that may be achieved by the Company in the
future. Pro forma net income for 1997 and 1996 do not include any adjustments
for cost savings expected to be realized from the restructuring plans for the
Pfauter operations or synergies of the combined business.
II-9
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 4--INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and purchased parts......................... $12,626 $11,215
Work in process........................................... 33,508 34,491
Finished products......................................... 12,480 10,285
------- -------
$58,614 $55,991
======= =======
</TABLE>
Inventories are valued at the lower of cost or market. Inventories valued
using the last-in, first-out (LIFO) method comprised 27% and 20% of consolidated
inventories at December 31, 1998 and 1997, respectively. Inventories not valued
using the LIFO method are determined on the first-in, first-out (FIFO) method.
If the valuation of all inventories had been determined on the FIFO accounting
method, inventories would have been $26,010,000 and $25,453,000 higher at
December 31, 1998 and 1997, respectively.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 12,881 $ 12,050
Buildings and improvements.............................. 62,181 59,998
Machinery and equipment................................. 190,728 170,351
-------- --------
265,790 242,399
Less accumulated depreciation........................... 133,468 118,026
-------- --------
$132,322 $124,373
======== ========
</TABLE>
Property, plant and equipment are recorded at cost. Depreciation is computed
on the straight-line method over estimated useful lives of 10 to 32 years for
buildings and improvements and 3 to 12 years for machinery and equipment. Upon
retirement or disposal of an asset, the asset and related accumulated
depreciation are eliminated with any gain or loss reported in earnings.
II-10
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 6--OTHER CURRENT LIABILITIES
The components of other current liabilities were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and related costs......................... $17,776 $17,833
Advance payments from customers........................... 12,479 15,407
Warranty, installation and related costs.................. 12,472 10,477
Pension and other retiree benefit plan contributions...... 6,674 7,054
Acquisition and restructuring costs....................... 3,992 6,293
Other current liabilities................................. 9,092 13,550
------- -------
$62,485 $70,614
======= =======
</TABLE>
NOTE 7--PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company adopted Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" (FAS
No. 132) at December 31, 1998. This statement revises employers' disclosures of
pensions and other postretirement benefits, requires additional information on
changes in benefit obligations and fair value of plan assets and eliminates
certain disclosures.
In 1998, the Company settled its U.S. defined benefit pension plan which
resulted in a write-off of a prepaid pension asset of $2,031,000. At the time of
settlement there was an increase in the projected benefit obligation of the plan
of $16,544,000 that related to the allocation of the surplus of plan assets over
the benefit obligation to the active participants in the plan. The employees of
certain foreign operations participate in various postemployment benefit
arrangements, some of which are considered to be defined benefit pension plans
for financial reporting purposes.
As part of the acquisition of Pfauter in 1997, the Company assumed a
liability for an unfunded defined benefit pension plan of $22,577,000.
II-11
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 7--PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
The following tables show reconciliations of defined benefit pension plans
and postretirement benefit plans as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation, January 1........................ $145,638 $110,021 $ 29,898 $ 30,654
Service cost......................................... 907 894 119 118
Interest cost........................................ 5,356 8,031 2,062 2,044
Participants' contributions.......................... 294 226 436 320
Allocation of surplus to plan participants........... 16,544 -- -- --
Plan amendments...................................... 439 -- -- --
Actuarial (gains) losses............................. (5,780) 12,689 (890) (103)
Business acquired.................................... -- 22,577 -- --
Benefits paid........................................ (4,775) (8,319) (2,815) (3,135)
Settlement loss...................................... 3,538 -- -- --
Settlement payments.................................. (111,121) -- -- --
Foreign currency translation adjustments............. 2,308 (481) -- --
-------- -------- -------- --------
Benefit obligation, December 31...................... $ 53,348 $145,638 $ 28,810 $ 29,898
======== ======== ======== ========
CHANGE IN PLAN ASSETS
Fair value of plan assets, January 1................. $124,041 $105,462 $ -- $ --
Actual return on plan assets......................... 4,209 25,969 -- --
Company contributions................................ 1,858 1,069 2,379 2,815
Participants' contributions.......................... 294 226 436 320
Benefits paid........................................ (4,775) (8,319) (2,815) (3,135)
Settlement payments.................................. (111,121) -- -- --
Foreign currency translation adjustments............. 74 (366) -- --
-------- -------- -------- --------
Fair value of plan assets, December 31............... $ 14,580 $124,041 $ -- $ --
======== ======== ======== ========
RECONCILIATION OF FUNDED STATUS
Funded status........................................ $(38,768) $(21,597) $(28,810) $(29,898)
Unrecognized prior service cost...................... 420 651 -- --
Unrecognized net transition obligation............... 912 1,050 -- --
Unrecognized actuarial (gains) losses................ 5,904 (6,314) (5,570) (4,709)
-------- -------- -------- --------
(Accrued) benefit costs prior to additional minimum
liability.......................................... $(31,532) $(26,210) $(34,380) $(34,607)
======== ======== ======== ========
AMOUNTS RECOGNIZED IN CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost................................. $ -- $ 2,031 $ -- $ --
(Accrued) benefit cost............................... (35,706) (29,937) (34,380) (34,607)
Intangible asset..................................... 665 327 -- --
Minimum pension liability adjustment................. 3,509 1,369 -- --
-------- -------- -------- --------
Net amount recognized at December 31................. $(31,532) $(26,210) $(34,380) $(34,607)
======== ======== ======== ========
</TABLE>
II-12
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 7--PENSIONS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate........................................ 6.4% 6.3% 7.0% 7.0%
Expected return on plan assets....................... 8.9% 9.0% -- --
Rate of compensation increase........................ 3.4% 4.3% -- --
</TABLE>
The following table summarizes the components of the net periodic benefit
costs for defined benefit pension plans and postretirement benefit plans for the
periods ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------ ------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost..................................... $ 907 $ 987 $ 598 $ 119 $ 118 $ 111
Interest cost.................................... 5,356 8,003 7,281 2,062 2,044 2,105
Expected return on plan assets................... (5,148) (7,289) (8,100) -- -- --
Amortization of prior service cost............... 64 109 109 -- -- --
Amortization of transition obligation............ 141 141 138 -- -- --
Amortization of (gain) loss...................... 222 116 440 (31) (171) (141)
Settlement loss.................................. 3,538 -- -- -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit cost........................ $ 5,080 $ 2,067 $ 466 $2,150 $1,991 $2,075
======= ======= ======= ====== ====== ======
</TABLE>
The amounts applicable to the Company's pension plans with accumulated
benefit obligations in excess of plan assets at December 31, 1998 and 1997 were
as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Projected benefit obligation.............................. $53,348 $31,274
Accumulated benefit obligation............................ 50,239 28,245
Fair value of plan assets................................. 14,580 --
</TABLE>
The Company has postretirement benefit plans which provides health and life
insurance benefits for retired employees of certain of its current and former
U.S. subsidiaries. Health benefits are provided through supplemental insurance
policies whose premiums are based on group rates. Life insurance benefits are
paid directly by the Company. The cost of the health insurance premiums of this
plan are shared between the Company and the retiree. The effect of a
one-percentage point change in assumed health care cost trend rate has no effect
on either the total of the service and interest cost components of expense or
the postretirement benefit obligation due the fact that there are no future
increases in the Company's share of the health insurance premiums.
All U.S. employees participate in defined contribution retirement plans.
Amounts contributed under these plans are based upon a percentage of
compensation for eligible employees. The amounts expensed under these plans were
$2,551,000, $2,056,000 and $1,616,000 in 1998, 1997 and 1996, respectively.
II-13
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 8--DEBT
Long-term debt at December 31, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks under term loan and revolving
credit agreements....................................... $28,664 $37,976
Other obligations......................................... 250 1,881
------- -------
28,914 39,857
Less current maturities................................... 8 1,613
------- -------
$28,906 $38,244
======= =======
</TABLE>
At December 31, 1998, the Company had a $100 million revolving credit
facility providing for multi-currency borrowings, standby letters of credit and
bank guarantees. The revolving credit facility matures on July 1, 2002. Up to
$40 million of the revolving credit facility is available for issuance of
letters of credit or bank guarantees of which $24.2 million was outstanding at
December 31, 1998. The credit facility is unsecured (except for pledges of 65%
of the stock of certain designated foreign subsidiaries of the Company) and
there are no prepayment penalties. The revolving credit facility provides the
Company the option to borrow on a spread over LIBOR as determined by certain
financial ratios which is adjusted on a quarterly basis. The weighted average
borrowing rate was 3.78% at December 31, 1998 and 4.44% at December 31, 1997.
The credit agreement relating to the facility contains customary financial ratio
covenants and provisions which restrict the Company's ability to pay dividends
in the event of default.
Lines of credit of the consolidated subsidiaries are generally in connection
with bank overdraft and note facilities for which there are neither material
commitment fees nor compensating balance requirements. Unused short and
long-term credit lines with banks, including the revolving credit facility,
totaled approximately $86.3 million at December 31, 1998. The weighted average
borrowing rates under short-term credit facilities were 4.93% and 7.73% at
December 31, 1998 and 1997, respectively.
Scheduled maturities of long-term debt in each of the next five years are
$8,000, $107,000, $19,000, $28,677,000 and $103,000 in 1999 through 2003,
respectively.
Interest expense for each of the three years in the period ended
December 31, 1998 was $2,129,000, $2,308,000 and $877,000, respectively.
NOTE 9--INCOME TAXES
For financial reporting purposes, income before income taxes included the
following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States.................................... $25,348 $24,980 $14,619
Foreign.......................................... 17,924 13,199 16,124
------- ------- -------
Total............................................ $43,272 $38,179 $30,743
======= ======= =======
</TABLE>
II-14
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 9--INCOME TAXES (CONTINUED)
Provisions (benefits) for income taxes included the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $ 6,940 $ 7,706 $1,703
State........................................... 1,321 1,612 556
Foreign......................................... 4,944 4,113 6,538
------- ------- ------
Total current..................................... $13,205 $13,431 $8,797
======= ======= ======
Deferred:
Federal......................................... $ 1,100 $ (938) $3,045
State........................................... 217 (68) --
Foreign......................................... 2,633 1,659 (759)
------- ------- ------
Total deferred.................................... $ 3,950 $ 653 $2,286
======= ======= ======
</TABLE>
The differences between the United States federal statutory income tax rate
and the Company's effective tax rate were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
U.S. federal statutory rate.................... 35.0% 35.0% 35.0%
Effect of change in valuation allowance........ --% (4.7%) (3.3%)
Effect of consolidating foreign subsidiaries... 3.0% 3.0% 4.2%
State taxes, net of federal benefit............ 2.3% 2.6% 1.2%
Other.......................................... (.7%) 1.0% (1.0%)
----- ----- -----
Effective tax rate............................. 39.6% 36.9% 36.1%
===== ===== =====
</TABLE>
II-15
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 9--INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued retiree and other employee benefits............. $19,183 $17,086
Nondeductible accrued costs............................. 6,434 4,622
Tax credit and loss carryforwards....................... 4,806 5,434
Deferred revenue and other.............................. 3,805 5,088
Accrued restructuring costs............................. 2,763 3,724
Total deferred tax assets............................... 36,991 35,954
------- -------
Less valuation allowance................................ 9,383 10,895
------- -------
Deferred tax asset........................................ 27,608 25,059
Deferred tax liabilities:
Depreciation and amortization........................... 10,544 7,595
Other................................................... 3,715 757
------- -------
Total deferred tax liabilities........................ 14,259 8,352
Net deferred tax asset.................................... $13,349 $16,707
======= =======
</TABLE>
The net deferred tax asset of $13,349,000 at December 31, 1998 ($16,707,000
in 1997) is presented in the Consolidated Balance Sheets as follows: $9,439,000
($7,714,000 in 1997) in other current assets; $7,568,000 ($10,309,000 in 1997)
in other assets (non-current) and $3,658,000 ($1,316,000 in 1997) in other
liabilities (non-current).
The valuation allowance decreased by $1.5 million at December 31, 1998
primarily related to realization of certain deferred tax assets related to the
Pfauter acquisition. This reduction was applied to reduce goodwill recorded on
the acquisition. A valuation allowance totaling $5.9 million related to the
Pfauter acquisition will be applied to reduce goodwill when, and if, these tax
benefits are realized. The remaining valuation allowance at December 31, 1998
was required for domestic tax credits which could expire before they are
utilized and a German loss carryforward that could not be recognized due to a
history of recent losses. The valuation allowance at December 31, 1997 was
required for these same issues. Management believes that sufficient income will
be earned in future years to fully realize the net deferred tax asset.
Foreign tax loss carryforwards totaling $5.1 million are available to reduce
future taxable income, of which $4.8 million may be carried forward
indefinitely, and $.3 million which will expire in 2001. U.S. tax credits of
$2.8 million are also available to reduce future federal and state income taxes
and expire at various dates through 2008.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $25.8 million at December 31, 1998. Those earnings are considered
to be indefinitely reinvested and accordingly no provisions for U.S. federal or
state income taxes have been provided thereon. Upon distribution of these
earnings, the Company would be subject to both U.S. income tax (potentially
offset by foreign tax credits) and withholding taxes payable to the foreign
country. It is not practicable to estimate the amount of additional tax that
might be payable on the foreign earnings.
II-16
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 10--STOCK PLANS
The Company's 1992 Stock Plan is a successor to the Company's 1981 Stock
Plan. No additional awards could be made under the 1981 Stock Plan after
December 16, 1991.
Under the Company's 1992 Stock Plan, 1,000,000 common shares have been
reserved for granting of options, stock appreciation rights (SARs) and
restricted stock to key employees. Options are granted at prices equal to 100%
of the market value of the common stock at the date of grant and may be
exercisable beginning six months and ending ten years from the date of grant.
The Executive Compensation Committee of the Company's Board of Directors at its
discretion may at the time of grant of an option provide further limitations on
periods during which options may be exercised. SARs allow the optionee to
surrender the option and receive a number of shares of common stock, cash, or
cash and shares of common stock, as the Executive Compensation Committee
determines, with an aggregate value equal to the amount by which the fair market
value of the shares covered by the surrendered option exceeds the option price.
Increases in the value of SARs resulting from changes in the market value of
common stock will be charged to expense as they occur. Options automatically
carry with them conditional SARs which are exercisable in the event of a tender
offer meeting certain specified conditions. No SARs have been granted under the
Plan.
Under the Plan an option to purchase 6,000 shares is granted each year to
each director of the Company who is not, and has not been an employee of the
Company since the beginning of the preceding year.
Grants of restricted stock entitle the grantee to vote and receive cash
dividends on the shares, but not to transfer or otherwise dispose of such shares
while they are subject to restrictions. The restriction period cannot be less
than one year or more than ten years from the date of grant. As restrictions
lapse, the difference between the market value on the date of grant and the
grant price, if any, is charged to expense. Any dividends paid to the grantee
during the restriction period are also charged to expense. Grants of 6,675
shares and 12,000 shares of restricted stock were made in 1998 and 1997,
respectively, and restrictions lapsed on 4,000 and 800 shares in 1998 and 1997,
respectively. 14,675 restricted shares were outstanding at December 31, 1998 and
12,000 restricted shares were outstanding at December 31, 1997.
II-17
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 10--STOCK PLANS (CONTINUED)
The following is a summary of option transactions under both Plans:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
-------- ---------------------
<S> <C> <C>
Outstanding December 31, 1995....................... 634,498 $ 5.66-$17.41
Granted............................................. 103,000 $14.85-$20.38
Exercised........................................... (53,822) $ 7.00-$ 9.38
--------
Outstanding December 31, 1996....................... 683,676 $ 5.66-$20.38
Granted............................................. 140,000 $18.91-$26.03
Forfeited........................................... (4,000) $ 7.47
Exercised........................................... (64,024) $ 5.66-$17.41
--------
Outstanding December 31, 1997....................... 755,652 $ 5.66-$26.03
Granted............................................. 139,500 $19.03-$29.78
Exercised........................................... (112,562) $ 5.66-$20.38
--------
Outstanding December 31, 1998....................... 782,590 $ 5.66-$29.78
========
Exercisable at December 31:
1998.............................................. 685,090 $ 5.66-$29.78
1997.............................................. 657,652 $5.66-$20.38
1996.............................................. 594,676 $ 5.66-$20.38
Available for additional grants at December 31:
1998.............................................. 170,025
1997.............................................. 316,200
1996.............................................. 464,200
1995.............................................. 567,200
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FAS No. 123, "Accounting for Stock-Based Compensation," requires use of option
valuation models. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FAS No. 123, which also requires that the information be determined
as if the Company had accounted for its stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions: risk free
interest rates of 5.22% and 5.18% for 1998, 5.73% and 5.69% for 1997 and 6.80%
and 6.34% for 1996; a dividend yield of 0.98% for 1998, 1.11% for 1997 and 1.38%
for 1996; volatility factors of the expected market price of the Company's
Common Stock of .428, .424 and .486 in 1998, .367, .379 and .402 in 1997 and
.313 and .358 in 1996; and a weighted average expected life of the options of
7 years. The weighted average exercise price and remaining contractual life of
these options were $14.77 and 7 years, respectively, as of December 31, 1998.
II-18
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 10--STOCK PLANS (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Pro forma net income............................. $25,002 $23,251 $19,209
Pro forma earnings per share:
Basic.......................................... $ 2.41 $ 2.33 $ 1.86
Diluted........................................ 2.33 2.24 1.80
</TABLE>
NOTE 11--PREFERRED STOCK PURCHASE RIGHTS
Pursuant to the Company's Shareholder Rights Plan, each outstanding share of
the Company's common stock carries one Preferred Stock purchase right. Each
right, when exercisable, entitles the holder to purchase from the Company for
$22.50 one two-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $1 per share, of the Company. The Rights become exercisable,
subject to certain exceptions, upon announcement that a person or group has
acquired 15% or more of the Company's outstanding common stock, or 10 days, or
such other period as the Board may determine, following commencement of, or
announcement of an intention to commence, a tender or exchange offer
consummation of which would result in a person or group owning 15% or more of
the Company's outstanding common stock, whichever occurs first. If any person or
group becomes the beneficial owner of 15% of the outstanding common stock, other
than pursuant to a Permitted Offer, as defined in the Plan, holders, other than
an Acquiring Person as defined in the Plan, will have the right to purchase from
the Company common stock (or, in certain circumstances, cash, property or other
securities of the Company or to a reduction in the purchase price) having a
value equal to two times the exercise price of $22.50, or the Board may elect to
issue without any payment common stock and/or equivalents of the Company with a
value equal to the exercise price. If a person or group becomes beneficial owner
of 15% or more of the Company's outstanding common stock and the Company is
thereafter acquired by another entity, by merger, consolidation, or transfer of
50% or more of the Company's assets, in one or more transactions, holders of
Rights, other than an Acquiring Person, will have the right to receive, upon
exercise common shares of the acquiring company (including the Company if it is
the surviving company) having a value two times the exercise price ($22.50) of
the Right. The Rights will expire on June 15, 1999, unless exercised by the
holder or redeemed by the Company prior to that date. The Company may, subject
to certain conditions, redeem the Rights at a price of $.005 per Right.
II-19
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 12--SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for income taxes were $19,129,000, $8,151,000 and $3,188,000
for 1998, 1997 and 1996, respectively. Interest payments were $2,038,000,
$1,470,000 and $963,000 in 1998, 1997 and 1996, respectively.
NOTE 13--SEGMENT, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
(FAS No. 131) at December 31, 1998. This Statement establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making decisions on how
to allocate resources or assess performance. The Company's operations are
treated as one operating segment. The principal activity within this operating
segment is the design, manufacture and sale of machinery and equipment for the
production of gears. As a result, the financial information disclosed herein
materially represents all of the financial information related to the Company's
principal operating segment.
Information about the Company's product sales were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Machines...................................... $259,620 $228,861 $161,302
All other products and services............... 149,706 109,812 86,787
-------- -------- --------
Net sales..................................... $409,326 $338,673 $248,089
======== ======== ========
</TABLE>
The Company's operations are primarily located in the United States and
Germany. Sales are attributed to countries based on the location of the
customers. Geographical information regarding sales were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
United States................................. $155,820 $123,599 $ 66,244
Germany....................................... 72,746 58,026 39,584
Other countries............................... 180,760 157,048 142,261
-------- -------- --------
Net sales..................................... $409,326 $338,673 $248,089
======== ======== ========
</TABLE>
II-20
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 13--SEGMENT, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION (CONTINUED)
Geographical information regarding long-lived assets were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
United States........................................... $102,253 $105,424
Germany................................................. 37,751 34,838
Other countries......................................... 12,170 12,028
Corporate assets........................................ 3,695 194
-------- --------
Total long-lived assets................................. $155,869 $152,484
======== ========
</TABLE>
The Company had one customer account for 10% of consolidated net sales in
1998. A different customer accounted for 10% and 14% of consolidated net sales
in 1997 and 1996, respectively.
NOTE 14--ENVIRONMENTAL MATTERS
Environmental expenditures are expensed or capitalized in accordance with
generally accepted accounting principles. Liabilities are recorded when
environmental assessments and/or remedial efforts are probable, and the costs
can be reasonably estimated.
The Company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative
proceedings involving different sites under these laws, as a participant in a
group of potentially responsible parties. These proceedings are at various
stages, and it is impossible to estimate with any certainty the ultimate cost,
timing and extent of remedial actions which may be required by governmental
authorities, or the amount of the liability, if any, of the Company alone or in
relation to that of the other responsible parties. Based on the facts presently
known, the Company does not believe that the outcome of any of these proceedings
will have a material adverse effect on its results of operations or financial
position.
NOTE 15--CONCENTRATIONS OF RISK
The Company's major customers are predominately in the automotive and truck
industries. Other markets utilizing the Company's products include aerospace,
agriculture, construction, industrial machinery, marine and power tool
industries. Customers in the automotive and truck industries accounted for 58%
and 73% of sales in 1998 and 1997, respectively. A decline in automotive or
truck production could result in a decline in the Company's results of
operations or a deterioration in the Company's financial position.
The Company's markets are worldwide. Approximately 62% and 64% of total
sales in 1998 and 1997, respectively, were to customers outside of the U.S. This
geographical sales distribution offsets, to a degree, the cyclical fluctuations
of regional economies. As such, the Company is not significantly at risk to the
economic cycle of a single region.
II-21
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 16--COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, the ultimate liability, if any,
resulting from such actions will not have a material impact on the Company's
future results of operations or financial position.
The Company was contingently liable under standby letters of credit and bank
guarantees issued in the normal course of business for $26.6 million at
December 31, 1998 ($27.0 million at December 31, 1997).
NOTE 17--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and equivalents: The carrying amount reported in the balance sheet for
cash and equivalents approximates its fair value.
Long and short-term debt: The carrying amounts of the Company's short-term
borrowings and variable rate long-term debt approximate their fair value.
Foreign currency exchange contracts: The Company's use of derivative
financial instruments is substantially limited to the use of forward exchange
contracts to hedge foreign currency transactions entered into in the ordinary
course of business and not to engage in currency speculation. The Company's
forward exchange contracts do not subject the Company to risk from exchange rate
movements because gains and losses on such contracts offset gains and losses on
the transactions being hedged. Accordingly, the unrealized gains and losses are
deferred and included in the measurement of the related foreign currency
transaction. The forward exchange contracts generally have maturities which
coincide with the settlement dates of the related transactions and generally do
not exceed one year. The exchange rates are agreed to at the inception of the
contracts. The aggregate contract value of agreements to sell foreign currencies
in exchange for U.S. dollars was $3.6 million and $2.4 million at December 31,
1998 and 1997, respectively. The aggregate value of contracts for the sale of
U.S. dollars in exchange for foreign currencies was $11.7 million and
$15.2 million at December 31, 1998 and 1997, respectively. The aggregate value
of contracts for the exchange of other foreign currencies was $1.1 million and
$3.5 million at December 31, 1998 and 1997, respectively. The fair values of
these contracts, representing the difference between the contract values and the
estimated settlement values based on the quoted market prices of comparable
contracts at December 31, 1998 and 1997 were not material.
II-22
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents...................................... $ 7,474 $ 13,229
Trade accounts receivable................................. 78,201 89,095
Inventories............................................... 76,380 58,614
Other current assets...................................... 15,314 16,094
-------- --------
Total current assets.................................... 177,369 177,032
Property, plant and equipment, at cost...................... 271,089 265,790
Less accumulated depreciation............................. 145,366 133,468
-------- --------
125,723 132,322
Goodwill.................................................... 18,558 16,682
Other assets................................................ 14,508 14,433
-------- --------
Total assets................................................ $336,158 $340,469
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term borrowings..................................... $ 7,380 $ 1,853
Current portion of long-term debt......................... 318 8
Trade accounts payable.................................... 28,175 33,421
Income taxes.............................................. 6,102 6,790
Other current liabilities................................. 63,412 62,485
-------- --------
Total current liabilities............................... 105,387 104,557
Long-term debt.............................................. 24,363 28,906
Pension plans and other retiree benefits.................... 65,856 66,163
Other liabilities........................................... 12,397 12,872
-------- --------
Total liabilities....................................... 208,003 212,498
Stockholders' equity
Common stock.............................................. 11,594 11,594
Additional paid-in capital................................ 11,914 12,443
Retained earnings......................................... 138,488 131,323
Accumulated other comprehensive income.................... (6,059) (5,688)
-------- --------
155,937 149,672
Less treasury stock, at cost.............................. 27,782 21,701
-------- --------
Total stockholders' equity................................ 128,155 127,971
-------- --------
Total liabilities and stockholders' equity.................. $336,158 $340,469
======== ========
</TABLE>
See notes to consolidated financial statements.
II-23
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales................................................... $ 79,799 $ 96,879
Costs and expenses
Cost of products sold..................................... 53,598 65,531
Selling, general and administrative expenses.............. 19,354 18,788
Research and development expenses......................... 1,819 2,869
Interest expense--net..................................... 308 137
Other (income)--net....................................... (318) (273)
--------- ----------
Income before income taxes.................................. 5,038 9,827
Provision for income taxes.................................. 2,022 3,846
--------- ----------
Net income.................................................. $ 3,016 $ 5,981
========= ==========
Ratio of earnings to fixed charges..........................
Book value per share........................................
Earnings per common share:
Basic..................................................... $ .31 $ .57
========= ==========
Diluted................................................... $ .31 $ .55
========= ==========
Weighted average number of common shares outstanding:
Basic..................................................... 9,586,185 10,479,530
Diluted................................................... 9,832,136 10,832,950
Cash dividends declared per common share.................... $ .0625 $ .0625
========= ==========
</TABLE>
See notes to consolidated financial statements.
II-24
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1999 1998
----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales................................................... $ 246,611 $ 300,447
Costs and expenses
Cost of products sold..................................... 168,909 207,271
Selling, general and administrative expenses.............. 55,083 53,318
Research and development expenses......................... 6,593 7,775
Restructuring costs....................................... 1,200 --
Loss on settlement of pension plan........................ -- 2,031
Interest expense--net..................................... 662 779
Other (income)--net....................................... (1,287) (344)
--------- ----------
Income before income taxes.................................. 15,451 29,617
Provision for income taxes.................................. 6,465 11,867
--------- ----------
Net income.................................................. $ 8,986 $ 17,750
========= ==========
Earnings per common share:
Basic..................................................... $ .93 $ 1.69
========= ==========
Diluted................................................... $ .90 $ 1.63
========= ==========
Weighted average number of common shares outstanding:
Basic..................................................... 9,687,252 10,482,297
Diluted................................................... 9,938,302 10,885,535
Cash dividends declared per common share.................... $ .1875 $ .1875
========= ==========
</TABLE>
See notes to consolidated financial statements.
II-25
<PAGE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 8,986 $17,750
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on settlement of pension plan...................... -- 2,031
Depreciation and amortization........................... 17,204 16,004
(Gain) loss on disposals of property, plant and
equipment............................................. (1,123) 209
Provision for deferred income taxes..................... 1,975 1,030
Changes in operating assets and liabilities:
Decrease in accounts receivable....................... 12,967 11,147
(Increase) in inventories............................. (15,461) (2,926)
(Increase) decrease in other current assets........... 1,070 (533)
(Decrease) in trade accounts payable.................. (6,373) (155)
(Decrease) in all other current operating
liabilities......................................... (5,040) (8,882)
Other, net............................................ 2,038 1,078
------- -------
Net cash provided by operating activities................. 16,243 36,753
Cash flows from investing activities:
Capital expenditures...................................... (15,702) (17,835)
Acquisition of business, net of cash acquired............. 365 --
Proceeds from asset disposals............................. 4,808 209
Proceeds from collection of notes receivable.............. -- 27
------- -------
Net cash (used in) investing activities................... (10,529) (17,599)
Cash flows from financing activities:
(Repayments of) short-term borrowings..................... (19) (1,490)
Net (repayments) under term loan and revolving credit
agreements.............................................. (2,980) (9,310)
Net proceeds from (repayment of) long-term debt........... 398 (1,574)
Purchase of treasury stock................................ (7,213) (5,421)
Net stock issues.......................................... 602 701
Dividends paid............................................ (1,821) (1,968)
------- -------
Net cash (used in) financing activities................... (11,033) (19,062)
Effect of exchange rate changes on cash and equivalents..... (436) 245
------- -------
Increase (decrease) in cash and equivalents................. (5,755) 337
Cash and equivalents, beginning............................. 13,229 12,478
------- -------
Cash and equivalents, ending................................ $ 7,474 $12,815
======= =======
</TABLE>
See notes to consolidated financial statements.
II-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
(a) the results of operations for the three- and nine-month periods ended
September 30, 1999 and 1998, (b) the financial position at September 30,
1999 and December 31, 1998, and (c) the cash flows for the nine-month
periods ended September 30, 1999 and 1998, of Gleason Corporation and
subsidiaries.
2. The results of operations for the nine-month period ended September 30, 1999
are not necessarily indicative of the results to be expected for the full
year.
3. All significant intercompany transactions are eliminated in consolidation.
4. The components of inventories were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and purchased parts........................... $13,139 $12,626
Work in process............................................. 44,462 33,508
Finished goods.............................................. 18,779 12,480
------- -------
$76,380 $58,614
======= =======
</TABLE>
5. Net cash payments for income taxes were $5,239,000 and $13,865,000 for the
nine months ended September 30, 1999 and 1998, respectively. Interest
payments were $929,000 and $1,583,000 for the nine months ended
September 30, 1999 and 1998, respectively.
6. Comprehensive income includes all changes in equity during a period except
those resulting from transactions with owners of the Company. The components
of the Company's comprehensive income for the three- and nine-month periods
ended September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income......................................... $3,016 $5,981 $8,986 $17,750
Foreign currency translation adjustments........... 2,011 546 (401) 553
Minimum pension liability adjustments.............. (10) (560) 30 (560)
------ ------ ------ -------
Comprehensive income............................... $5,017 $5,967 $8,615 $17,743
====== ====== ====== =======
</TABLE>
The components of accumulated other comprehensive income shown on the
balance sheet were as follows:
<TABLE>
<CAPTION>
9/30/99 12/31/98
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cumulative foreign currency translation adjustments......... $(3,836) $(3,435)
Minimum pension liability adjustments....................... (2,223) (2,253)
------- -------
Accumulated other comprehensive income...................... $(6,059) $(5,688)
======= =======
</TABLE>
II-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
7. The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information" (FAS
No. 131), at December 31, 1998. The Company's operations are treated as one
operating segment. The principal activity within this operating segment is
the design, manufacture and sale of machinery and equipment for the
production of gears. As a result, the financial information disclosed herein
represents all of the financial information related to the Company's
principal operating segment.
8. The Company has not yet adopted Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
No. 133), which provides new guidelines for accounting for derivative
instruments. FAS No. 133 requires companies to recognize all derivatives on
the balance sheet at fair value. Gains or losses resulting from changes in
the values of the derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. The Company is
currently analyzing what impact the new guidelines will have on the Company.
This Statement is effective for fiscal years beginning after June 15, 2000.
II-28
<PAGE>
EXHIBIT III
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GLEASON CORPORATION,
TORQUE ACQUISITION CO., L.L.C.
AND
TORQUE MERGER SUB, INC.
DATED AS OF DECEMBER 8, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I
THE OFFER................................................................................... 2
Section 1.1 THE OFFER.................................................. 2
Section 1.2 COMPANY ACTIONS............................................ 3
Section 1.3 DIRECTORS.................................................. 4
ARTICLE II
THE MERGER.................................................................................. 5
Section 2.1 THE MERGER................................................. 5
Section 2.2 CLOSING.................................................... 5
Section 2.3 EFFECTIVE TIME............................................. 5
Section 2.4 EFFECTS OF THE MERGER...................................... 5
Section 2.5 CERTIFICATE OF INCORPORATION AND BY-LAWS................... 5
Section 2.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION........ 5
Section 2.7 STOCKHOLDERS' MEETING...................................... 6
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE COMPANY AND MERGER SUBSIDIARY..............
6
Section 3.1 EFFECT ON CAPITAL STOCK.................................... 6
Section 3.2 PAYMENT FOR SHARES......................................... 7
Section 3.3 DISSENTING SHARES.......................................... 9
Section 3.4 COMPANY OPTIONS............................................ 9
Section 3.5 DIRECTOR FEE DEFERRAL PLAN................................. 9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................... 10
Section 4.1 ORGANIZATION, STANDING AND QUALIFICATION................... 10
Section 4.2 SUBSIDIARIES............................................... 10
Section 4.3 CAPITALIZATION............................................. 10
Section 4.4 AUTHORIZATION.............................................. 11
Section 4.5 NON-CONTRAVENTION.......................................... 11
Section 4.6 COMPLIANCE WITH APPLICABLE LAW............................. 11
Section 4.7 SEC REPORTS; FINANCIAL STATEMENT........................... 12
Section 4.8 NO UNDISCLOSED MATERIAL LIABILITIES........................ 12
Section 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS....................... 12
Section 4.10 LITIGATION................................................. 12
Section 4.11 INFORMATION IN DISCLOSURE DOCUMENTS........................ 12
Section 4.12 TAX MATTERS................................................ 13
Section 4.13 EMPLOYEE MATTERS; ERISA.................................... 13
Section 4.14 ENVIRONMENTAL MATTERS...................................... 14
Section 4.15 REAL PROPERTY.............................................. 15
Section 4.16 BROKERS OR FINDERS......................................... 15
Section 4.17 OPINION OF FINANCIAL ADVISOR............................... 15
Section 4.18 VOTE REQUIRED.............................................. 15
Section 4.19 STATE TAKEOVER STATUTES.................................... 15
Section 4.20 BANK COMMITMENT LETTER..................................... 15
Section 4.21 RIGHTS AGREEMENT........................................... 15
Section 4.22 YEAR 2000 COMPLIANCE....................................... 16
</TABLE>
III-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 4.23 MATERIAL CONTRACTS......................................... 16
Section 4.24 INSURANCE.................................................. 16
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUISITION COMPANY AND MERGER SUBSIDIARY.................
16
Section 5.1 ORGANIZATION, STANDING AND QUALIFICATION................... 16
Section 5.2 AUTHORIZATION.............................................. 17
Section 5.3 NON-CONTRAVENTION.......................................... 17
Section 5.4 INFORMATION IN DISCLOSURE DOCUMENTS........................ 18
Section 5.5 BROKERS OR FINDERS......................................... 18
Section 5.6 SUFFICIENT FUNDS........................................... 18
Section 5.7 MERGER SUBSIDIARY'S OPERATIONS............................. 18
Section 5.8 CERTAIN AGREEMENTS WITH ACQUISITION COMPANY................ 18
ARTICLE VI
COVENANTS................................................................................... 19
Section 6.1 INTERIM OPERATIONS OF THE COMPANY.......................... 19
Section 6.2 ACCESS TO INFORMATION...................................... 20
Section 6.3 INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY... 20
Section 6.4 PUBLICITY.................................................. 21
Section 6.5 EMPLOYEE MATTERS........................................... 21
Section 6.6 NO SOLICITATION............................................ 22
Section 6.7 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION.......... 23
Section 6.8 FURTHER ASSURANCES......................................... 23
Section 6.9 STOCKHOLDER LITIGATION..................................... 24
Section 6.10 MATTERS RELATING TO THE BANK COMMITMENT LETTER............. 24
Section 6.11 SALE OF ADDITIONAL SERIES A PREFERRED/WARRANT CONSIDERATION
TO ACQUISITION COMPANY................................... 24
Section 6.12 CERTAIN BOARD ACTIONS PENDING THE EFFECTIVE TIME........... 24
ARTICLE VII
CONDITIONS.................................................................................. 25
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER................................................... 25
Section 7.2 ADDITIONAL CONDITION TO THE COMPANY'S OBLIGATION TO EFFECT
THE MERGER............................................... 25
ARTICLE VIII
TERMINATION................................................................................. 25
Section 8.1 TERMINATION................................................ 25
Section 8.2 EFFECT OF TERMINATION...................................... 27
Section 8.3 FEES, EXPENSES AND OTHER PAYMENTS.......................... 27
ARTICLE IX
MISCELLANEOUS............................................................................... 28
Section 9.1 AMENDMENT AND MODIFICATION................................. 28
Section 9.2 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.............. 28
Section 9.3 NOTICES.................................................... 28
Section 9.4 INTERPRETATION............................................. 29
Section 9.5 COUNTERPARTS............................................... 29
Section 9.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES................ 30
Section 9.7 SEVERABILITY............................................... 30
</TABLE>
III-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 9.8 GOVERNING LAW.............................................. 30
Section 9.9 SPECIFIC PERFORMANCE....................................... 30
Section 9.10 ASSIGNMENT................................................. 30
Section 9.11 HEADINGS................................................... 30
Section 9.12 WAIVERS.................................................... 30
</TABLE>
<TABLE>
<CAPTION>
Annexes
- -------
<S> <C>
Annex A--Conditions to the Offer
Annex B--Form of Amended and Restated Certificate of
Incorporation
Annex C--Form of Amended and Restated Bylaws
Annex D--Warrant Agreement Term Sheet
</TABLE>
III-iii
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- --------
<S> <C>
Acquisition Company......................................... 1
Acquisition Company Directors............................... 4
Acquisition Company Disclosure Schedule..................... 16
Acquisition Company Material Adverse Effect................. 17
Acquisition Proposal........................................ 22
affiliate(s)................................................ 29
Agreement................................................... 32
Amended Charter............................................. 5
Bank........................................................ 15
Bank Commitment Letter...................................... 15
blue sky.................................................... 11
Cash Account................................................ 9
Certificate of Merger....................................... 5
Certificates................................................ 8
Change in Control........................................... 22
Claim....................................................... 20
Closing..................................................... 5
Closing Date................................................ 5
Code........................................................ 14
Company..................................................... 1
Company Common Stock........................................ 1
Company Disclosure Schedule................................. 10
Company Material Adverse Effect............................. 10
Company Option Plans........................................ 9
Company Options............................................. 9
Company Preferred Stock..................................... 10
Company SEC Reports......................................... 12
Company Voting Securities................................... 28
Confidentiality Agreement................................... 4
Continuing Stockholders..................................... 7
Deferral Plan............................................... 9
Definitive Financing Agreements............................. 24
DGCL........................................................ 1
Dissenting Shares........................................... 9
Effective Time.............................................. 5
employee benefit plan....................................... 21
Environmental Laws.......................................... 14
ERISA....................................................... 14
ERISA Affiliate............................................. 13
Excess Shares............................................... 25
Exchange Act................................................ 11
Exchange Agent.............................................. 7
Executive Agreements........................................ 19
Expenses.................................................... 27
Financial Statements........................................ 12
Financing................................................... 15
Foundation.................................................. 2
</TABLE>
III-iv
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- --------
<S> <C>
Foundation Agreement........................................ 18
GAAP........................................................ 12
Governmental Authority...................................... 11
Hazardous Materials......................................... 15
herein...................................................... 29
hereof...................................................... 29
herewith.................................................... 29
HSR Act..................................................... 11
include..................................................... 29
includes.................................................... 29
including................................................... 29
Indemnified Party........................................... 20
Independent Directors....................................... 4
Letter of Transmittal....................................... 8
Liens....................................................... 10
Material Contracts.......................................... 16
materiality................................................. 26
Merger...................................................... 1
Merger Consideration........................................ 6
Merger Subsidiary........................................... 1
Minimum Condition........................................... 2
multiemployer pension plan.................................. 14
New Third Party Acquirer.................................... 28
Offer....................................................... 1
Offer Documents............................................. 3
Offer Price................................................. 1
Offer to Purchase........................................... 2
Other Contracts............................................. 16
Participant................................................. 9
Permits..................................................... 12
Person...................................................... 8
Plans....................................................... 13
Proxy Statement............................................. 6
Remaining Shares............................................ 7
Retained Options............................................ 9
Retained Share.............................................. 7
Rights...................................................... 1
Rights Agreement............................................ 1
Schedule 13E-3.............................................. 3
Schedule 13E-4.............................................. 3
Schedule 14D-1.............................................. 3
Schedule 14D-9.............................................. 3
SEC......................................................... 3
Securities Act.............................................. 11
Series A Preferred.......................................... 7
Series A Preferred/Warrant Consideration.................... 7
Shares...................................................... 1
Significant Contracts....................................... 16
Software.................................................... 16
Special Committee........................................... 1
</TABLE>
III-v
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- --------
<S> <C>
Stock Account............................................... 9
Stockholders' Agreement..................................... 6
Stockholders' Approval...................................... 15
Stockholders' Meeting....................................... 6
Subsidiary.................................................. 10
Surviving Corporation....................................... 5
Surviving Corporation Common Stock.......................... 7
tail........................................................ 21
Tax Return.................................................. 13
Taxes....................................................... 13
Termination Fee............................................. 27
Third Party Acquirer........................................ 27
Unit Purchase............................................... 2
Unit Purchase Agreement..................................... 2
Vestar...................................................... 1
Warrant Agreement........................................... 7
Warrants.................................................... 7
without limitation.......................................... 29
</TABLE>
III-vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 8, 1999, by and among
Gleason Corporation, a Delaware corporation (the "Company"), Torque Acquisition
Co., L.L.C. ("Acquisition Company"), a Delaware limited liability company and a
wholly owned subsidiary of Vestar Capital Partners IV, L.P. ("Vestar"), and
Torque Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of
Acquisition Company ("Merger Subsidiary").
WHEREAS, upon the terms and subject to the conditions of this Agreement,
Merger Subsidiary shall merge with and into the Company (the "Merger") in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL");
WHEREAS, the Board of Directors of the Company, based on the unanimous
recommendation of the Special Committee of the Board of Directors of the Company
(the "Special Committee"), has determined that the Merger is advisable, fair to
and in the best interests of the Company and its stockholders (other than
Acquisition Company, Merger Subsidiary and their respective affiliates, and
certain stockholders (defined herein as the Continuing Stockholders), Mr. James
S. Gleason and the Foundation (as defined herein)) upon the terms and subject to
the conditions set forth herein, has approved the Merger, the Offer, this
Agreement and the other transactions contemplated hereby and has recommended
approval of the Merger and this Agreement by the stockholders of the Company;
WHEREAS, the Boards of Managers or Directors, as the case may be, of
Acquisition Company and Merger Subsidiary have each approved the Merger in
accordance with the DGCL, upon the terms and subject to the conditions set forth
herein;
WHEREAS, in accordance with the terms hereof, the Company and Acquisition
Company shall jointly commence a tender offer (the "Offer") to purchase for cash
all of the issued and outstanding shares of common stock, par value $1.00 per
share, of the Company, together with the rights (the "Rights") attached thereto
issued pursuant to the Rights Agreement, dated as of May 4, 1999 (the "Rights
Agreement"), between the Company and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent (collectively, the "Shares" or the "Company Common Stock"), at a
price of $23.00 per Share, net to the seller in cash (such price, or such higher
price per Share as may be paid in the Offer, being referred to herein as the
"Offer Price"), upon the terms and subject to the conditions of this Agreement
and the Offer;
WHEREAS, the Offer shall be a joint third party tender offer by Acquisition
Company and a self-tender offer by the Company to purchase at the Offer Price
all Shares tendered pursuant to the Offer, with Acquisition Company agreeing to
pay for and purchase the first 2,318,126 Shares tendered pursuant to the Offer
and the Company agreeing to pay for and purchase all Shares tendered in excess
of such 2,318,126 Shares paid for and purchased by Acquisition Company;
WHEREAS, the Board of Directors of the Company (acting with the
recommendation of the Special Committee) and the Board of Managers of
Acquisition Company have approved the making of the Offer, and the Board of
Directors of the Company (acting with the recommendation of the Special
Committee) has determined to recommend that stockholders of the Company tender
their Shares pursuant to the Offer; and
WHEREAS, the parties hereto intend that the Merger be treated as a
recapitalization for financial accounting purposes.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
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ARTICLE I
THE OFFER
Section 1.1 THE OFFER. (a) On the fifth business day following the public
announcement of the execution hereof, the Company and Acquisition Company shall
jointly commence the Offer to purchase all of the issued and outstanding Shares
at the Offer Price per Share. The Company and Acquisition Company shall, on the
terms and subject to the prior satisfaction or waiver of the conditions of the
Offer, accept for payment and pay for Shares validly tendered as soon as they
are legally permitted to do so under applicable law, with Acquisition Company
agreeing to pay for and purchase the first 2,318,126 Shares tendered pursuant to
the Offer and the Company agreeing to pay for and purchase all Shares tendered
in excess of such 2,318,126 Shares paid for and purchased by Acquisition
Company. The obligations of the Company and Acquisition Company to accept for
payment and to pay for Shares validly tendered on or prior to the expiration of
the Offer and not withdrawn shall be subject only to (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer that number of
Shares which would result in Acquisition Company, the Continuing Stockholders,
Mr. James Gleason, and the Gleason Foundation (the "Foundation") owning in the
aggregate at least two-thirds of the Shares outstanding on a fully diluted basis
after giving effect to the repurchase of Shares by the Company in the Offer and
assuming the cancellation of such Shares (the "Minimum Condition") and (ii) the
other conditions set forth in Annex A hereto. For purposes of the Offer, "on a
fully diluted basis" means, as of any date, the number of Shares that are
actually issued and outstanding plus the number of Shares that the Company is
required to issue pursuant to currently exercisable obligations outstanding as
of the applicable date under convertible securities, stock options and
otherwise. The Offer shall be made by means of an offer to purchase (the "Offer
to Purchase") containing the terms set forth in this Agreement, the Minimum
Condition and the other conditions set forth in Annex A hereto. Other than as
set forth in the second paragraph in Annex A hereto, Acquisition Company, after
consulting with the Company (acting through the Special Committee), shall make
all determinations with respect to the terms and conditions (including, without
limitation, with respect to the satisfaction or waiver of conditions) of the
Offer, PROVIDED, THAT Acquisition Company shall not (i) decrease the Offer Price
or change the form of consideration payable pursuant to the Offer (other than by
adding consideration), (ii) decrease the number of Shares sought, (iii) waive
the Minimum Condition or the condition set forth in subparagraph (f) of Annex A
attached hereto, (iv) impose any additional conditions or amend any other term
or condition of the Offer (other than by increasing the Offer Price) or
(v) extend the expiration date of the Offer beyond March 15, 2000, in each case
without the prior written consent of the Company (acting through the Special
Committee). Notwithstanding the foregoing, Acquisition Company may, in its sole
discretion (and, at the direction of Acquisition Company, the Company shall),
extend the Offer from time to time until March 15, 2000 if, and to the extent
that, at the initial expiration date of the Offer, or any extension thereof, all
conditions to the Offer have not been satisfied or waived. The initial
expiration date of the Offer shall be January 27, 2000. In addition, Acquisition
Company may, in its sole discretion (and, at the direction of Acquisition
Company and provided that the representations set forth in Section 5.6 shall
remain true and correct, the Company shall), increase the Offer Price and extend
the Offer to the extent required by law in connection with such increase.
Subject to the terms and conditions of the Offer, Acquisition Company shall use
its commercially reasonable efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Offer. Notwithstanding the
foregoing, the Company shall not be required to consummate the Offer or pay the
Offer Price for any Shares tendered unless the purchase of securities of
Acquisition Company by Vestar for a minimum purchase price of $53,316,898, as
contemplated by Section 1 of the Unit Purchase Agreement, dated as of
November 29, 1999 (the "Unit Purchase Agreement"), by and between Vestar and
Acquisition Company (the "Unit Purchase"), shall have occurred and the Company
shall be reasonably satisfied that the proceeds from the Unit Purchase shall be
deposited with the depositary for the Offer promptly following the expiration of
the Offer. Acquisition Company shall not amend, modify or terminate the Unit
Purchase Agreement in a manner adverse to the Company without the prior written
consent of the Company (acting
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through the Board of Directors of the Company acting with the recommendation of
the Special Committee).
(b) As soon as practicable on the date the Offer is commenced, with respect
to the Offer (i) the Company, Acquisition Company and Merger Subsidiary,
together with such other persons as shall be required to be included as parties
to such filing, shall file with the Securities and Exchange Commission (the
"SEC") a Rule 13E-3 Transaction Statement on Schedule 13E-3 (together with any
amendments and supplements thereto and including the exhibits thereto, the
"Schedule 13E-3"), (ii) the Company shall file with the SEC an Issuer Tender
Offer Statement on Schedule 13E-4 (together with any amendments and supplements
thereto and including the exhibits thereto, the "Schedule 13E-4"), and
(iii) Acquisition Company and Merger Subsidiary shall file with the SEC a Tender
Offer Statement on Schedule 14D-1 (together with any amendments and supplements
thereto and including the exhibits thereto, the "Schedule 14D-1"). The Schedule
13E-3, Schedule 13E-4 and Schedule 14D-1 shall each contain or incorporate by
reference the Offer to Purchase and a form of letter of transmittal and any
other documents related to the Offer (the Schedule 13E-3, Schedule 13E-4,
Schedule 14D-1, the Offer to Purchase, the letter of transmittal and such other
documents, together with any amendments and supplements thereto, shall be
collectively referred to herein as the "Offer Documents"). The Offer Documents
shall comply in all material respects with the provisions of applicable federal
securities laws. Each of the parties hereto shall take all steps necessary to
cause the Offer Documents to be filed with the SEC and to be disseminated to the
stockholders of the Company, in each case as and to the extent required by
applicable federal securities laws. Each of the Company, on the one hand, and
Acquisition Company and Merger Subsidiary, on the other hand, shall promptly
correct any information provided by it for use in the Offer Documents if and to
the extent that such information shall become false or misleading in any
material respect, and shall take all steps necessary to cause the Offer
Documents, as so corrected, to be filed with the SEC and to be disseminated to
the stockholders of the Company, in each case as and to the extent required by
applicable federal securities laws. Each of the Company and its counsel, on the
one hand, and Acquisition Company and Merger Subsidiary and their counsel, on
the other hand, shall be given a reasonable opportunity to review the Offer
Documents before they are filed with the SEC. In addition, each of the Company,
on the one hand, and Acquisition Company and Merger Subsidiary, on the other
hand, shall provide the other party and its counsel in writing with any comments
or other communications that such party or its counsel may receive from time to
time from the SEC or its staff with respect to the Offer Documents promptly
after the receipt of such comments or other communications.
Section 1.2 COMPANY ACTIONS. (a) The Company hereby approves of, consents
to and agrees to undertake the Offer and represents that its Board of Directors,
based on the unanimous recommendation of the Special Committee, at a meeting
duly called and held, has unanimously (i) determined that this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, are
advisable, fair to and in the best interests of the Company's stockholders
(other than Acquisition Company, Merger Subsidiary and their respective
affiliates, and the Continuing Stockholders, Mr. James Gleason and the
Foundation), (ii) approved this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, (iii) resolved to recommend that the
stockholders of the Company accept the Offer and tender their Shares thereunder
and approve the Merger and this Agreement; PROVIDED, THAT such recommendation
may be withdrawn, modified or amended as provided in Section 6.6 hereof, (iv)
approved this Agreement and the Stockholder Documents and the transactions
contemplated hereby and thereby for purposes of Section 203 of the DGCL, and (v)
resolved to amend the Rights Agreement as contemplated by Section 4.21 hereof.
(b) As soon as practicable on the date the Offer is commenced, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 (together with any amendments and supplements thereto and including the
exhibits thereto, the "Schedule 14D-9") which shall, subject to the fiduciary
duties of the Company's directors under applicable law and to the provisions of
this Agreement, contain the recommendation referred to in Section
1.2(a)(iii) hereof. The Schedule 14D-9 shall comply in
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<PAGE>
all material respects with the provisions of applicable federal securities laws.
The Company shall take all steps necessary to cause the Schedule 14D-9 to be
filed with the SEC and to be disseminated to the stockholders of the Company, in
each case as and to the extent required by applicable federal securities laws.
Each of the Company, on the one hand, and Acquisition Company and Merger
Subsidiary, on the other hand, shall promptly correct any information provided
by it for use in the Schedule 14D-9 if and to the extent that such information
shall have become false or misleading in any material respect, and the Company
shall take all steps necessary to cause the Schedule 14D-9 as so corrected to be
filed with the SEC and to be disseminated to the stockholders of the Company, in
each case as and to the extent required by applicable federal securities laws.
Acquisition Company and Merger Subsidiary and their counsel shall be given a
reasonable opportunity to review the Schedule 14D-9 before it is filed with the
SEC. In addition, the Company shall provide Acquisition Company and Merger
Subsidiary and their counsel in writing with any comments or other
communications that the Company or its counsel may receive from time to time
from the SEC or its staff with respect to the Schedule 14D-9 promptly after the
receipt of such comments or other communications.
(c) In connection with the Offer, if requested by Acquisition Company in
writing, the Company shall promptly furnish or cause to be furnished to
Acquisition Company mailing labels, security position listings and any available
listing or computer file containing the names and addresses of the record
holders of the Shares as of a recent date, and shall furnish Acquisition Company
with such additional information (including updated lists of holders of Shares
and their addresses, mailing labels and lists of security positions) and such
other assistance as Acquisition Company or its agents may reasonably request in
writing in communicating the Offer to the record and beneficial stockholders of
the Company. Except for such steps as are necessary to disseminate the Offer
Documents, Acquisition Company agrees that the information contained in any of
such labels and lists and the additional information referred to in the
preceding sentence shall be subject to the terms of the Confidentiality
Agreement, dated as of June 18, 1999, between the Company and Vestar (the
"Confidentiality Agreement"), shall use such information only in connection with
the Offer and, if this Agreement is terminated, shall deliver or cause to be
delivered to the Company all copies or extracts of such information then in its
possession or control and shall use its best efforts to cause its affiliates,
agents or representatives to so deliver such information in their possession or
control.
Section 1.3 DIRECTORS. (a) Promptly upon the purchase of and payment for
Shares by Acquisition Company pursuant to the Offer, Acquisition Company shall
be entitled to designate two additional directors (the "Acquisition Company
Directors") on the Board of Directors of the Company. Notwithstanding the
foregoing, until the Effective Time (as defined in Section 2.3 hereof), the
Company shall use its commercially reasonable efforts to ensure that all of the
members of the Special Committee on the date hereof shall continue as members of
the Board of Directors (the "Independent Directors") until the Effective Time.
In the event there is only one Independent Director, such Independent Director
shall have the right to designate a person to become an Independent Director. In
the event no Independent Director remains, the other directors who were
directors prior to the date hereof shall designate two persons to fill such
vacancies who shall not be employees or affiliates of the Company or any of its
Subsidiaries or employees, stockholders, members or affiliates of Vestar,
Acquisition Company, Merger Subsidiary or the Foundation, and such persons shall
be deemed to be Independent Directors hereunder. The Company shall use its
commercially reasonable efforts promptly to secure the resignations of three
incumbent directors in order to enable Acquisition Company's designees to be so
elected to the Company's Board of Directors and shall cause Acquisition
Company's designees to be so elected.
(b) Except as otherwise expressly contemplated hereby, following the
election or appointment of the Acquisition Company Directors pursuant to this
Section 1.3 and prior to the Effective Time, any amendment of this Agreement,
any termination of this Agreement by the Company, any extension by the Company
of the time for the performance of any of the obligations or other acts of
Acquisition Company or Merger Subsidiary, any consent of the Company
contemplated hereby, any waiver of any of the
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Company's rights hereunder, any amendment to the Company's certificate of
incorporation, by-laws or the Rights Agreement or any action proposed to be
taken by the Company that would be reasonably likely to materially adversely
affect the interests of the stockholders of the Company (other than the
Continuing Stockholders, Acquisition Company, Mr. James Gleason and the
Foundation) with respect to the transactions contemplated hereby, will require
the concurrence of a majority of the Independent Directors.
ARTICLE II
THE MERGER
Section 2.1 THE MERGER. At the Effective Time, Merger Subsidiary shall be
merged with and into the Company in accordance with the DGCL, whereupon the
separate existence of Merger Subsidiary shall cease, and the Company shall be
the surviving corporation (the "Surviving Corporation").
Section 2.2 CLOSING. The closing of the Merger (the "Closing") shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, at 4 Times
Square, New York, New York, at 10:00 a.m., local time, on a date to be specified
by the parties hereto, which shall be no later than the second business day
after satisfaction or waiver of all of the conditions set forth in Article VII
hereof (the "Closing Date"), unless another date or place is agreed to in
writing by the parties thereto.
Section 2.3 EFFECTIVE TIME. As soon as practicable on or after the Closing
Date, the parties hereto shall file a certificate of merger or other appropriate
documents (in any such case, the "Certificate of Merger") with the Secretary of
State of the State of Delaware and shall make all other filings or recordings
required by the DGCL with respect to the Merger. The Merger shall become
effective on the date specified in the Certificate of Merger (the "Effective
Time").
Section 2.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all of the properties, rights, privileges,
powers and franchises of the Company and Merger Subsidiary shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company and
Merger Subsidiary shall become the debts, liabilities and duties of the
Surviving Corporation, and may be enforced against it to the same extent as if
said debts and liabilities had been incurred or contracted by it.
Section 2.5 CERTIFICATE OF INCORPORATION AND BY-LAWS. At the Effective
Time, (i) the certificate of incorporation of the Company shall be amended and
restated in its entirety to read as set forth on Annex B hereto (the "Amended
Charter") (which certificate of incorporation shall include the provisions
required by Section 6.3(b)), and such amended and restated certificate of
incorporation shall be the certificate of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law, and (ii) the by-laws of the Company shall be amended and
restated in its entirety to read as set forth on Annex C hereof, and such
amended and restated by-laws shall be the by-laws of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
Section 2.6 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. From and
after the Effective Time, the board of directors of the Surviving Corporation
shall be: Mr. James Gleason, David J. Burns, John J. Perrotti, Arthur J. Nagle
and Sander M. Levy, and the officers of the Surviving Corporation shall be the
officers of the Company immediately prior to the Effective Time, in each case
until their respective successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's certificate of incorporation and by-laws.
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Section 2.7 STOCKHOLDERS' MEETING.
(a) As soon as practicable following the consummation of the Offer, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders (the "Stockholders' Meeting") as soon as practicable for the
purpose of considering and taking action upon this Agreement and approving
the Merger;
(ii) prepare and file with the SEC a preliminary proxy or information
statement (including any required amendments to the Schedule 13E-3) relating
to the Merger and this Agreement and use its reasonable best efforts to
obtain and furnish the information required by the SEC to be included in the
Proxy Statement (as defined herein) and, after consultation with Acquisition
Company, to respond promptly to any comments made by the SEC with respect to
the preliminary proxy or information statement and cause a definitive proxy
or information statement (the "Proxy Statement") to be mailed to its
stockholders; and
(iii) subject to its fiduciary obligations under applicable law, include
in the Proxy Statement the recommendation of the Company's Board of
Directors that stockholders of the Company vote in favor of the adoption of
this Agreement.
(b) Acquisition Company shall provide or cause to be provided to the Company
the information concerning Vestar, Acquisition Company, Merger Subsidiary and
the Financing (as defined herein) required to be included in the Proxy Statement
and shall vote, or cause to be voted, all of the Shares owned by it, Merger
Subsidiary or any of its other affiliates in favor of the adoption of this
Agreement and approval of the Merger.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE COMPANY AND MERGER SUBSIDIARY
Section 3.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of the Company, Acquisition
Company or Merger Subsidiary, or any holder of any shares of Company Common
Stock or capital stock of Acquisition Company or Merger Subsidiary:
(a) CANCELLATION OF COMMON STOCK OF MERGER SUBSIDIARY. Each issued and
outstanding share of common stock, par value $.01 per share, of Merger
Subsidiary shall automatically be cancelled and retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor.
(b) CANCELLATION OF TREASURY STOCK. Each share of Company Common Stock
that is owned by the Company as treasury stock shall automatically be cancelled
and retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(c) TREATMENT OF COMPANY COMMON STOCK. Each issued and outstanding share
of Company Common Stock (other than Shares to be cancelled in accordance with
Section 3.1(b) hereof and any Dissenting Shares (as defined in Section 3.3
hereof)) shall be treated as follows:
(i) except as otherwise provided in clauses (ii), (iii) and (iv) of this
Section 3.1(c), each share of Company Common Stock outstanding at the
Effective Time shall be converted into the right to receive the Offer Price,
without interest thereon (the "Merger Consideration"), upon surrender of the
certificate formerly representing such share of Company Common Stock in
accordance with Section 3.2 hereof;
(ii) the shares of Company Common Stock held by the stockholders of the
Company who have entered into a Stockholders' Agreement (the "Stockholders'
Agreement") with the Company as of the Effective Time (other than
Acquisition Company, the Foundation and Mr. James Gleason) (the
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<PAGE>
"Continuing Stockholders"), and 138,455 shares of Company Common Stock held
by Mr. James Gleason, each shall be converted into the right to retain one
fully paid and nonassessable share (a "Retained Share") of common stock, par
value $1.00 per share, of the Surviving Corporation (the "Surviving
Corporation Common Stock");
(iii) the shares of Company Common Stock purchased in the Offer and held
by Acquisition Company shall be treated as follows:
(A) 484,334 shares each shall be converted into the right to receive
one Retained Share; and
(B) subject to Section 6.11 hereof, 1,833,792 shares each shall be
converted into the right to receive the following consideration
(collectively, the "Series A Preferred/Warrant Consideration"):
(x) one share of the Surviving Corporation's 13.17% Series A
Cumulative Redeemable Preferred Stock (the "Series A Preferred"),
such Series A Preferred having the terms set forth in the Amended
Charter, and
(y) one warrant to acquire shares of Surviving Corporation Common
Stock (collectively the "Warrants"), such Warrants having the terms
set forth in a warrant agreement (the "Warrant Agreement") term sheet
attached hereto as Annex D, which Warrant Agreement shall be executed
by the Company as of the Effective Time; and
(iv) the shares of Company Common Stock held by the Foundation shall be
treated as follows:
(A) 202,000 shares each shall be converted into the right to receive
one Retained Share;
(B) 60,000 shares each shall be converted into the right to receive
the Series A Preferred/ Warrant Consideration; and
(C) 935,346 shares (the "Remaining Shares") each shall be, at the
Foundation's election, which election shall be made in accordance with
the procedures and time periods as set forth in the Foundation Agreement
(as defined in Section 5.8 hereof), treated in one of the following ways:
(1) each Remaining Share shall be converted into the right to receive the
Merger Consideration, or (2) as shall be specified by the Foundation, up
to 485,000 of the Remaining Shares each shall be converted into the right
to receive the Series A Preferred/Warrant Consideration and the rest of
the Remaining Shares each shall be converted into the right to receive
the Merger Consideration. In the event that the Foundation does not make
its election in accordance with the Foundation Agreement, the Foundation
shall be deemed to have elected to receive the Merger Consideration with
respect to each of its Remaining Shares.
(d) CANCELLATION AND RETIREMENT OF CERTAIN COMPANY COMMON STOCK. Each
share of Company Common Stock to be converted into the right to receive either
the Merger Consideration, the Retained Shares or the Series A Preferred/Warrant
Consideration pursuant to Section 3.1(c) hereof, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such Shares
shall cease to have any rights with respect thereto, except the right to receive
the Merger Consideration, the Retained Shares or the Series A Preferred/Warrant
Consideration, as the case may be, therefor upon the surrender of such
certificate in accordance with Section 3.2 hereof.
Section 3.2 PAYMENT FOR SHARES.
(a) EXCHANGE AGENT. The Company shall designate a bank or trust company
reasonably acceptable to Acquisition Company to act as agent for the holders of
shares of Company Common Stock in connection with the Merger (the "Exchange
Agent") to receive the Merger Consideration to which such holders shall become
entitled pursuant to Section 3.1(c) hereof. At the Effective Time, the Company
shall take all steps necessary to deposit or cause to be deposited with the
Exchange Agent the Merger
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Consideration for timely payment hereunder. The Merger Consideration so
deposited with the Exchange Agent shall be invested by the Exchange Agent as
directed by the Surviving Corporation, provided that such investment shall be in
obligations of or guaranteed by the United States of America, in commercial
paper obligations rated A-1 or P-1 or better by Moody's Investors Service, Inc.
or Standard & Poor's Ratings Service, respectively, or in certificates of
deposit, bank repurchase agreements or banker's acceptances of commercial banks
with capital exceeding $500 million.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable (and in any
event not later than five (5) business days) after the Effective Time, the
Company and Acquisition Company shall, or shall cause, the Exchange Agent, to
mail to each holder of record of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock, other than holders of Shares which shall become entitled
to receive Retained Shares or the Series A Preferred/ Warrant Consideration
pursuant to Section 3.1(c) hereof (the "Certificates") (i) a letter of
transmittal (the "Letter of Transmittal") (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as the Surviving Corporation may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such Letter of Transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger Consideration for each
share of Company Common Stock formerly represented by such Certificate, and the
Certificate so surrendered shall forthwith be cancelled. No interest shall be
paid or shall accrue for the benefit of holders of Certificates on the Merger
Consideration upon the surrender of the Certificates. If payment of the Merger
Consideration is to be made to a Person (as defined herein) other than the
Person in whose name the surrendered Certificate is registered, it shall be a
condition of payment that the Certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the Person
requesting such payment shall have paid any transfer and other taxes required by
reason of the payment of the Merger Consideration to a Person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such tax either has been paid
or is not applicable. For purposes of this Agreement, "Person" shall mean any
natural person, corporation, general or limited partnership, limited liability
company, joint venture, trust, association or entity of any kind. Until
surrendered as contemplated by this Section 3.2(b), each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration, without interest thereon.
(c) TERMINATION OF FUND; NO LIABILITY. At any time following one year
after the Effective Time, the Surviving Corporation shall be entitled to require
the Exchange Agent to deliver to it any funds (including any interest received
with respect thereto) which had been made available to the Exchange Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Exchange Agent shall be liable to any
holder of a Certificate for Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(d) TRANSFER BOOKS; NO FURTHER OWNERSHIP RIGHTS BY HOLDERS OF CERTIFICATES
IN COMPANY COMMON STOCK. At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock represented by Certificates on the
records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of shares of Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares, except as otherwise provided herein or by applicable
law. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Article III.
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(e) LOST, STOLEN OR DESTROYED CERTIFICATES. If any Certificate has been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration due to such Person pursuant to this
Agreement.
Section 3.3 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, Shares outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger and who has delivered
a written demand for appraisal of such Shares in accordance with Section 262 of
the DGCL (the "Dissenting Shares") shall not be converted into the right to
receive the Merger Consideration as provided in Section 3.1 hereof, unless and
until such holder fails to perfect or effectively withdraws or otherwise loses
such holder's right to appraisal and payment under the DGCL. Such holder shall
be entitled to receive payment of the appraised value of such Shares in
accordance with the provisions of the DGCL, provided that such holder complies
with the provisions of Section 262 of the DGCL. If, after the Effective Time,
any such holder fails to perfect or effectively withdraws or otherwise loses
such holder's right to appraisal, such Dissenting Shares shall thereupon be
treated as if they had been converted as of the Effective Time into the right to
receive the Merger Consideration, without interest thereon. The Company shall
give Acquisition Company prompt notice of any demands received by the Company
for appraisal of Shares, and, prior to the Effective Time, Acquisition Company
shall have the right to participate in all negotiations and proceedings with
respect to such demands. Prior to the Effective Time, the Company shall not,
except with the prior written consent of Acquisition Company, make any payment
with respect to, or settle or offer to settle, any such demands.
Section 3.4 COMPANY OPTIONS. (a) The Company shall take all actions
necessary and appropriate to provide that, except as set forth in Section 3.4(b)
hereof, upon the Effective Time, each outstanding option and related rights to
purchase shares of Company Common Stock or other similar interest (collectively,
the "Company Options") granted under any of the Company's stock option plans or
under any other plan or arrangement (the "Company Option Plans"), whether or not
then exercisable or vested, shall be cancelled and, in exchange therefor, each
holder of such Company Option shall receive an amount in cash in respect
thereof, if any, equal to the product of (i) the excess, if any, of the Merger
Consideration over the per Share exercise price thereof and (ii) the number of
shares of Company Common Stock subject thereto (such payment to be net of
applicable withholding taxes).
(b) Notwithstanding the foregoing, at the Effective Time, each outstanding
Company Option, whether or not then exercisable or vested, held by the persons
listed on Schedule 3.4(b) hereto (collectively, the "Retained Options") shall,
as of the Effective Time, continue to represent an option to acquire the same
number of shares of Surviving Corporation Common Stock at the same exercise
price per share. Except as otherwise provided by the Board of Directors with
respect to the extension of the term thereof, after the Effective Time, each
such Retained Option shall continue to be exercisable upon the same terms and
conditions as were applicable immediately prior to the Effective Time.
Section 3.5 DIRECTOR FEE DEFERRAL PLAN. The Company shall take all actions
necessary and appropriate to provide that upon the Effective Time, all shares of
Company Common Stock credited to the "Stock Account" of each "Participant" under
the Gleason Corporation Plan for Deferral of Directors' Fees (the "Deferral
Plan") shall be cancelled, and a cash amount equal to the product of (i) the
Merger Consideration and (ii) the number of shares of Company Common Stock so
cancelled shall be credited to each such Participant's "Cash Account" under the
Deferral Plan. No further shares of Company Common Stock shall be credited to a
Participant's Stock Account following the date hereof, and any outstanding
elections of Participants to be credited with shares of Company Common Stock
shall be converted into elections to have cash credited to such Participant's
Cash Account.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as otherwise disclosed in the Company SEC Reports (as defined in
Section 4.7 hereof) or as set forth in the schedule delivered by the Company to
Acquisition Company and Merger Subsidiary upon execution of this Agreement (the
"Company Disclosure Schedule") and making reference to the particular section of
this Agreement to which exception is being taken, the Company represents and
warrants to Acquisition Company and Merger Subsidiary as follows:
Section 4.1 ORGANIZATION, STANDING AND QUALIFICATION. Each of the Company
and its Subsidiaries (as defined herein) (i) is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization; (ii) has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to have
such power and authority would not reasonably be expected to have a Company
Material Adverse Effect (as defined herein); (iii) is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so qualified, licensed and in good standing would
not reasonably be expected to have a Company Material Adverse Effect; and (iv)
has obtained all governmental licenses, permits, franchises and authorizations
necessary to carry on its business as now being conducted, except where the
failure to have obtained such licenses, permits, franchises or authorizations
would not reasonably be expected to have a Company Material Adverse Effect. The
Company has heretofore made available to Acquisition Company complete and
correct copies of its certificate of incorporation and by-laws as currently in
effect. For purposes of this Agreement, (x) "Company Material Adverse Effect"
shall mean any event, change, occurrence, effect, fact or circumstance (which
shall in no event include events, changes, occurrences, effects, facts or
circumstances resulting from general economic conditions or conditions affecting
companies in the Company's industry generally) having, or which would reasonably
be expected to have, a material adverse effect on (1) the ability of the Company
to perform its obligations under this Agreement or to consummate the
transactions contemplated hereby or (2) the condition (financial or otherwise),
assets, liabilities (actual or contingent), properties, results of operations,
cash flows or business of the Company and its Subsidiaries, taken as a whole,
and (y) a "Subsidiary" of any Person shall mean another Person of which the
first Person owns, directly or indirectly, an amount of the voting securities,
other voting ownership or voting partnership interests which is sufficient to
elect at least a majority of such other Person's board of directors or other
governing body.
Section 4.2 SUBSIDIARIES. Section 4.2 of the Company Disclosure Schedule
sets forth the name, jurisdiction of incorporation and percentages of
outstanding capital stock owned, directly or indirectly, by the Company, with
respect to each corporation of which the Company owns, directly or indirectly, a
majority of the outstanding capital stock. All of the outstanding shares of
capital stock of each of the Company's Subsidiaries have been validly issued and
are fully paid and nonassessable and are owned, directly or indirectly, by the
Company, free and clear of any liens, pledges, security interests, claims or
other encumbrances (collectively, "Liens").
Section 4.3 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of 20,000,000 shares of Company Common Stock and
500,000 shares of preferred stock, par value $1.00 per share (the "Company
Preferred Stock"). As of November 30, 1999, (i) 9,589,195 shares (including
restricted stock) of Company Common Stock were issued and outstanding,
(ii) 2,004,945 shares of Company Common Stock were held by the Company in its
treasury, (iii) no shares of Company Preferred Stock were issued and
outstanding, and (iv) 879,552 shares of Company Common Stock were reserved for
issuance pursuant to the Company Option Plans, of which 755,582 such Shares are
subject to outstanding Company Options. All outstanding shares of capital stock
of the Company have been duly authorized and validly issued and are fully paid
and nonassessable. Except as set forth in this Section 4.3 and except for
changes since November 30, 1999 resulting from the exercise of Company Options
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outstanding on such date, there are no outstanding (i) shares of capital stock
or voting securities of the Company, (ii) securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company, (iii) options, restricted stock, other stock-based compensation awards
or other rights to acquire from the Company, or, except as provided for in the
Deferral Plan, other obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company or (iv) stock appreciation rights.
Section 4.4 AUTHORIZATION. The Company has all requisite corporate power
and authority to execute and deliver this Agreement and, subject to obtaining
the Stockholders' Approval (as defined in Section 4.18 hereof), to consummate
the transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby, have been duly authorized by its Board of
Directors and, except for those actions contemplated by Section 1.2(a) hereof
and obtaining the Stockholders' Approval, no other corporate action on the part
of the Company is necessary to authorize the execution and delivery by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and, subject to obtaining the
Stockholders' Approval and assuming the due and valid authorization, execution
and delivery hereof by each of Acquisition Company and Merger Subsidiary,
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency, reorganization or other similar
laws now or hereafter in effect affecting the rights of creditors generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 4.5 NON-CONTRAVENTION. Except for (A) filings, if required,
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and any applicable foreign antitrust law, regulation or rule,
(B) filings required in connection with or in compliance with the provisions of
the Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the DGCL, (C)
applicable requirements under corporation or "blue sky" laws of various states,
(D) filings with the New York Stock Exchange, Inc. and (E) matters specifically
described in this Agreement, neither the execution, delivery and performance of
this Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby shall (i) violate any provision of the
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default under, or give rise to any
right of termination, cancellation or acceleration of any obligation under, or
result in the creation of any Lien upon any property or asset of the Company or
any of its Subsidiaries under, any provision of any Material Contract (as
defined in Section 4.23 hereof) to which the Company or any of its Subsidiaries
is a party or by which any of them or their properties or assets may be bound,
(iii) violate any law, rule, regulation, judgment, injunction, order or decree
applicable to the Company or any of its Subsidiaries or any of their properties
or assets, or (iv) require on the part of the Company any filing or registration
with, notification to, or authorization, consent or approval of, any court,
legislative, executive or regulatory authority or agency (each, a "Governmental
Authority"), except in the case of the foregoing clauses (ii), (iii) or
(iv) for such violations, breaches, defaults, terminations, cancellations,
accelerations or Liens which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would not
reasonably be expected to have a Company Material Adverse Effect.
Section 4.6 COMPLIANCE WITH APPLICABLE LAW. The Company and its
Subsidiaries are in compliance in all respects with all applicable statutes,
laws, ordinances, rules, orders and regulations of any Governmental Authority,
except for such non-compliance which would not reasonably be expected to have a
Company Material Adverse Effect, and neither the Company nor any of its
Subsidiaries has received notification of any asserted present or past failure
to so comply. No investigation, review, inquiry or
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proceeding by any Governmental Authority with respect to the Company and its
Subsidiaries is, to the knowledge of the Company, pending or threatened, except
those, the outcome of which would not reasonably be expected to have a Company
Material Adverse Effect. The Company and its Subsidiaries hold all permits,
licenses, variances, exemptions, orders, registrations and approvals of all
Governmental Authorities which are necessary for the operation of their
respective businesses (the "Permits"), except where the failure to hold any such
Permits would not reasonably be expected to have a Company Material Adverse
Effect. The Company and its Significant Subsidiaries (as defined herein) are in
substantial compliance with the material terms of the Permits. For purposes of
this Agreement, a "Significant Subsidiary" of the Company shall have the meaning
set forth in Rule 1-02(w) of Regulation S-X.
Section 4.7 SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed all
reports required to be filed by it with the SEC pursuant to the Exchange Act and
the Securities Act since January 1, 1997 (as such documents have been amended
since the date of their filing, collectively, the "Company SEC Reports"). The
Company SEC Reports, as of their respective filing dates, or if amended, as of
the date of the last such amendment, did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Reports (collectively, the
"Financial Statements") complied as to form, as of their respective dates of
filing with the SEC, in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") (except as may be indicated in the notes thereto)
applied on a consistent basis and fairly present in all material respects the
consolidated financial position of Company and its Subsidiaries as of the
respective dates thereof and the results of their consolidated operations and
cash flows for the respective periods or as of the respective dates set forth
therein (subject, in the case of the unaudited financial statements, to normal
recurring year-end audit adjustments).
Section 4.8 NO UNDISCLOSED MATERIAL LIABILITIES. Except as disclosed in
the Company SEC Reports and liabilities incurred in the ordinary course of
business consistent with past practice since the date of the most recent
financial statements included in the Company SEC Reports, there are no
liabilities of the Company or its Subsidiaries of any kind whatsoever, whether
accrued, contingent, absolute, due, to become due, determined, determinable or
otherwise, having or which could reasonably be expected to have, individually or
in the aggregate, a Company Material Adverse Effect.
Section 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated
by this Agreement, since December 31, 1998, the Company and its Subsidiaries
have not (i) suffered any change constituting a Company Material Adverse Effect;
(ii) amended its certificate of incorporation or by-laws (other than the Amended
Charter, the Rights Agreement and immaterial amendments to the organizational
documents of the Company's Subsidiaries); (iii) split, combined or reclassified
the Company Common Stock or any capital stock of any of the Company's
Subsidiaries; (iv) declared or set aside or paid any dividend or other
distribution with respect to the Company Common Stock, other than the Company's
regular quarterly dividends; or (v) materially changed the Company's accounting
methods, except as required by GAAP or applicable law.
Section 4.10 LITIGATION. There is no action, suit or proceeding (other
than any action, suit or proceeding resulting from or arising out of this
Agreement or the transactions contemplated hereby) pending or, to the knowledge
of the Company, threatened, involving the Company or any of its Subsidiaries, by
or before any court or Governmental Authority that would reasonably be expected
to have a Company Material Adverse Effect.
Section 4.11 INFORMATION IN DISCLOSURE DOCUMENTS. None of the information
supplied or to be supplied in writing by the Company, or any of its officers,
directors, employees, representatives or agents, specifically for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-9 or the
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Proxy Statement, including any amendments or supplements thereto, shall, at the
respective times the Offer Documents and the Schedule 14D-9 are filed with the
SEC or first published, sent or given to the Company's stockholders, or, in the
case of the Proxy Statement, at the date the Proxy Statement is first mailed to
the Company's stockholders or at the time of the Stockholders' Meeting, contain
any statement which, at such time and in light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
false or misleading. Notwithstanding the foregoing, the Company does not make
any representation or warranty with respect to the information that has been
supplied by Vestar, Acquisition Company or Merger Subsidiary or their officers,
directors, employees, representatives or agents for inclusion or incorporation
by reference in any of the foregoing documents.
Section 4.12 TAX MATTERS. (a) The Company and each of its Subsidiaries has
(i) timely filed all material Tax Returns (taking into account all valid
extensions of time to file such Tax Returns), and all such returns are true,
correct and complete in all material respects, and (ii) paid or accrued (in
accordance with GAAP) all Taxes shown to be due on such Tax Returns other than
such Taxes as are being contested in good faith by the Company or any of its
Subsidiaries.
(b) There are no ongoing or, to the knowledge of the Company, threatened in
writing, audits or examinations of any Tax Return (as defined herein) of the
Company or its Subsidiaries, except where any such audit or examination would
not reasonably be expected to have a Company Material Adverse Effect.
(c) There are no outstanding written requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the
assessment of any material Taxes or deficiencies against the Company or any of
its Subsidiaries, and no power of attorney granted by either the Company or any
of its Subsidiaries with respect to any Taxes is currently in force, other than
powers of attorney granted by the Company or any of its Subsidiaries to an
advisor or other third party with whom the Company or any of its Subsidiaries
has a contractual relationship with respect to immaterial Taxes assessed by or
payable to a foreign governmental agency or department.
(d) Neither the Company nor any of its Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes, except for any such
agreements between the Company and any of its Subsidiaries.
(e) There are no material Liens for Taxes upon the assets of the Company or
any of its Subsidiaries which are not provided for in the financial statements
included in the Company SEC Reports or the Financial Statements, except Liens
for Taxes not yet due and payable.
For purposes of this Agreement, "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, value added, license, net
worth, payroll, franchise, transfer and recording taxes, fees and charges,
imposed by the United States Internal Revenue Service or any taxing authority
(whether domestic or foreign including, without limitation, any state, local or
foreign government or any subdivision or taxing agency thereof (including a
United States possession)), whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include any interest,
penalties or additional amounts attributable to, or imposed upon, or with
respect to, any such taxes, charges, fees, levies or other assessments. "Tax
Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes.
Section 4.13 EMPLOYEE MATTERS; ERISA. (a) Section 4.13 of the Company
Disclosure Schedule sets forth a list of each employee benefit plan, arrangement
or agreement, including each employment, severance or similar agreement, that is
maintained as of the date hereof (the "Plans") by the Company or by any trade or
business, whether or not incorporated (an "ERISA Affiliate") which, together
with the Company, would be deemed a "single employer" within the meaning of
Section 4001 of the Employee
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Retirement Income Security Act of 1974, as amended ("ERISA"), for the benefit of
any current or former employee, officer, director or independent contractor of
the Company and, prior to the date hereof, the Company has provided Acquisition
Company or its representatives with a copy of each material Plan.
(b) (i) Each of the Plans has been operated and administered in compliance
in all material respects with applicable law, including but not limited to ERISA
and the Internal Revenue Code of 1986, as amended (the "Code"), (ii) each of the
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service to such effect and the Company knows of no event that would cause the
disqualification of any such Plan, (iii) no Plan is subject to Title IV of
ERISA, (iv) other than the Company's retiree medical plan and retiree death
benefit plan and the Alliance Tool Corporation health care plan, no Plan
provides welfare benefits (whether or not insured) with respect to current or
former employees of the Company beyond their retirement or other termination of
service, other than coverage mandated by applicable law or benefits the full
cost of which is borne by the current or former employee (or such employee's
beneficiary), (v) no liability under Title IV of ERISA or Section 412 of the
Code has been incurred (directly or indirectly) in connection with any Plan that
has not been satisfied in full, (vi) no Plan is a "multiemployer pension plan,"
as such term is defined in Section 3(37) of ERISA, or a plan described in
Section 4063 of ERISA, (vii) all contributions or other amounts payable by the
Company or any ERISA Affiliate as of the Effective Time with respect to any Plan
in respect of current or prior plan years which are required to be reflected in
the Company's or the ERISA Affiliate's financial statements in accordance with
GAAP have been paid or accrued in accordance with GAAP and Section 412 of the
Code, (viii) neither the Company nor an ERISA Affiliate has engaged in a
transaction in connection with which the Company, its Subsidiaries or any ERISA
Affiliate would be subject to either a material civil penalty assessed pursuant
to Sections 502(i) or 502(e) of ERISA or a material tax imposed pursuant to
Section 4975 or 4976 of the Code, and (ix) to the knowledge of the Company,
there are no pending, threatened or anticipated material claims (other than
routine claims for benefits) by, on behalf of or against any of the Plans or any
trusts related thereto.
(c) Except as provided pursuant to this Agreement and except with respect to
the Plans set forth in Schedule 6.5(c) of the Company Disclosure Schedule,
neither the execution, delivery and performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby
shall (i) result in any material payment becoming due to any director or
employee of the Company, (ii) materially increase any benefits otherwise payable
under any Plan or (iii) result in any acceleration of the time of payment or
vesting of any benefits under any Plan to any material extent.
(d) The funded status as of December 31, 1998 of the retirement plans and
the post-retiree medical liabilities of the Company and its Subsidiaries are
correct in all material respects based on the assumptions disclosed in the
Company's Form 10-K for the fiscal year ended December 31, 1998, and since
December 31, 1998, there have been no material changes in or amendments to the
Company's foreign defined benefit plans.
Section 4.14 ENVIRONMENTAL MATTERS. (a) The Company and its Subsidiaries
are in material compliance with all Environmental Laws (as defined herein),
except for non-compliance which would not reasonably be expected to have a
Company Material Adverse Effect. For purposes of this Agreement, "Environmental
Laws" shall mean all federal, state and local law (including, without
limitation, common law), judicial decisions, regulations, rules, judgments,
orders and decrees which pertain to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata).
(b) Except as would not reasonably be expected to have a Company Material
Adverse Effect, during the period beginning five years prior to the date hereof,
the Company and its Subsidiaries have not received any notice from any
Governmental Authority or any written notice by any other Person alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damage, personal injuries, or penalties)
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arising out of, based on or resulting from (i) the presence or release into the
environment of any Hazardous Material (as defined herein) at any location,
whether or not owned or operated by the Company or any of its Subsidiaries or
(ii) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law. For purposes of this Agreement, "Hazardous Materials"
shall mean chemicals, pollutants, contaminants, wastes, toxic substances,
petroleum and petroleum products.
(c) Except as would not reasonably be expected to have a Company Material
Adverse Effect, there has been no release, emission, discharge, disposal or
presence of Hazardous Materials at any facility owned or operated by the Company
or its Subsidiaries under circumstances or at levels at which investigation or
cleanup would be required under applicable Environmental Laws which has not been
remediated and all material liabilities with respect thereto satisfied or
discharged.
Section 4.15 REAL PROPERTY. The Company and its Subsidiaries, as the case
may be, have sufficient title, leaseholds or rights to real property to conduct
their respective businesses as currently conducted in all material respects.
Section 4.16 BROKERS OR FINDERS. The Company represents, as to itself, its
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or Person is or shall be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except Bear,
Stearns & Co. Inc., financial advisor to the Special Committee, whose fees and
expenses shall be paid by the Company in accordance with the Company's agreement
with such firm, a true and complete copy of which has heretofore been furnished
to Acquisition Company or Merger Subsidiary.
Section 4.17 OPINION OF FINANCIAL ADVISOR. The Special Committee has
received the opinion of Bear, Stearns & Co. Inc., dated the date of this
Agreement, to the effect that, as of such date, the Offer Price is fair, from a
financial point of view, to the stockholders of the Company (other than
Acquisition Company, Merger Subsidiary and their respective affiliates, and the
Continuing Stockholders, Mr. James Gleason and the Foundation). A written copy
of such opinion has been delivered by the Company to Acquisition Company.
Section 4.18 VOTE REQUIRED. The affirmative vote of two-thirds of the
outstanding shares of Company Common Stock entitled to vote thereon (the
"Stockholders' Approval") is the only vote of the holders of the Company's
capital stock necessary to adopt this Agreement and the transactions
contemplated hereby and to approve the Merger.
Section 4.19 STATE TAKEOVER STATUTES. The Board of Directors of the
Company (acting with the recommendation of the Special Committee) has
unanimously approved the terms of this Agreement and the consummation of the
Offer, the Merger and the other transactions contemplated by this Agreement, and
such approval constitutes approval of this Agreement and the transactions
contemplated hereby by such Board under the provisions of Section 203 of the
DGCL and represents all the action necessary to ensure that such Section 203
does not apply to Acquisition Company, Mr. James Gleason, the Continuing
Stockholders or the Foundation in connection with the Offer, the Merger and the
other transactions contemplated by this Agreement. To the knowledge of the
Company, no other state takeover statute is applicable to the Offer, the Merger
or the other transactions contemplated hereby.
Section 4.20 BANK COMMITMENT LETTER. The Company has entered into a letter
(the "Bank Commitment Letter") executed by Bankers Trust Company (the "Bank")
describing the sources of financing (the "Financing") for the purchase of such
portion of the Shares which the Company is agreeing to pay for and purchase
pursuant to the Offer and for the payment of the Merger Consideration pursuant
to the Merger.
Section 4.21 RIGHTS AGREEMENT. The Company has taken all actions necessary
to render the Rights issued pursuant to the terms of the Rights Agreement
inapplicable to the Offer, the Merger, this Agreement and the other transactions
contemplated hereby.
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Section 4.22 YEAR 2000 COMPLIANCE. To the extent materially necessary to
operate the business of the Company, all computer hardware, software, databases,
systems and other computer equipment (collectively, "Software") used by the
Company or the Significant Subsidiaries can be used prior to, during and after
the calendar year 2000, and shall operate during each such time period, without
error relating to the processing, calculating, comparing, sequencing or other
use of date data, except to the extent that a failure to do so would not
reasonably be expected to have a Company Material Adverse Effect.
Section 4.23 MATERIAL CONTRACTS. Section 4.23 of the Company Disclosure
Schedule sets forth a list of all written contracts of the Company and its
Significant Subsidiaries that are material to the business, financial condition
or results of operations of the Company and its Significant Subsidiaries, taken
as a whole, entered into in connection with and related to the business and
operations of the Company and its Significant Subsidiaries (the "Material
Contracts" and, together with the Other Contracts (as defined herein), the
"Significant Contracts"), and, prior to the date hereof, the Company has made
available to Acquisition Company true copies of each Material Contract. For
purposes of this Agreement, the term "Other Contracts" shall mean: (a) all
contracts required to be disclosed pursuant to Items 401 or 601 of Regulation
S-K of the SEC, (b) all material contracts for the future purchase of materials,
supplies, merchandise or equipment, (c) all material contracts for the sale or
lease of any of the assets of Company, other than sales of inventory in the
ordinary course of business, (d) all mortgages, pledges, conditional sales
contracts, security agreements, factoring agreements or other similar agreements
with respect to any material assets of Company, (e) all consulting agreements
providing for annual payments thereunder in excess of $150,000 and (f) all
non-competition or similar agreements which restrict or may hereafter restrict
the geographic or operational scope of the Company's business or the ability of
the Company to enter into new lines of business. To the knowledge of Company,
all of such written Significant Contracts are valid, binding and enforceable in
accordance with their terms (assuming the other parties thereto are bound) and
are in full force and effect, except where such invalidity or unenforceability
would not reasonably be expected to have a Company Material Adverse Effect. No
payment default, breach or violation by the Company or its Subsidiaries exists
under such material written Significant Contracts, except for defaults, breaches
or violations which would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect, and no payment would be
accelerated or be due as a result of any change-in-control provisions in any
Significant Contracts as a result of the transactions contemplated by this
Agreement or would otherwise trigger any 280(g) liability under the Code with
respect to any agreement of the Company or its Subsidiaries.
Section 4.24 INSURANCE. Section 4.24 of the Company Disclosure Schedule
sets forth a complete and correct list of all material insurance policies (other
than welfare benefit insurance policies) which are owned by the Company or which
name the Company as an insured (or loss payee). Except as set forth in Section
4.24 of the Company Disclosure Schedule, all such insurance policies are in full
force and effect and the Company has not received written notice of cancellation
of any such insurance policies, other than those policies the absence or
termination of which would not reasonably be expected to have a Company Material
Adverse Effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION COMPANY AND MERGER SUBSIDIARY
Except as set forth in the schedule delivered by Acquisition Company to the
Company prior to the execution of this Agreement (the "Acquisition Company
Disclosure Schedule") and making reference to the particular section of this
Agreement to which exception is being taken, Acquisition Company and Merger
Subsidiary represent and warrant to the Company as follows:
Section 5.1 ORGANIZATION, STANDING AND QUALIFICATION. Each of Acquisition
Company and Merger Subsidiary (i) is a corporation or other legal entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization; (ii) has all requisite
corporate power
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and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to have such power and
authority would not reasonably be expected to have an Acquisition Company
Material Adverse Effect (as defined herein); (iii) is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so qualified, licensed and in good standing would
not reasonably be expected to have an Acquisition Company Material Adverse
Effect; and (iv) has obtained all governmental licenses, permits, franchises and
authorizations necessary to carry on its business as now being conducted, except
where the failure to have obtained such licenses, permits, franchises or
authorizations would not reasonably be expected to have an Acquisition Company
Material Adverse Effect. Acquisition Company has heretofore delivered to the
Company complete and correct copies of the certificate of formation or
certificate of incorporation, as the case may be, and by-laws or similar
constituent documents of each of Acquisition Company and Merger Subsidiary as
currently in effect. For purposes of this Agreement, "Acquisition Company
Material Adverse Effect" shall mean any event, change, occurrence, effect, fact
or circumstance having, or which would reasonably be expected to have, a
material adverse effect on (1) the ability of Acquisition Company or Merger
Subsidiary to perform their respective obligations under this Agreement or to
consummate the transactions contemplated hereby or (2) the condition (financial
or otherwise), assets, liabilities (actual or contingent), properties, results
of operations, cash flows, value or business of Acquisition Company and its
Subsidiaries, taken as a whole.
Section 5.2 AUTHORIZATION. Each of Acquisition Company and Merger
Subsidiary has all requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Acquisition Company
and Merger Subsidiary, and the consummation by Acquisition Company and Merger
Subsidiary of the transactions contemplated hereby, have been duly authorized by
their Board of Managers or Directors, as the case may be, and no other corporate
or other action on the part of Acquisition Company or Merger Subsidiary is
necessary to authorize the execution and delivery by Acquisition Company and
Merger Subsidiary of this Agreement and the consummation by them of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Acquisition Company and Merger Subsidiary, as the case
may be, and, assuming the due and valid authorization, execution and delivery
hereof by the Company, constitutes a valid and binding obligation of each of
Acquisition Company and Merger Subsidiary, as the case may be, enforceable
against them in accordance with its terms, except that (i) such enforcement may
be subject to applicable bankruptcy, insolvency, reorganization or other similar
laws now or hereafter in effect affecting the rights of creditors generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
Section 5.3 NON-CONTRAVENTION. Except for (A) filings, if required,
pursuant to the HSR Act and any applicable foreign antitrust law, regulation or
rule, (B) filings required in connection with or in compliance with the
provisions of the Securities Act, the Exchange Act and the DGCL, (C) applicable
requirements under corporation or "blue sky" laws of various states, and (D)
matters specifically described in this Agreement, neither the execution,
delivery and performance of this Agreement by Acquisition Company and Merger
Subsidiary, nor the consummation by Acquisition Company and Merger Subsidiary of
the transactions contemplated hereby, shall (i) violate any provision of the
certificate of formation or certificate of incorporation, as applicable, or
by-laws or similar constituent documents of Acquisition Company or Merger
Subsidiary, (ii) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default under, or give rise to any
right of termination, cancellation or acceleration of any obligation, or result
in the creation of any Lien upon any property or asset of Acquisition Company or
Merger Subsidiary under, any provision of any material note, bond, indenture,
mortgage, lease, contract, agreement, instrument, license or other obligation to
which Acquisition Company or Merger Subsidiary is a party or by which any of
them or their properties or assets may be bound, (iii) violate any law, rule,
regulation, judgment, injunction, order or decree applicable to Acquisition
Company or Merger Subsidiary or any of their properties or assets, or (iv)
require on the part of
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Acquisition Company or Merger Subsidiary any filing or registration with,
notification to, or authorization, consent or approval of, any Governmental
Authority, except in the cases of (ii), (iii) or (iv) for such violations,
breaches or defaults which, or filings, registrations, notifications,
authorizations, consents or approvals the failure of which to obtain, would not
reasonably be expected to have an Acquisition Company Material Adverse Effect.
Section 5.4 INFORMATION IN DISCLOSURE DOCUMENTS. None of the information
supplied or to be supplied by Vestar, Acquisition Company or Merger Subsidiary,
or any of their respective officers, directors, employees, representatives or
agents in writing, for inclusion or incorporation by reference in the Offer
Documents, the Schedule 14D-9 or the Proxy Statement, including any amendments
or supplements thereto, shall, in the case of the Offer Documents and the
Schedule 14D-9, at the respective times the Offer Documents and the Schedule
14D-9 are filed with the SEC or first published, sent or given to the Company's
stockholders, or, in the case of the Proxy Statement, at the date the Proxy
Statement is first mailed to the Company's stockholders or at the time of the
Stockholders' Meeting, contain any statement which, at such time and in light of
the circumstances under which it is made, is false or misleading with respect to
any material fact, or omit to state any material fact necessary in order to make
the statements therein not false or misleading. Notwithstanding the foregoing,
Acquisition Company and Merger Subsidiary do not make any representation or
warranty with respect to the information that has been supplied by the Company
or its officers, directors, employees, representatives or agents for inclusion
or incorporation by reference in any of the foregoing documents.
Section 5.5 BROKERS OR FINDERS. Acquisition Company represents, as to
itself, its Subsidiaries and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or Person is or shall be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except Vestar,
whose fees and expenses shall be paid by Merger Subsidiary (or the Surviving
Corporation) in accordance with Merger Subsidiary's agreement with such firm, a
true and complete copy of which has heretofore been furnished to the Company.
Section 5.6 SUFFICIENT FUNDS. Acquisition Company is a newly formed
limited liability company which has conducted no business other than in
connection with the transactions contemplated by this Agreement. Acquisition
Company has entered into the Bank Commitment Letter pursuant to which the
Company shall obtain, subject to the terms and conditions therein, funds which,
together with the funds received and to be received by Acquisition Company
pursuant to the Unit Purchase Agreement, shall be sufficient to consummate the
transactions contemplated hereby and to pay all related fees and expenses.
Acquisition Company has delivered true, correct and complete copies of the Bank
Commitment Letter and the Unit Purchase Agreement to the Company. Each of the
Bank Commitment Letter and the Unit Purchase Agreement is in full force and
effect and has not been amended or terminated in any manner adverse to the
Company. Acquisition Company has taken all other actions required to cause the
Bank Commitment Letter and the Unit Purchase Agreement to be effective, and each
of the Bank Commitment Letter and the Unit Purchase Agreement is a valid and
binding commitment of Acquisition Company. Acquisition Company is not, as of the
date hereof, aware of any fact, occurrence or condition that makes any of the
assumptions or statements therein inaccurate in any material respect or that
would cause the commitment provided in the Bank Commitment Letter to be
terminated or ineffective or any of the conditions contained therein not to be
met.
Section 5.7 MERGER SUBSIDIARY'S OPERATIONS. Merger Subsidiary was formed
solely for the purpose of engaging in the transactions contemplated hereby and
has not engaged in any business activities or conducted any operations other
than in connection with the transactions contemplated hereby.
Section 5.8 CERTAIN AGREEMENTS WITH ACQUISITION COMPANY. Acquisition
Company has delivered to the Company true, correct and complete copies of (i)
the letter agreements, each dated as of November 29, 1999, by and among
Acquisition Company, the Company and each of Mr. James Gleason and the
Continuing Stockholders, and (ii) an agreement by and between Acquisition
Company and the Foundation (the "Foundation Agreement").
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ARTICLE VI
COVENANTS
Section 6.1 INTERIM OPERATIONS OF THE COMPANY. The Company covenants and
agrees that, except (i) as contemplated by this Agreement, (ii) as disclosed in
Section 6.1 of the Company Disclosure Schedule or (iii) as consented to in
writing by Acquisition Company, after the date hereof and prior to the purchase
of Shares pursuant to the Offer:
(a) the business of the Company and its Subsidiaries shall be conducted only
in the ordinary and usual course of business and, to the extent consistent
therewith, each of the Company and its Subsidiaries shall use its commercially
reasonable efforts to preserve in all material respects its business
organization intact and maintain its existing relations with customers,
suppliers, employees and business associates;
(b) the Company shall not, directly or indirectly, (i) amend its certificate
of incorporation, by-laws or similar organizational documents, (ii) amend the
Rights Agreement or redeem the rights issued thereunder or (iii) split, combine
or reclassify the outstanding Company Common Stock or any outstanding capital
stock of any of the Subsidiaries of the Company;
(c) neither the Company nor any of its Subsidiaries shall: (i) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property with respect to its capital stock (other than regular quarterly
dividends not in excess of $.0625 per share of Company Common Stock made in the
ordinary course consistent with past practice or dividends from any Subsidiary
of the Company to the Company or any other Subsidiary of the Company),
(ii) issue or sell any additional shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock of any class of the Company or its
Subsidiaries, other than issuances pursuant to the exercise of Company Stock
Options outstanding on the date hereof and issuances pursuant to the Rights
Agreement, (iii) acquire, sell, lease or dispose of any assets in excess of $1
million, other than in the ordinary and usual course of business, (iv) incur or
modify any material debt, other than in the ordinary and usual course of
business or (v) redeem, purchase or otherwise acquire directly or indirectly any
of its capital stock;
(d) neither the Company nor any of its Subsidiaries shall, except as may be
required or contemplated by this Agreement or in the ordinary and usual course
of business, terminate or amend any of its Plans;
(e) except (i) for amendments to or terminations of the existing executive
agreements with certain executives of the Company (the "Executive Agreements"),
(ii) for new severance agreements with certain executives of the Company who are
parties to such Executive Agreements, and (iii) as otherwise contemplated by
this Agreement or as required by applicable law, neither the Company nor any of
its Subsidiaries shall enter into, adopt or amend any employee benefit plans or
amend or enter into any employment or severance agreement or (except for normal
increases in the ordinary and usual course of business consistent with past
practice (but not in excess of 6%)) increase in any manner the compensation of
any employees;
(f) neither the Company nor any of its Subsidiaries shall (i) except as may
be required or contemplated by this Agreement, assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the material obligations of any other Person (other than
Subsidiaries of the Company), except in the ordinary and usual course of
business, (ii) make any material loans, advances or capital contributions to, or
investments in, any other Person (other than to Subsidiaries of the Company),
other than in the ordinary and usual course of business or (iii) make capital
expenditures in excess of an aggregate of $5 million;
(g) neither the Company nor any of its Subsidiaries shall materially change
any of the financial accounting methods used by it unless required by GAAP or
applicable law;
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(h) neither the Company nor any of its Subsidiaries shall make any Tax
election that would reasonably be expected to have a Company Material Adverse
Effect or settle or compromise any material Tax liability;
(i) the Company shall not settle or compromise any claim (including
arbitration) or litigation involving payments by the Company in excess of
$250,000 individually, or $1 million in the aggregate, which is not subject to
insurance reimbursement without the prior written consent of Acquisition
Company, which consent shall not be unreasonably withheld or delayed; and
(j) neither the Company nor any of its Subsidiaries shall authorize or enter
into an agreement to do any of the foregoing.
Section 6.2 ACCESS TO INFORMATION. Upon reasonable notice, the Company
shall, and shall cause each of its Subsidiaries to, afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
Acquisition Company, access, during normal business hours during the period
prior to the Effective Time, to all of its properties, books, contracts,
commitments and records and during such period, the Company shall, and shall
cause each of its Subsidiaries to, furnish promptly to Acquisition Company
(i) a copy of each report, schedule, registration statement and other document
filed or received by it during such period pursuant to the requirements of
federal securities laws and (ii) all other information concerning its business,
properties and personnel as Acquisition Company may reasonably request. Unless
otherwise required by law, Acquisition Company and its officers, employees,
accountants, counsel, financing sources and other representatives shall hold any
such information which is nonpublic in confidence in accordance with the
provisions of the Confidentiality Agreement.
Section 6.3 INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE
COMPANY. (a) From and after the Effective Time, the Surviving Corporation shall
indemnify, defend and hold harmless any person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, an
officer, director, employee or agent (the "Indemnified Party") of the Company or
any of its Subsidiaries against all losses, claims, damages, liabilities, costs
and expenses (including attorney's fees and expenses), judgments, fines, losses,
and amounts paid in settlement in connection with any actual or threatened
action, suit, claim, proceeding or investigation, (whether arising before or
after the Effective Time) (each, a "Claim") to the extent that any such Claim is
based on, or arises out of, (i) the fact that such person is or was a director,
officer, employee or agent of the Company or any of its Subsidiaries or is or
was serving at the request of the Company or any of its Subsidiaries as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (ii) this Agreement, or any of the
transactions contemplated hereby, in each case to the extent that any such Claim
pertains to any matter or fact arising, existing, or occurring prior to or at
the Effective Time, regardless of whether such Claim is asserted or claimed
prior to, at or after the Effective Time, to the full extent permitted under
applicable law or the Company's certificate of incorporation, by-laws or
indemnification agreements in effect at the date hereof, including provisions
relating to advancement of expenses incurred in the defense of any action or
suit. Without limiting the foregoing, in the event any Indemnified Party becomes
involved in any capacity in any Claim, then from and after the Effective Time,
the Surviving Corporation shall periodically advance to such Indemnified Party
its legal and other expenses (including the cost of any investigation and
preparation incurred in connection therewith), subject to the provision by such
Indemnified Party of an undertaking to reimburse the amounts so advanced in the
event of a final non-appealable determination by a court of competent
jurisdiction that such Indemnified Party is not entitled thereto.
(b) All rights to indemnification and all limitations on liability existing
in favor of an Indemnified Party as provided in the Company's certificate of
incorporation, by-laws or indemnification agreements as in effect as of the date
hereof shall survive the Merger and shall continue in full force and effect,
without any amendment thereto, for a period of six years from the Effective Time
to the extent such rights are consistent with applicable law; provided, that in
the event any claim or claims are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or claims shall
continue until disposition of any and all such claims; provided, further, that
any determination required to be made with
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respect to whether an Indemnified Party's conduct complies with the standards
set forth under Delaware law, the Company's certificate of incorporation or
by-laws or such agreements, as the case may be, shall be made by independent
legal counsel selected by the Indemnified Party and reasonably acceptable to the
Surviving Corporation; and provided, further, that nothing in this Section 6.3
shall impair any rights or obligations of any present or former directors or
officers of the Company.
(c) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any Person, then, and in each such case, to the extent necessary
to effectuate the purposes of this Section 6.3, proper provision shall be made
so that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 6.3 and none of the actions described in
the foregoing clauses (i) or (ii) shall be taken until such provision is made.
(d) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect, without any lapses in
coverage, policies of directors' and officers' liability insurance (or a "tail"
policy), for the benefit of those persons who are covered by the Company's
directors' and officers' liability insurance policies at the Effective Time,
providing coverage with respect to matters occurring prior to the Effective Time
that is at least equal to the coverage provided under the Company's current
directors' and officers' liability insurance policies, to the extent that such
liability insurance can be maintained at an annual cost to the Surviving
Corporation of not greater than 200 percent of the premium for the current
Company directors' and officers' liability insurance, provided that if such
insurance (or "tail" policy) cannot be so maintained at such cost, the Surviving
Corporation shall maintain as much of such insurance as can be so maintained at
a cost equal to 200 percent of the current annual premiums of the Company for
such insurance.
(e) This Section 6.3 is intended to be for the benefit of, and shall be
enforceable by, the Indemnified Parties, their heirs and personal
representatives, and shall be binding on the Surviving Corporation and its
successors and assigns.
Section 6.4 PUBLICITY. The initial press releases with respect to the
execution of this Agreement shall be acceptable to Acquisition Company and the
Company. Thereafter, so long as this Agreement is in effect, neither the
Company, Acquisition Company nor any of their respective affiliates shall issue
or cause the publication of any press release with respect to the Merger, the
Offer, this Agreement or the other transactions contemplated hereby without the
prior consultation of the other party, except as may be required by law or by
any listing agreement with a national securities exchange.
Section 6.5 EMPLOYEE MATTERS.
(a) Prior to the Effective Time, the Company shall take such steps as may be
required to cause the transactions contemplated hereby and any other
dispositions of equity securities (including derivative securities) of the
Company in connection with this Agreement or the transactions contemplated
hereby by each individual who is a director or officer of the Company, to be
exempt under Rule 16b-3 promulgated under the Exchange Act, such steps to be
taken in accordance with the interpretive letter, dated January 12, 1999, issued
by the SEC to Skadden, Arps, Slate, Meagher & Flom LLP.
(b) With respect to any "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) established or maintained by the Surviving Corporation,
an employee's service with the Company and any of its Subsidiaries prior to the
Effective Time shall be treated as service with the Surviving Corporation for
purposes of eligibility, vesting and benefit accruals (but excluding benefit
accrual purposes under any defined benefit pension plan which initially becomes
effective as of or after the Effective Time); provided, however, that nothing in
this Section 6.5(b) shall obligate the Surviving Corporation to (i) make any
particular benefit plan or benefit available to any such employee,
(ii) continue any particular benefit plan or benefit or (iii) refrain from
terminating or amending any particular benefit plan or benefit.
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(c) The Surviving Corporation shall honor, in accordance with their terms,
and shall make required payments when due under, all Plans maintained or
contributed to by the Company or any of its Subsidiaries or to which the Company
or any of its Subsidiaries is a party (including, but not limited to,
employment, incentive and severance agreements and arrangements), that are
applicable with respect to any employee, director or stockholders of the Company
or any of its Subsidiaries (whether current, former or retired) or their
beneficiaries; provided, however, that the foregoing shall not preclude the
Surviving Corporation from amending or terminating any such Plan in accordance
with its terms. Acquisition Company, Merger Subsidiary and the Company each
acknowledge that consummation of the Offer shall constitute a "Change in
Control" for purposes of each Plan in which such concept is relevant, as set
forth in Section 6.5(c) of the Company Disclosure Schedule, notwithstanding any
provision of any such Plan to the contrary.
(d) With respect to any welfare plans in which employees of the Company and
any of its Subsidiaries are eligible to participate after the Effective Time,
the Surviving Corporation shall (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to such employees and (ii) provide each such
employee with credit for any co-payments and deductibles paid prior to the
Effective Time in satisfying any applicable deductible or out-of-pocket
requirements under any plan.
(e) As of the date hereof, employees of the Company shall no longer be given
the opportunity to purchase shares of Company Common Stock pursuant to the
Company's employee stock purchase plan, dated on or about April 15, 1996. The
Company shall provide its employees with any requisite notices of the
termination of such opportunity on a timely basis.
Section 6.6 NO SOLICITATION. (a) The Company shall not, and shall not
authorize or permit any of its Subsidiaries or any of its or its Subsidiaries'
officers, directors, employees or agents to, directly or indirectly, solicit,
knowingly encourage, participate in or initiate discussions or negotiations
with, or provide any non-public information to any Person (other than
Acquisition Company, Merger Subsidiary or any of their affiliates or
representatives, the Continuing Stockholders, Mr. James Gleason or the
Foundation) concerning, other than the transactions contemplated by this
Agreement, any proposal or inquiry relating to any merger, consolidation, tender
offer, exchange offer, sale of all or substantially all of the Company's assets,
sale of shares of capital stock or similar business combination transaction
involving the Company or any principal operating or business unit of the Company
or its Subsidiaries (an "Acquisition Proposal"). Notwithstanding the foregoing,
if, after the date of this Agreement, the Special Committee receives an
unsolicited written Acquisition Proposal from any Person and the Special
Committee reasonably concludes (except with respect to any written Acquisition
Proposal submitted to the Company by a Person who had submitted an Acquisition
Proposal after January 1, 1999 and prior to the date of this Agreement, as to
which such conclusion shall not be required), after consultation with its legal
counsel, that the failure to engage in discussions or negotiations with such
Person would be inconsistent with the Special Committee's (and the Board of
Directors') fiduciary duties to the Company's stockholders under applicable law,
then (i) the Company or the Special Committee may, directly or indirectly,
provide access to or furnish or cause to be furnished information concerning the
Company's business, properties or assets to such Person pursuant to an
appropriate confidentiality agreement and the Company or the Special Committee
may engage in discussions related thereto, and (ii) the Company or the Special
Committee may participate in and engage in discussions and negotiations with
such Person regarding such Acquisition Proposal. In the event that, after the
date of this Agreement and prior to the expiration of the Offer, the Special
Committee receives an unsolicited written Acquisition Proposal and the Special
Committee determines, in good faith and after consultation with its financial
advisor and legal counsel, that the failure to do so would be inconsistent with
the Special Committee's (and the Board of Directors') fiduciary duties to the
Company's stockholders under applicable law, the Board of Directors (acting on
the recommendation of the Special Committee) may do any or all of the following:
(x) withdraw, modify or change the Board of Directors' approval or
recommendation of this Agreement, the Offer or the Merger, (y) approve
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or recommend to the Company's stockholders an Acquisition Proposal and
(z) terminate this Agreement. The Board of Directors shall not take the action
described in clause (z) above prior to three business days after the Board of
Directors shall have given Acquisition Company written notice stating that the
Board of Directors intends to terminate this Agreement and setting forth the
information specified in Section 6.6(c) hereof with respect to any Acquisition
Proposal which the Board of Directors or the Special Committee intends to accept
or recommend. Notwithstanding anything contained in this Agreement to the
contrary, the exercise of the Company's or its Board of Directors' (or the
Special Committee's) rights under this Section 6.6 shall not constitute a breach
of this Agreement by the Company.
(b) Subject to Section 6.6(a) hereof, nothing contained in this Section 6.6
shall prohibit the Company or its Board of Directors, upon the recommendation of
the Special Committee, from taking and disclosing to the Company's stockholders
a position with respect to a tender or exchange offer by a third party pursuant
to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or from making
such disclosure to the Company's stockholders or otherwise which, in the
judgment of the Special Committee, after consultation with its legal counsel, is
necessary under applicable law or the rules of any stock exchange or failure so
to disclose would be inconsistent with its fiduciary duties to the Company's
stockholders under applicable law.
(c) The Company shall promptly, but in any event within one business day,
advise Acquisition Company in writing of any Acquisition Proposal or any inquiry
regarding the making of an Acquisition Proposal, including any request for
information, the material terms and conditions of such request, Acquisition
Proposal or inquiry and the identity of the Person making such request,
Acquisition Proposal or inquiry. The Company shall keep Acquisition Company
reasonably informed of the status and details, including any amendments or
proposed amendments, of any such request, Acquisition Proposal or inquiry.
Section 6.7 APPROVALS AND CONSENTS; COOPERATION; NOTIFICATION. (a) The
parties hereto shall use their respective reasonable best efforts, and cooperate
with each other, to obtain as promptly as practicable all governmental and third
party authorizations, approvals, consents or waivers, including, without
limitation, pursuant to the HSR Act, required in order to consummate the
transactions contemplated by this Agreement, including, without limitation, the
Offer and the Merger.
(b) The parties hereto shall take all actions necessary to file as soon as
practicable all notifications, filings, and other documents required to obtain
all governmental authorizations, approvals, consents or waivers, including,
without limitation, under the HSR Act, and to respond as promptly as practicable
to any inquiries received from the Federal Trade Commission, the Antitrust
Division of the Department of Justice and any other Governmental Authority for
additional information or documentation in connection therewith.
(c) The Company shall give prompt notice to Aquisition Company of the
occurrence of any Company Material Adverse Effect. Each of the Company and
Acquisition Company shall give prompt notice to the other of the occurrence or
failure to occur of an event that would, or, with the lapse of time would cause,
any condition to the consummation of the Offer or the Merger not to be
satisfied.
Section 6.8 FURTHER ASSURANCES. Each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, including, without limitation, the Offer and the Merger,
which efforts shall include, without limitation, the Company using its
commercially reasonable efforts to enter into definitive financing arrangements
with respect to the Financing described in the Bank Commitment Letter; PROVIDED,
that without Acquisition Company's prior written consent, the Company shall not
enter into any definitive financing agreement which contains terms that differ
in any material respect from those terms expressly set forth in Annex A to the
Bank Commitment Letter. If at any time after the Effective Time any other action
is necessary or desirable to carry out the purposes of this Agreement, the
parties hereto shall take or cause to be taken all such necessary action,
including, without limitation, the execution and delivery of such
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further instruments and documents as may be reasonably requested by the other
party for such purposes or otherwise to consummate and make effective the
transactions contemplated hereby.
Section 6.9 STOCKHOLDER LITIGATION. In connection with any litigation
which may be brought against the Company or its directors relating to the
transactions contemplated hereby, the Company shall keep Acquisition Company,
and any counsel which Acquisition Company may retain at its own expense,
informed of the status of such litigation and will provide Acquisition Company's
counsel the right to participate in the defense of such litigation to the extent
Acquisition Company is not otherwise a party thereto, and the Company shall not
enter into any settlement or compromise of any such stockholder litigation
without Acquisition Company's prior written consent, which consent shall not be
unreasonably withheld or delayed.
Section 6.10 MATTERS RELATING TO THE BANK COMMITMENT LETTER. (a)
Acquisition Company shall be primarily responsible for any negotiations with
respect to any definitive agreements regarding the Financing (the "Definitive
Financing Agreements"); PROVIDED, HOWEVER, that (i) the Company shall have
received prior notice of, and shall be kept reasonably informed of the ongoing
status of, any such negotiations, (ii) the Company shall take all such actions
as are reasonably requested by Acquisition Company in connection with any such
negotiations, and (iii) Acquisition Company shall conduct any such negotiations
reasonably and in good faith. Acquisition Company shall use its commercially
reasonable efforts to close the Financing on terms consistent with Annex A of
the Bank Commitment Letter and to execute and deliver the Definitive Financing
Agreements on or before the expiration of the Offer. Acquisition Company shall
use its commercially reasonable efforts to satisfy on or before the expiration
of the Offer all requirements of the Definitive Financing Agreements which are
conditions to closing the transactions constituting the Financing and to drawing
the cash proceeds thereunder.
(b) Following receipt by either the Company or any of its affiliates, on the
one hand, or Acquisition Company or any of its affiliates, on the other hand, of
any written or oral communication to the effect that Bankers Trust Company is
contemplating not providing the Financing or is terminating or canceling or
modifying in any material respect the Bank Commitment Letter, or that the
Financing is unlikely to be obtained, the Company or Acquisition Company, as the
case may be, shall immediately communicate such event to the other party and
provide such other party with a true and complete copy of any such written
communication.
Section 6.11 SALE OF ADDITIONAL SERIES A PREFERRED/WARRANT CONSIDERATION TO
ACQUISITION COMPANY. In the event that additional shares of Series A Preferred
and Warrants shall be sold to Acquisition Company at the Effective Time, either
as a result of (i) the Foundation's election (including a failure to make an
election) to receive Merger Consideration with respect to each of its Remaining
Shares pursuant to Section 3.1(c)(iv)(C)(1) hereof, or (ii) the Foundation's
election pursuant to Section 3.1(c)(iv)(C)(2) to receive the Merger
Consideration with respect to more than 450,346 of the Remaining Shares, the
Surviving Corporation shall sell to Acquisition Company concurrently with the
consummation of the Merger additional Series A Preferred/Warrant Consideration
at a rate of one share of Series A Preferred and one Warrant for each $23.00 in
cash payable by Acquisition Company.
Section 6.12 CERTAIN BOARD ACTIONS PENDING THE EFFECTIVE TIME. Following
the consummation of the Offer and prior to the Effective Time, the affirmative
vote of at least one of the Acquisition Company Directors shall be required for
the Company to approve and authorize any of the actions set forth in
Section 3(d) of the Stockholders' Agreement, a copy of which section has been
furnished to the Company.
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<PAGE>
ARTICLE VII
CONDITIONS
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the Company and Acquisition Company shall have accepted for payment and
paid for all Shares validly tendered pursuant to the Offer and not withdrawn;
PROVIDED, HOWEVER, that neither the Company nor Acquisition Company may invoke
this condition if it shall have been the cause of the failure to purchase Shares
so tendered and not withdrawn in violation of the terms of this Agreement or the
Offer;
(b) the Stockholders' Approval shall have been obtained;
(c) all necessary waiting periods applicable to the Merger under the HSR Act
shall have expired or been earlier terminated; and
(d) no temporary restraining order, preliminary or permanent injunction or
other order issued by any Governmental Authority or other legal restraint or
prohibition preventing the consummation of the Merger shall be in effect;
PROVIDED, HOWEVER, that prior to invoking this condition, the party so invoking
this condition shall have complied with its obligations under Section 6.8 hereof
and the parties hereto shall have used reasonable best efforts to lift or remove
such order, injunction, restraint or prohibition.
Section 7.2 ADDITIONAL CONDITION TO THE COMPANY'S OBLIGATION TO EFFECT THE
MERGER. The obligations of the Company to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following additional
condition:
(a) if the Foundation elects to receive Merger Consideration with respect to
more than 450,346 of its Remaining Shares (such Remaining Shares in excess of
450,346 Remaining Shares are referred to as the "Excess Shares") pursuant to
Section 3.1(c)(iv)(C)(1) hereof, (i) Vestar shall have made the capital
contribution to Acquisition Company in an aggregate amount equal to such Merger
Consideration in respect of all such Excess Shares in accordance with Section 2
of the Unit Purchase Agreement, (ii) Acquisition Company shall have contributed
the amount of such capital contribution to Merger Subsidiary and (iii) at the
Effective Time, Merger Subsidiary shall have cash in an amount not less than the
amount of the capital contribution from Acquisition Company contemplated in
clause (ii).
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after the Stockholders' Approval is obtained:
(a) By mutual written consent of the Company (acting through the Special
Committee), Acquisition Company and Merger Subsidiary.
(b) By either the Company (acting through the Special Committee), on the one
hand, or Acquisition Company, on the other hand:
(i) if shares of Company Common Stock shall not have been purchased
pursuant to the Offer on or prior to March 15, 2000; PROVIDED, HOWEVER. that
the right to terminate this Agreement under this Section 8.1(b)(i) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure to purchase
shares of Company Common Stock pursuant to the Offer on or prior to such
date; or
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<PAGE>
(ii) If any Governmental Authority shall have issued an order, decree or
ruling or taken any other action, in each case permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree or ruling shall have become final and
nonappealable.
(c) By the Company (acting through the Special Committee) prior to the
purchase of shares of Company Common Stock pursuant to the Offer, as provided in
Section 6.6(a) hereof; PROVIDED, THAT in order for the termination of this
Agreement pursuant to this Section 8.1(c) to be deemed effective, the Company
shall have complied with all provisions of Section 6.6 hereof, including the
notice provisions therein, and with the applicable requirements, including the
payment of the Termination Fee and confirmation of the agreement to pay
Expenses, of Section 8.3 hereof.
(d) By the Company (acting through the Special Committee):
(i) in the event that the Offer expires or is terminated in accordance
with its terms without any Shares being purchased thereunder, PROVIDED, THAT
the failure of the Company to fulfill any obligation under this Agreement
has not been the cause of, or resulted in, the failure to purchase shares of
Company Common Stock pursuant to the Offer; or
(ii) if there shall have been a breach or failure to perform on the part
of Acquisition Company or Merger Subsidiary of any of their representations,
warranties, covenants or agreements contained in this Agreement and such
breach or failure to perform has a material adverse effect on the ability of
Acquisition Company or Merger Subsidiary to consummate the Offer or the
Merger, and, with respect to any such breach or failure to perform that is
reasonably capable of being remedied within the time periods set forth
below, the breach or failure to perform is not remedied prior to the earlier
of (x) 10 days after the Company has furnished Acquisition Company with
written notice of such breach or failure to perform or (y) two business days
prior to the date on which the Offer expires.
(e) By Acquisition Company or Merger Subsidiary:
(i) if the Board of Directors of the Company or the Special Committee
(A) shall withdraw, modify or change its recommendation so that it is not in
favor of this Agreement, the Offer or the Merger or shall have resolved to
do any of the foregoing, (B) shall have recommended to the Company's
stockholders an Acquisition Proposal, or (C) shall terminate this Agreement
as provided in Section 6.6(a) hereof;
(ii) if the Company shall have materially breached any of its
obligations under Section 6.6 hereof;
(iii) in the event that the Offer expires or is terminated in accordance
with its terms without any Shares being purchased thereunder, PROVIDED, THAT
the failure of Acquisition Company to fulfill any obligation under this
Agreement has not been the cause of, or resulted in, the failure to purchase
shares of Company Common Stock pursuant to the Offer; or
(iv) if, prior to the purchase of Shares in the Offer, the
representations and warranties of the Company set forth in this Agreement
which are not qualified by "materiality" or "Company Material Adverse
Effect" shall not be true and accurate in all material respects, and the
representations and warranties that are qualified by "materiality" or
"Company Material Adverse Effect" shall not be true in any respect, at any
time after the date hereof (except for those representations and warranties
that address matters only as of a particular date or only with respect to a
specific period of time which need only be true and accurate as of such date
or with respect to such period), or the Company shall have breached or
failed to perform or comply in any material respect with any obligation,
agreement or covenant required by this Agreement to be performed or complied
with by it, and, with respect to any such breach or failure to perform that
is reasonably capable of being remedied within the time periods set forth
below, the breach or failure to perform is not remedied prior to the earlier
of (x) 10 days after Acquisition Company has furnished the Company with
written notice of such breach or failure to perform or (y) two business days
prior to the date on which the Offer expires.
III-26
<PAGE>
Section 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 8.1 hereof, written notice thereof shall forthwith
be given to the other party or parties specifying the provision hereof pursuant
to which such termination is made and this Agreement shall forthwith become null
and void, and there shall be no liability on the part of the Company,
Acquisition Company or Merger Subsidiary or their respective directors,
officers, employees, stockholders, representatives, agents or advisors other
than, with respect to the Company, Acquisition Company or Merger Subsidiary, the
obligations pursuant to this Section 8.2, Section 8.3, Article IX and the last
sentence of Section 6.2. Nothing contained in this Section 8.2 shall relieve the
Company, Acquisition Company or Merger Subsidiary from liability for willful
breach of this Agreement.
Section 8.3 FEES, EXPENSES AND OTHER PAYMENTS. (a) Subject to
Section 8.3(b) hereof, all costs and expenses (including any expenses related to
any claims or litigation in connection with the transactions contemplated by
this Agreement, or any settlement thereof), including, without limitation, fees
and disbursements of counsel, financial advisors and accountants and other
out-of-pocket expenses, incurred or to be incurred by the parties hereto in
connection with the Offer, the Merger, this Agreement and the other transactions
contemplated hereby, shall be borne solely and entirely by the party which has
incurred such costs and expenses; PROVIDED, HOWEVER, that all costs and expenses
related to the filing, printing and mailing of the Offer Documents, the
Schedule 14D-9 and the Proxy Statement shall be borne by the Company.
(b) In the event that this Agreement is terminated by the Company (acting
through the Special Committee) pursuant to Section 8.1(c) hereof or by
Acquisition Company pursuant to Section 8.1(e)(i) or Section 8.1(e)(ii) hereof,
the Company shall pay to Acquisition Company by certified check or wire transfer
to an account designated by Acquisition Company, immediately following receipt
of a request therefor, an amount equal to $4 million (the "Termination Fee"). In
addition, in the event that this Agreement is terminated for any reason other
than (x) by the Company pursuant to Section 8.1(d)(ii) hereof or (y) by the
Company or Acquisition Company because the Company or Acquisition Company has
been advised by the Bank that it will not provide the debt financing
contemplated by the Bank Commitment Letter (other than as a result of the
occurrence of a Company Material Adverse Effect), then the Company shall pay to
Acquisition Company, promptly upon receipt, but in no event later than two
business days following receipt, of reasonable supporting documentation, all
actual and reasonably documented out-of-pocket expenses incurred by or on behalf
of Acquisition Company or its member (including expenses incurred by or on
behalf of the Continuing Stockholders, Mr. James Gleason and the Foundation) in
connection with or in anticipation of the Offer, the Merger, this Agreement and
the consummation of the transactions contemplated hereby in an amount not to
exceed $2.5 million (or $1.25 million if this Agreement is terminated by reason
of the termination of the Offer as a result of the occurrence of any of the
events set forth in clause (g) of Annex A hereto) (the "Expenses"). In addition,
the Company shall pay in cash to Acquisition Company the Termination Fee if this
Agreement is terminated (A) by the Company (acting through the Special
Committee) pursuant to Section 8.1(d)(i) if the Offer expires or is terminated
in accordance with its terms without any Shares being purchased thereunder
solely as a result of the Minimum Condition failing to be satisfied by the
expiration date of the Offer as it may have been extended pursuant hereto (other
than as a result of a material or a willful breach by Acquisition Company or
Merger Subsidiary of their obligations hereunder) or (B) by Acquisition Company
pursuant to Section 8.1(e)(iii) if the Offer expires or is terminated in
accordance with its terms without any Shares being purchased thereunder solely
as a result of the Minimum Condition failing to be satisfied by the expiration
date of the Offer as it may have been extended pursuant hereto (other than as a
result of a material or a willful breach by the Company of its obligations
hereunder), in each case at any time after an Acquisition Proposal has been made
by a third party (such third party, together with its affiliates and other
Persons acting in concert with such third party are hereafter referred to as a
"Third Party Acquirer"), which Acquisition Proposal has been publicly disclosed
prior to the termination of this Agreement, and, within one year after such a
termination, the Company enters into a definitive agreement with respect to, or
consummates (i) a merger, consolidation or other business combination with any
such Third Party Acquirer (or another party who
III-27
<PAGE>
makes an Acquisition Proposal at a time when the Company is in discussions with
any such Third Party Acquirer (such other party, together with its affiliates
and other Persons acting in concert with such other party are hereafter referred
to as the "New Third Party Acquirer")), (ii) the sale or transfer to such Third
Party Acquirer (or any New Third Party Acquirer) of, or the acquisition of
beneficial ownership by such Third Party Acquirer (or any New Third Party
Acquirer) of, 40% or more of the Company Voting Securities (as defined herein)
or (iii) the sale or transfer of 40% or more (in market value) of the assets of
the Company and its Subsidiaries, on a consolidated basis, to any such Third
Party Acquirer (or any New Third Party Acquirer), upon which event the
Termination Fee and Expenses shall become immediately payable in cash. For
purposes of this Agreement, "Company Voting Securities" shall mean Company
Common Stock or securities or similar interests, warrants, options or other
rights to acquire Company Company Common Stock or securities convertible or
exchangeable into shares of capital stock of the Company which entitles the
holder to vote generally in the election of directors. If requested by
Acquisition Company, at the consummation of the Offer and/or the Closing, the
Company shall pay in cash all expenses incurred by or on behalf of Acquisition
Company, including a transaction fee payable to Vestar Capital Partners in an
amount equal to $1 million in cash.
ARTICLE IX
MISCELLANEOUS
Section 9.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company contemplated
hereby, by written agreement of the parties hereto, by action taken by their
respective Boards of Directors or Managers, in the case of Acquisition Company
and Merger Subsidiary, and by action taken by the Board of Directors of the
Company (acting with the recommendation of the Special Committee) in the case of
the Company, at any time prior to the Closing Date with respect to any of the
terms contained herein; PROVIDED, HOWEVER, that after the approval of this
Agreement by the stockholders of the Company, no such amendment, modification or
supplement shall reduce or change the Merger Consideration or adversely affect
the rights of the Company's stockholders hereunder without the approval of such
stockholders.
Section 9.2 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time or the termination of this Agreement. This Section 9.2 shall not
limit any covenant or agreement contained in this Agreement which by its terms
contemplates performance after the Effective Time.
Section 9.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopies
(which is confirmed) or sent by an overnight courier service, such as Federal
Express, to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Acquisition Company or Merger Subsidiary, to:
c/o Vestar Capital Partners IV, L.P.
245 Park Avenue, 41(st) Floor
New York, New York 10167
Telephone No.: (212) 351-1600
Telecopy No.: (212) 808-4922
Attention: Sander M. Levy
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<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone No.: (212) 735-3000
Telecopy No.: (212) 735-2000
Attention: Blaine V. Fogg, Esq.
If After January 14, 2000, to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Telephone No.:
Telecopy No.:
Attention: Blaine V. Fogg, Esq.
(b) if to the Company, to:
Gleason Corporation
1000 University Avenue
P. O. Box 22970
Rochester, New York 14692
Telephone No.: (716) 473-1000
Telecopy No.: (716) 461-4092
Attention: Secretary
with a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Telephone No.: (212) 806-5400
Telecopy No.: (212) 806-6006
Attention David L. Finkelman, Esq.
Section 9.4 INTERPRETATION The words "hereof", "herein" and "herewith" and
words of similar import shall, unless otherwise stated, be construed to refer to
this Agreement as a whole and not to any particular provision of this Agreement,
and article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". The words describing the singular number shall include the plural
and vice versa, and words denoting any gender shall include all genders. The
phrases "the date of this Agreement", "the date hereof" and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
December 8, 1999. As used in this Agreement, the term "affiliate(s)" shall have
the meaning set forth in rule 12b-2 of the Exchange Act. The parties have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question or intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
Section 9.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more
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<PAGE>
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
Section 9.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement
and the Confidentiality Agreement (including the documents and the instruments
referred to herein and therein) (i) constitute the entire agreement and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof and (ii) except for the
provisions of Section 6.3 hereof, are not intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
Section 9.7 SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 9.8 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware, without giving effect to
the principles of conflicts of law thereof.
Section 9.9 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
and agrees that in the event of any breach of this Agreement, each non-breaching
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto (i) shall
waive, in any action for specify performance, the defense of adequacy of a
remedy at law and (ii) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in a court of competent jurisdiction.
Section 9.10 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective permitted successors and assigns.
Section 9.11 HEADINGS. Headings of the articles and sections of this
Agreement are for convenience of the parties only and shall be given no
substantive or interpretative effect whatsoever.
Section 9.12 WAIVERS. At any time prior to the Effective Time, either the
Company (acting through the Board of Directors of the Company acting with the
recommendation of the Special Committee), on the one hand, or Acquisition
Company and Merger Subsidiary, on the other hand, may waive any failure of the
other party to comply with any obligation, covenant, agreement or condition
herein by a written instrument signed by the party granting such waiver, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
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<PAGE>
IN WITNESS WHEREOF, the Company, Acquisition Company and Merger Subsidiary
have caused this Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
<TABLE>
<S> <C> <C>
GLEASON CORPORATION
By: /s/ JAMES S. GLEASON
-----------------------------------------
James S. Gleason
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
TORQUE ACQUISITION CO., L.L.C.
By: /s/ SANDER M. LEVY
-----------------------------------------
Sander M. Levy
PRESIDENT
TORQUE MERGER SUB, INC.
By: /s/ SANDER M. LEVY
-----------------------------------------
Sander M. Levy
PRESIDENT
</TABLE>
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<PAGE>
ANNEX A
CONDITIONS TO THE OFFER
Capitalized terms used but not defined in this Annex A shall have the
meanings set forth in the Agreement and Plan of Merger (the "Agreement") of
which this Annex A is a part.
Notwithstanding any other provision of the Offer, subject to the provisions
of the Agreement, the Company shall not be required to accept for payment or,
subject to any applicable rules and regulations of the SEC, including Rule
14e-1(c) under the Exchange Act (relating to the obligation of the Company to
pay for, or return tendered Shares promptly after termination or withdrawal of
the Offer), pay for any Shares pursuant to the Offer, and the Company may delay
its acceptance for payment of or, subject to the restriction referred to above,
its payment for, any tendered Shares, and, subject to the provisions of the
Agreement, the Company may amend or terminate the Offer and not accept for
payment any tendered Shares, if the Unit Purchase shall not have occurred or if
the Company is not reasonably satisfied that the proceeds from the Unit Purchase
will be promptly deposited with the Depositary following the Expiration Date.
The foregoing condition is for the sole benefit of the Company and may be waived
by the Company.
The following conditions are for the sole benefit of Acquisition Company and
the Company, and Acquisition Company and the Company have agreed that all
determinations with respect to the satisfaction or waiver of the following
conditions shall be made by Acquisition Company on its behalf and on behalf of
the Company. Notwithstanding any other provision of the Offer, subject to the
provisions of the Agreement, other than the Company's agreement described below
to permit Acquisition Company to waive certain conditions of the Company's
behalf, neither Acquisition Company nor the Company shall be required to accept
for payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to the obligation of
Acquisition Company and the Company to pay for, or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for any Shares
pursuant to the Offer, and Acquisition Company may delay its and the Company's
acceptance for payment of or, subject to the restriction referred to above, its
and the Company's payment for, any tendered Shares, and, subject to the
provisions of the Agreement, Acquisition Company may amend or terminate the
Offer and not accept and cause the Company not to accept for payment any
tendered Shares, if (i) any applicable waiting period or approval under the HSR
Act and any applicable foreign antitrust law, regulation or rule has not expired
or been terminated or obtained, (ii) the Minimum Condition has not been
satisfied, (iii) the Company has not received the proceeds of the Financing
contemplated by the Bank Commitment Letter or other financing which is on terms
substantially similar to those set forth in the Bank Committment Letter
sufficient to finance (x) the purchase of such portion of the Shares which the
Company is agreeing to pay for and purchase pursuant to the Offer, (y) the
payment of the Merger Consideration pursuant to the Merger, and (z) the fees and
expenses required to be paid by the Company in connection with the transactions
contemplated by the Agreement, or (iv) at any time on or after the date of the
Agreement and prior to the acceptance of Shares for payment pursuant to the
Offer, any of the following events shall occur:
(a) there shall be instituted or pending or threatened in writing by
any Governmental Authority any suit, action or proceeding which (i) seeks to
prohibit or impose any material limitations on Acquisition Company's or the
Continuing Stockholders' ownership or operation (or that of any of their
affiliates) of all or a material portion of the Company's business or
assets, (ii) seeks to compel Acquisition Company or any of its Subsidiaries
or affiliates or the Company to dispose of or hold separate any material
portion of the business or assets of the Company and its Subsidiaries, taken
as a whole, (iii) seeks to impose material limitations on the ability of
either Acquisition Company or the Company to, or render either Acquisition
Company or the Company unable to, accept for payment, pay for or purchase
some or all of the Shares pursuant to the Offer and the Merger, (iv) seeks
to restrain or prohibit the making or consummation of the Offer or the
Merger or the performance of any of the transactions contemplated by the
Agreement, (v) seeks to obtain from the Company any
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<PAGE>
damages (including damages against the Company's directors or officers for
which they may seek indemnification from the Company) that would reasonably
be expected to have a Company Material Adverse Effect or seeks to obtain a
material amount of damages from Acquisition Company or Merger Subsidiary,
(vi) challenges the acquisition by either Acquisition Company or the Company
of any Shares pursuant to the Offer, or (vii) seeks to impose material
limitations on the ability of Acquisition Company, the Continuing
Stockholders, James S. Gleason or the Foundation effectively to exercise
full rights of ownership of the Shares including, without limitation, the
right to vote the Shares purchased by it on all matters properly presented
to the Company's stockholders;
(b) there shall have been any statute, rule, regulation, judgment,
order or injunction promulgated, entered, enforced, enacted or issued by any
Governmental Authority applicable to the Offer or the Merger other than the
application of the waiting period provision of the HSR Act to the Offer or
the Merger which is reasonably likely to result, directly or indirectly, in
any of the consequences referred to in clauses (i) through (vii) of
paragraph (a) above;
(c) the representations and warranties of the Company set forth in the
Agreement which are not qualified by "materially" or "Company Material
Adverse Effect" shall not be true and accurate in all material respects, and
the representations and warranties that are qualified by "materiality" or
"Company Material Adverse Effect" shall not be true and accurate in all
respects, in each case as of the date of consummation of the Offer as though
made on or as of such date (except for those representations and warranties
that address matters only as of a particular date or only with respect to a
specific period of time which need only be true and accurate as of such date
or with respect to such period), or the Company shall have breached or
failed to perform or comply in any material respect with any obligation,
agreement or covenant required by the Agreement to be performed or complied
with by it and, with respect to any such breach or failure to perform that
is reasonably capable of being remedied within the time periods set forth
below, the breach or failure to perform is not remedied prior to the earlier
of (x) 10 days after Acquisition Company has furnished the Company with
written notice of such breach or failure to perform or (y) two business days
prior to the date on which the Offer expires;
(d) the Agreement shall have been terminated in accordance with its
terms;
(e) the Board of Directors of the Company or the Special Committee
(i) shall withdraw, modify or change its recommendation so that it is not in
favor of this Agreement, the Offer or the Merger or shall have resolved to
do any of the foregoing, (ii) shall have recommended to the Company's
stockholders an Acquisition Proposal, or (iii) shall terminate the Agreement
as provided in Section 6.6(a) of the Agreement;
(f) the Company shall not have received by the expiration date of the
Offer such certificates of officers of the Company and/or opinions of
nationally recognized valuation and/or appraisal firms (in form and
substance reasonably satisfactory to the Company) as the Special Committee
and the Board of Directors may reasonably require, substantially to the
effect that the value of the Company's assets shall exceed its liabilities
following the consummation of the Offer and the Merger and that the Offer
and the Merger shall not impair the Company's capital within the meaning of
Section 160 of the DGCL or impair the ability of the Company to pay its
obligations as they come due; or
(g) there shall have occurred (i) any general suspension of trading in
securities on the New York Stock Exchange, which suspension or limitation
shall continue for at least three consecutive trading days, (ii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States (whether or not mandatory), (iii) a
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States that would
reasonably be expected to have a material adverse impact on the capital
markets of the United States, (iv) any limitation (whether or not mandatory)
by any United States Governmental Authority on the extension of credit
generally by banks or other lending institutions, (v) a change in general
financial,
A-2
<PAGE>
bank or capital market conditions which materially and adversely affects the
ability of financial institutions in the United States to extend credit or
syndicate loans, (vi) a decline of at least 30% in the Standard & Poor's
500 Index from the close of business on the date of the Agreement, or
(vii) in the case of any of the foregoing existing at the time of the
execution of the Agreement, a material acceleration or worsening thereof;
which, in the good faith judgment of Acquisition Company, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments for Shares.
The foregoing conditions are for the sole benefit of Acquisition Company and
the Company, and, subject to the provisions of the Agreement, may be waived by
Acquisition Company on its behalf and on behalf of the Company. The failure by
Acquisition Company at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any right, and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
A-3
<PAGE>
ANNEX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF GLEASON CORPORATION
- --------------------------------------------------------------------------------
PURSUANT TO SECTIONS 242 AND 245 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
- --------------------------------------------------------------------------------
Gleason Corporation (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the "GCL"),
does hereby certify as follows:
(1) The name of the Corporation is Gleason Corporation.
(2) This Amended and Restated Certificate of Incorporation was duly adopted
by the Board of Directors of the Corporation (the "Board of Directors") in
accordance with Sections 242 and 245 of the GCL and was duly adopted by the
stockholders of the Corporation at a duly convened meeting held on , 2000.
(3) This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of the
Corporation, as heretofore amended or supplemented.
(4) The text of the Certificate of Incorporation is amended and restated in
its entirety as follows:
FIRST: The name of the corporation is Gleason Corporation (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
FOURTH:
Section 1. AUTHORIZED CAPITAL STOCK. The total number of shares of stock
which the Corporation shall have authority to issue is [ ]* ( ),
consisting of (i) [ ] ( ) shares of Voting Common Stock, par
value One Dollar ($1.00) per share (the "Voting Common Stock"),
(ii) [ ] ( ) shares of Non-Voting Common Stock, par value One
Dollar ($1.00) per share (the "Non-Voting Common Stock" and, together with the
Voting Common Stock, the "Common Stock"), and (iii) [ ]
( ) shares of Preferred Stock, par value One Dollar ($1.00) per share
(the "Preferred Stock").
PART I. COMMON STOCK
The powers, preferences and rights, and the qualifications, limitations and
restrictions, of each class of the Common Stock are as follows:
(a) Except as otherwise expressly provided herein, the powers,
preferences and rights of the shares of Voting Common Stock and the shares
of Non-Voting Common Stock, and the qualifications, limitations and
restrictions thereof, shall be in all respects identical.
- ------------------------
* The Corporation's charter currently provides for 20,500,000 authorized
shares (20,000,000 shares of Common Stock and 500,000 shares of Preferred
Stock).
B-1
<PAGE>
(b) Except as otherwise expressly required by law or provided herein,
and subject to any voting rights provided to holders of Preferred Stock at
any time outstanding, the holders of any outstanding shares of Voting Common
Stock shall be entitled to one vote for each share of Common Stock held of
record by such holder and shall be entitled to vote with respect to all
matters as to which a stockholder of a Delaware corporation would be
entitled to vote. Holders of shares of Non-Voting Common Stock shall not be
entitled to vote on any matters which come before the stockholders except as
otherwise expressly provided by law, in which case, each holder of shares of
Non-Voting Common Stock shall be entitled to one vote for each share of
Non-Voting Common Stock held and shall, unless otherwise provided by law,
vote together as a single class with the Voting Common Stock.
(c) Subject to the rights of the holders of Preferred Stock, and subject
to any other provisions hereof, holders of shares of Common Stock shall be
entitled to receive dividends and other distributions in cash, stock or
property of the Corporation when, as and if declared thereon by the Board of
Directors of the Corporation (the "Board of Directors") from time to time
out of assets or funds of the Corporation legally available therefor.
(d) In the event of any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of
Common Stock shall be entitled to receive the assets and funds of the
Corporation available for distribution after payments to creditors and to
the holders of any Preferred Stock that may at the time be outstanding, in
proportion to the number of shares held by them, respectively.
(e) (i) Except and to the extent as set forth in Section (f) hereof,
the holder of each outstanding share of Non-Voting Common Stock shall have
the right at any time, or from time to time, at such holder's option to
convert such share into one fully paid and non-assessable share of Voting
Common Stock, on and subject to the terms and conditions hereinafter set
forth and, subject to the terms of that certain Foundation Agreement, dated
as of December 8, 1999, by and between Gleason Foundation and Torque
Acquisition Co., L.L.C., any share of Voting Common Stock owned by Gleason
Foundation may, from time to time, at Gleason Foundation's option, be
converted into one fully paid and non-assessable share of Non-Voting Common
Stock, on and subject to the terms and conditions hereinafter set forth.
(ii) In order to exercise the conversion privilege set forth in
Section (e)(i) hereof, the holder of any shares of Voting Common Stock or
Non-Voting Common Stock, as applicable, to be converted shall present and
surrender the certificate representing such shares during normal business
hours at any office or agency of the Corporation maintained for the transfer
of Voting Common Stock or Non-Voting Common Stock, as applicable, and shall
deliver a written notice of the election of such holder to convert the
shares represented by such certificate or any portion thereof specified in
such notice. Such notice shall also state the name and address in which the
certificate or certificates for shares of Voting Common Stock or Non-Voting
Common Stock, as applicable, which shall be issuable on such conversion
shall be issued. If so required by the Corporation, any certificate for
shares surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
holder of such shares or his duly authorized representative. Each conversion
of shares of Voting Common Stock or Non-Voting Common Stock, as applicable,
shall be deemed to have been effected on the date (the "Conversion Date") on
which the certificate or certificates representing such shares shall have
been surrendered and such notice and any required instruments of transfer
shall have been received as set forth above, and the person or persons in
whose name or names any certificate or certificates for shares of Voting
Common Stock or Non-Voting Common Stock, as applicable, shall be issuable on
such conversion shall be deemed, immediately prior to the close of business
on the Conversion Date, to have become the holder or holders of record of
the shares of Voting Common Stock or Non-Voting Common Stock, as applicable,
represented thereby.
B-2
<PAGE>
(iii) As promptly as practicable following the presentation and
surrender for conversion, as herein provided, of any certificate for shares
of Voting Common Stock or Non-Voting Common Stock, as applicable, the
Corporation shall issue and deliver at such office or agency, to or upon the
written order of the holder thereof, certificates for the number of shares
of Voting Common Stock or Non-Voting Common Stock, as applicable, issuable
upon such conversion. In case any certificate for shares of Voting Common
Stock or Non-Voting Common Stock, as applicable, shall be surrendered for
conversion of only a portion of the shares represented thereby, the
Corporation shall deliver at such office or agency, to or upon the written
order of the holder thereof, a certificate or certificates for the number of
shares of Voting Common Stock or Non-Voting Common Stock, as applicable,
represented by such surrendered certificate, which are not being converted.
The issuance of certificates for shares of Voting Common Stock or Non-Voting
Common Stock, as applicable, issuable upon the conversion of shares of
Non-Voting Common Stock or Voting Common Stock, respectively, shall be made
without charge to the converting holder for any tax imposed on the
Corporation in respect of the issue thereof. The Corporation shall not,
however, be required to pay any tax which may be payable with respect to any
transfer involved in the issue and delivery of any certificate in a name
other than that of the holder of the shares being converted, and the
Corporation shall not be required to issue or deliver any such certificate
unless and until the person requesting the issuance thereof shall have paid
to the Corporation the amount of such tax or has established to the
satisfaction of the Corporation that such tax has been paid.
(f) Notwithstanding the foregoing, no holder of shares of NonVoting
Common Stock issued upon the exercise of warrants pursuant to the terms and
conditions of the Warrant Agreement, dated as of , 2000, by and among
the Corporation, Torque Acquisition Co., L.L.C. and Gleason Foundation, may
convert all or any portion of such holder's shares into Voting Common Stock
until the earliest to occur of (i) an initial offering of equity securities
of the Corporation registered under the Securities Act of 1933, as amended,
after , 2000*, (ii) a Sale of the Corporation (as defined in the
Stockholders' Agreement (the "Stockholders' Agreement"), dated as of
November 29, 1999, by and among the Corporation, Torque Acquisition Co.,
L.L.C. and certain stockholders of the Corporation), and (iii) a Change of
Control (as defined in Section 19 of Part II of this Article FOURTH).
(g) Except as set forth in the Stockholders' Agreement, no holder of
shares of Common Stock shall be entitled to preemptive or subscription
rights.
PART II. PREFERRED STOCK
The powers, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions, of the
shares of Preferred Stock consisting of the series designated the "13.17%
Series A Cumulative Redeemable Preferred Stock" are as follows:
Section 1. DESIGNATION; NUMBER OF SHARES. The Preferred Stock is
designated as the "13.17% Series A Cumulative Redeemable Preferred Stock."
The number of shares constituting such series shall be [ ] and are
referred to herein as the "SERIES A PREFERRED." The original issue price of the
Series A Preferred is $20.70 per share (the "Issue Price").
Section 2. RANK. The Series A Preferred shall, with respect to dividend
distributions and distributions upon liquidation, winding-up and dissolution of
the Corporation, rank (i) senior (to the extent set forth herein) to all classes
of Common Stock, and to each other class of Capital Stock or series of Preferred
Stock hereafter created the terms of which do not expressly provide that it
ranks senior to, or on a parity with, the Series A Preferred as to dividend
distributions and distributions upon liquidation, winding-up and dissolution of
the Corporation (collectively, together with all classes of Common Stock, the
- ------------------------
* Should be the Closing Date.
B-3
<PAGE>
"JUNIOR SECURITIES"); (ii) on a parity with any class of Capital Stock or series
of Preferred Stock hereafter created the terms of which expressly provide that
such class or series will rank on a parity with the Series A Preferred as to
dividend distributions and distributions upon liquidation, winding-up and
dissolution of the Corporation (collectively, the "PARITY SECURITIES"); and
(iii) junior to each other class of Capital Stock or series of Preferred Stock
hereafter created the terms of which expressly provide that such class or series
will rank senior to the Series A Preferred as to dividend distributions and
distributions upon liquidation, winding-up and dissolution of the Corporation
(collectively, the "SENIOR SECURITIES").
Section 3. DIVIDENDS.
(a) Each Holder (as defined herein) of the outstanding shares of
Series A Preferred shall be entitled to receive, when, as and if declared by
the Board of Directors, out of funds legally available therefor, dividends
on each share of Series A Preferred (i) until , 2005*, at a rate
PER ANNUM equal to 13.17% of the Issue Price thereof, payable in cash, and
(ii) after , 2005*, at a rate PER ANNUM equal to 11% of the Issue
Price thereof, payable in cash; PROVIDED, HOWEVER, that in the event of any
Dividend Default (as defined herein) or Redemption Default (as defined
herein), such rate shall immediately increase to 400 basis points above the
dividend rate PER ANNUM in effect immediately prior to such event until such
Dividend Default or Redemption Default, as applicable, is cured or waived by
the affirmative vote or consent of the Holders of at least a majority of the
then outstanding shares of Series A Preferred. All dividends shall be fully
cumulative, shall accumulate (whether or not earned or declared and whether
or not there are funds legally available for the payment thereof) daily from
the Issue Date and shall be payable in arrears, in whole or in part, on each
Dividend Payment Date, if any, fixed by the Corporation, commencing on the
first Dividend Payment Date, if any, fixed after the date of the Issue Date.
All undeclared dividends and declared but unpaid dividends shall compound on
a quarterly basis from the Issue Date at a rate PER ANNUM equal to the
dividend rate PER ANNUM then applicable as set forth in clauses (i) and
(ii) above in this Section 3(a). No interest shall be payable in respect of
any dividend payment on the Series A Preferred which may be in arrears.
(b) The dividend payment period for any dividend payable on a Dividend
Payment Date shall be the period beginning on the immediately preceding
Dividend Payment Date (or on the Issue Date in the case of the first
dividend payment period) and ending on the day preceding such later Dividend
Payment Date.
(c) Dividends payable on any Dividend Payment Date shall be payable to
the Holders of record as they appear on the stock books of the Corporation
at the close of business on such record dates as are fixed by the Board of
Directors, provided that no record date shall be less than 10 nor more than
45 days prior to the applicable Dividend Payment Date. Dividends shall cease
to accumulate in respect of the Series A Preferred on the date of their
earlier redemption unless the Corporation shall have failed to pay the
relevant redemption price on the Series A Preferred to be redeemed on the
date fixed for redemption.
(d) All dividends paid with respect to shares of the Series A Preferred
shall be paid PRO RATA to the Holders entitled thereto.
(e) Nothing contained herein shall in any way or under any circumstances
be construed or deemed to require the Board of Directors to declare, or the
Corporation to pay or set apart for payment, any dividends on any shares of
the Series A Preferred at any time. The Board of Directors shall, in its
sole discretion, determine the timing of the actual declaration and payment
of the dividends.
- ------------------------
* Fifth anniversary of the Issue Date.
B-4
<PAGE>
(f) (i) No full dividends shall be declared by the Board of Directors
or paid or set apart for payment by the Corporation on any Parity Securities
for any period unless full accumulated dividends have been or
contemporaneously are declared and paid (or are deemed declared and paid) in
full, or declared and a sum in cash is set apart sufficient for such
payment, on the Series A Preferred for all dividends which have accumulated
up to the date of payment of such full dividends on such Parity Securities.
If any dividends are not so paid, all dividends declared upon shares of the
Series A Preferred and any other Parity Securities shall be declared PRO
RATA so that the amount of dividends declared per share on the Series A
Preferred and such Parity Securities shall in all cases bear to each other
the same ratio that accrued dividends per share on the Series A Preferred
and such Parity Securities bear to each other.
(ii) So long as any share of the Series A Preferred is outstanding,
the Corporation shall not declare, pay or set apart for payment any dividend
on any Junior Securities (other than dividends in Junior Securities to the
holders of Junior Securities) unless full cumulative dividends determined in
accordance herewith on the Series A Preferred have been paid (or are deemed
paid) in full for all full quarterly dividend periods ended prior to the
date of such payment in respect of Junior Securities.
(g) Dividends payable on the Series A Preferred for any period less than
a year shall be computed on the basis of a 360-day year of twelve 30-day
months and, for periods not involving a full calendar month, the actual
number of days elapsed (not to exceed 30 days).
(h) A reference in this Amended and Restated Certificate of
Incorporation to dividends "deemed to have been paid" or words of similar
meaning shall mean that, in respect of a particular dividend, such dividend
has been declared and funds sufficient for the payment thereof have been
segregated and irrevocably set apart and that there exists no legal or
contractual impediment to the payment of such dividends.
Section 4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, the Holders of
shares of Series A Preferred then outstanding shall be entitled to be paid,
out of the assets of the Corporation available for distribution to its
stockholders, an amount in cash equal to the applicable Redemption Price
thereof set forth in Section 5(a) hereof for each share outstanding, before
any distribution shall be made or any assets distributed in respect of
Junior Securities to the holders of any Junior Securities including, without
limitation, Common Stock. If, upon any voluntary or involuntary liquidation,
dissolution or winding-up of the affairs of the Corporation, the amounts
payable with respect to the Series A Preferred and all other Parity
Securities are not paid in full, the holders of the Series A Preferred and
the Parity Securities shall share equally and ratably in any distribution of
assets of the Corporation first in proportion to the full liquidation
preference (which, in the case of the Series A Preferred, is equal to the
applicable Redemption Price) to which each is entitled until such
preferences are paid in full, and then in proportion to their respective
amounts of accumulated but unpaid dividends. After payment of the full
amount of the liquidation preferences and all accumulated and unpaid
dividends to which they are entitled, the Holders shall not be entitled to
any further participation in any distribution of assets of the Corporation.
(b) For purposes of this Section 4, neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation, nor the consolidation or merger of the Corporation with or into
one or more entities, shall be deemed to be a liquidation, dissolution or
winding-up of the affairs of the Corporation.
Section 5. REDEMPTION.
(a) OPTIONAL REDEMPTION. The Corporation may, at its option, redeem at
any time or from time to time on or after the Issue Date (any such time, the
"OPTIONAL REDEMPTION DATE"), from any source
B-5
<PAGE>
of funds legally available therefor, in whole or in part, in the manner
provided for in Section 5(e) hereof, any or all of the shares of Series A
Preferred then outstanding, at a price per share in cash equal to the
Redemption Price (calculated as (A) a percentage of the sum of the Issue
Price and all accumulated and unpaid dividends (assuming that no dividends
had been paid with respect to the Series A Preferred), including any amount
for any prorated dividend for the period from any Dividend Payment Date
immediately prior to any Optional Redemption Date to such Optional
Redemption Date and (B) then reducing such amount calculated in clause
(A) by the sum of the amount of any cash dividends paid with respect to the
Series A Preferred and an interest factor with respect to any such cash
dividends accrued at the rate of 11% per annum from the date of payment of
such cash dividend to the Redemption Date) if redeemed during the quarterly
period beginning [ ]* of each of the years set forth below:
<TABLE>
<CAPTION>
IF REDEEMED: REDEMPTION PRICE
- ------------ ----------------
<S> <C> <C>
2000
Prior to [end of first quarter date]........................ 111.111%
On or after [end of first quarter date] but prior to
[end of second quarter date].............................. 110.527%
On or after [end of second quarter date] but prior to
[end of third quarter date]............................... 109.947%
On or after [end of third quarter date] but prior to
[end of fourth quarter date].............................. 109.369%
2001
Prior to [end of first quarter date]........................ 108.794%
On or after [end of first quarter date] but prior to
[end of second quarter date].............................. 108.223%
On or after [end of second quarter date] but prior to
[end of third quarter date]............................... 107.654%
On or after [end of third quarter date] but prior to
[end of fourth quarter date].............................. 107.088%
2002
Prior to [end of first quarter date]........................ 106.526%
On or after [end of first quarter date] but prior to
[end of second quarter date].............................. 105.966%
On or after [end of second quarter date] but prior to
[end of third quarter date]............................... 105.409%
On or after [end of third quarter date] but prior to
[end of fourth quarter date].............................. 104.855%
2003
Prior to [end of first quarter date]........................ 104.304%
On or after [end of first quarter date] but prior to
[end of second quarter date].............................. 103.756%
On or after [end of second quarter date] but prior to
[end of third quarter date]............................... 103.211%
On or after [end of third quarter date] but prior to
[end of fourth quarter date].............................. 102.669%
</TABLE>
- ------------------------
* Month and day of Issue Date.
B-6
<PAGE>
<TABLE>
<CAPTION>
IF REDEEMED: REDEMPTION PRICE
- ------------ ----------------
<S> <C> <C>
2004
Prior to [end of first quarter date]........................ 102.130%
On or after [end of first quarter date] but prior to
[end of second quarter date].............................. 101.593%
On or after [end of second quarter date] but prior to
[end of third quarter date]............................... 101.059%
On or after [end of third quarter date] but prior to
[end of fourth quarter date].............................. 100.528%
and thereafter.............................................. 100.000%
</TABLE>
; PROVIDED, HOWEVER, that no redemption of any shares of Series A Preferred
held by Acquisition Company shall be made pursuant to this Section
5(a) unless prior thereto the Corporation has received a written legal
opinion of a nationally recognized law firm to the effect that the proceeds
from any such redemption, to the extent of the liquidation preference of the
Series A Preferred (exclusive of any and all accumulated but unpaid
dividends thereon), should be treated as a distribution in part or full
payment of such Series A Preferred in accordance with Section 302(a) of the
Internal Revenue Code of 1986, as amended.
(b) EVENT OF INITIAL PUBLIC OFFERING. On the date (the "IPO REDEMPTION
DATE") of the consummation of an initial public offering of Common Stock
(the "INITIAL PUBLIC OFFERING") that is registered under the Securities Act
(as defined herein), the Corporation shall, at the election of the Holders
of a majority of the shares of Series A Preferred then outstanding, written
notice of which shall be given to the Corporation at least 15 days prior to
the IPO Redemption Date in accordance with Section 16 hereof, either (i)
redeem for cash out of funds legally available therefor, in the manner
provided in Section 5(e) hereof, a number of shares of Series A Preferred
having an aggregate liquidation preference (based upon the applicable
Redemption Price) equal to 50% of the Net Proceeds of the Initial Public
Offering, at a price per share equal to the applicable Redemption Price
thereof set forth in Section 5(a) hereof, and/or (ii) redeem, in the manner
provided in Section 5(e) hereof, a number of shares of Series A Preferred
which have been designated by such Holders in exchange for and through the
delivery of a number of shares of Common Stock equal to (A) the aggregate
applicable Redemption Price of such shares of Series A Preferred as set
forth in Section 5(a) hereof, divided by (B) the public offering price per
share of Common Stock in the Initial Public Offering. No fractional shares
of Common Stock shall be delivered to any Holder hereunder, but the
Corporation instead shall pay an amount in cash (rounded to the nearest
whole cent) equal to the same fraction of such public offering price per
share of Common Stock.
(c) PERIODIC REDEMPTION AT THE OPTION OF THE HOLDERS.
(i) Upon the election of the Holders of a majority of the
outstanding shares of Series A Preferred, the Corporation shall, within four
months after the delivery of written notice (a "PERIODIC REDEMPTION NOTICE")
of such election in accordance with Section 16 hereof (any such redemption
date, a "PERIODIC REDEMPTION DATE"), redeem in cash, to the extent of funds
legally available therefor, at a price per share equal to the applicable
Redemption Price set forth in Section 5(a) hereof, (A) up to [ ]* of
the shares of Series A Preferred outstanding on the date of delivery of any
such Periodic Redemption Notice (the "PERIODIC REDEMPTION NOTICE DATE") at
any time on or after [ ]**, subject to Section 5(c)(ii) hereof,
(B) up to [ ] of the shares of Series A Preferred outstanding on the
applicable Periodic Redemption Notice Date at any time on or after
- ------------------------
* The numbers in subparagraphs (A) and (B) should be one-third and two-thirds,
respectively, of the shares of Series A Preferred issued on the Issue Date.
** The end of the fifth anniversary of the Issue Date.
B-7
<PAGE>
[ ]***, subject to Section 5(c)(ii) hereof, and (C) any and all of
the shares of Series A Preferred out standing on or after [ ]****
(in any event, a "PERIODIC REDEMPTION").
(ii) Notwithstanding the foregoing, the aggregate number of shares
of Series A Preferred which may be required to be redeemed by the
Corporation from any Holder pursuant to Sections 5(c)(i)(A) or (B) hereof
shall be reduced by such number of shares of Series A Preferred as may have
been previously sold by such Holder to any transferee who is not a Permitted
Transferee (as such term is defined in the Stockholders' Agreement) of such
Holder.
(iii) Any Holder may elect to waive any right to require the
Corporation to redeem its shares of Series A Preferred pursuant to Section
5(c) hereof.
(d) PRO RATA. Subject to Section 5(c)(iii) hereof, in the event of a
redemption pursuant to Sections 5(a), (b) or (c) hereof of only a portion of
the then outstanding shares of Series A Preferred, the Corporation shall
effect such redemption on a PRO RATA basis according to the number of shares
of Series A Preferred held by each Holder.
(e) PROCEDURES FOR REDEMPTION.
(i) At least 30 days and not more than 60 days prior to the date
fixed for any redemption of the Series A Preferred pursuant to Section
5(a) or (c) hereof, and at least 5 days and not more than 10 days prior to
the date fixed for any redemption of the Series A Preferred pursuant to
Section 5(b) hereof, the Corporation shall provide written notice (the
"REDEMPTION NOTICE") by first-class mail, postage prepaid, to each Holder of
record on the record date fixed for such redemption of the Series A
Preferred at such Holder's address as it appears on the stock books of the
Corporation, provided, that no failure to give such notice nor any
deficiency therein shall affect the validity of the procedure for the
redemption of any shares of Series A Preferred to be redeemed except as to
the Holder or Holders to whom the Corporation has failed to give such notice
or except as to the Holder or Holders whose notice was defective. The
Redemption Notice shall state:
(A) the specific provision hereof pursuant to which such redemption
is to be made;
(B) whether all or less than all of the outstanding shares of
Series A Preferred are to be redeemed and the total number of shares of
Series A Preferred being redeemed;
(C) the date fixed for redemption;
(D) the applicable Redemption Price set forth in Section 5(a) hereof;
(E) if the Corporation is required to exchange and deliver shares of
Common Stock in payment of the Redemption Price in accordance with
Section 5(b)(ii) hereof, the Corporation's computation of the number of
shares of Common Stock exchangeable and deliverable as provided in
Section 5(b)(ii) hereof;
(F) that the Holder is to surrender to the Corporation, in the
manner, at the place or places and at the price designated, such Holder's
certificate or certificates representing the shares of Series A Preferred
to be redeemed; and
(G) that dividends on the shares of Series A Preferred to be redeemed
shall cease to accrue on such redemption date unless the Corporation
defaults in the payment of the Redemption Price.
(ii) Each Holder shall surrender the certificate or certificates
representing such Holder's shares of Series A Preferred being redeemed
pursuant to this Section 5 to the Corporation, duly
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*** The end of the sixth anniversary of the Issue Date.
****The end of the seventh anniversary of the Issue Date.
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endorsed (or otherwise in proper form for transfer, as determined by the
Corporation), in the manner and at the place designated in the Redemption
Notice, and on the Optional Redemption Date, IPO Redemption Date or Periodic
Redemption Date, as applicable, the full redemption price for such shares
shall be payable to the Person whose name appears on such certificate or
certificates as the owner thereof, and each surrendered certificate shall be
canceled and retired. In the event that less than all of the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares. Holders of shares of Series A
Preferred that are redeemed on the IPO Redemption Date in accordance with
Section 5(b)(ii) hereof shall not be entitled to receive dividends declared
and paid on any shares of Common Stock exchangeable and deliverable in
payment of the redemption price for such shares of Series A Preferred, and
such shares of Common Stock shall not be entitled to vote, until such shares
of Common Stock are delivered upon the surrender of the certificates
representing such shares of Series A Preferred. Upon such surrender, such
Holders shall be entitled to receive such dividends declared and paid
subsequent to such IPO Redemption Date and prior to the delivery of the
Common Stock.
Section 6. VOTING RIGHTS.
(a) The Holders, except as otherwise required under Delaware law or as
set forth in this Section 6, shall not be entitled or permitted to vote on
any matter required or permitted to be voted upon by the stockholders of the
Corporation.
(b) Neither the creation, authorization or issuance of any shares of
Senior Securities, Parity Securities or Junior Securities nor the increase
or decrease in the amount of authorized Capital Stock of any class,
including any Preferred Stock, shall require the consent of the Holders, nor
shall any such action be deemed to affect adversely the rights, preferences,
privileges or voting rights of the Holders.
(c) The Corporation shall not, without the affirmative vote or consent
of the Holders of at least a majority of the then outstanding shares of
Series A Preferred, in each case, as the case may be, voting as a single
class, given in person or by proxy, either in writing or by resolution
adopted at a meeting of Holders:
(i) directly or indirectly, declare or pay any dividend or make any
other distribution in respect of Capital Stock, other than the Series A
Preferred, and other than dividends in respect of Junior Securities
payable solely in Junior Securities;
(ii) directly or indirectly, redeem, repurchase or otherwise acquire
any shares of Capital Stock, other than redemptions of the Series A
Preferred in accordance with this Amended and Restated Certificate of
Incorporation and other than pursuant to the Common Put, the JG Put and
the Call (as such terms are defined in the Stock holders' Agreement),
puts and calls of Common Stock owned by Management (as defined in the
Management Subscription Agreement) to the extent provided in the
Management Subscription Agreement, and calls of options to acquire Common
Stock held by certain stock-holders of the Corporation to the extent
provided in the New Management Option Plan;
(iii) amend the Amended and Restated Certificate of Incorporation or
by-laws of the Corporation if such amendment would adversely alter or
change the rights, preferences or privileges of the Series A Preferred or
otherwise so as to adversely effect the Series A Preferred;
(iv) enter into or permit any of its subsidiaries to enter into any
transaction (other than matters relating to compensation and terms and
conditions of employment and any tax loans by the Corporation to certain
stockholders of the Corporation (which loans shall not exceed $350,000 in
the aggregate), and other than transactions between the Corporation and
any of its Wholly Owned Subsidiaries (as defined in Section 18 of the
Stockholders' Agreement), including, without limitation, any purchase,
sale, lease or exchange of property, the rendering of any service or the
payment of any management, advisory or similar fee, with any Affiliate
unless (A) such
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transaction is determined by the Board of Directors to be on terms no
less favor able to the Corporation and its subsidiaries than they would
obtain in a comparable arm's length transaction with a Person which is
not an Affiliate, and (B) if, as determined by the Board of Directors,
such transaction has a value in excess of $5 million, the Corporation has
obtained an opinion from an independent expert selected by the Board of
Directors that such transaction is fair to the Corporation and its
stockholders; or
(v) merge, consolidate, sell substantially all of its assets or enter
into any similar business combination if, as a result thereof, the
Series A Preferred would continue to be outstanding and the Corporation's
leverage following such transaction would be increased when compared to
its leverage immediately prior to such transaction.
(d) (i) If (A) any dividends on the Series A Preferred which have been
declared and remain unpaid (regardless of whether any contractual or
other restrictions apply to such payments or whether funds are legally
available therefor) (a "DIVIDEND DEFAULT") or (B) the Corporation fails
to redeem the Series A Preferred as may be required in accordance with
Sec-tions 5(b) or (c) or Section 7(a) hereof (regardless of whether any
contractual or other restrictions apply to such redemption or whether
funds are legally available therefor) or fails to make payment under any
Optional Redemption pursuant to Section 5(a) hereof (a "REDEMPTION
DEFAULT"), and, in each case, such Dividend Default or Redemption
Default, as applicable, shall not have been cured or waived by the
Holders of at least a majority of the then out standing shares of
Series A Preferred for two consecutive quarterly periods (a "VOTING
RIGHTS TRIGGERING EVENT"), then the Holders of at least a majority of the
shares of Series A Preferred then outstanding, voting separately and as a
single class, shall have the right to elect one director to the Board of
Directors, provided, that, in the event that more than one of the
foregoing defaults occurs, at the same or at different times, the maximum
number of directors that such Holders shall be entitled to elect is one.
(ii) Holders shall have the exclusive right to elect one director to
the Board of Directors as provided in Section 6(d)(i) hereof at a meeting
therefor called upon occurrence of such Voting Rights Triggering Event,
and at every subsequent meeting at which the terms of office of the
director so elected by the Holders expire (other than as described in
Section 6(d)(iii) hereof). Except as otherwise provided in this Amended
and Restated Certificate of Incorporation the voting rights provided
herein shall be the exclusive remedy at law or in equity of the Holders
for any Voting Rights Triggering Event.
(iii) Any director elected by the Holders pursuant to Section
6(d)(i) hereof may be removed from office at any time, but only for
cause, and only by the affirmative vote of the Holders of at least a
majority of the shares of Series A Preferred then outstanding.
(iv) The right of the Holders, voting together as a separate class,
to elect a director to the Board of Directors as set forth in Section
6(d)(i) hereof shall continue until such time as (A) in the event such
right arises due to a Dividend Default, all declared and unpaid dividends
that are in arrears on the Series A Preferred are paid in full in cash,
and (B) in the event such right arises due to a Redemption Default, the
Corporation remedies any such failure, breach or default giving rise to
such Redemption Default, at which time (1) the special right of the
Holders so to vote as a class for the election of a director and (2) the
term of office of the director elected by the Hold-ers shall each
terminate. At any time after voting power to elect a director shall have
become vested and be continuing in the Holders pursuant to Section
6(d)(i) hereof, if a vacancy shall exist in the office of the director
elected by the Holders, a proper officer of the Corporation may, and upon
the written request of the Holders of record of at least 25% of the
shares of Series A Preferred then outstanding ad dressed to the secretary
of the Corporation shall, call a special meeting of the Holders for the
purpose of electing the director which such Holders are entitled to
elect. If such meeting shall not be called by a proper officer of the
Corporation within
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20 days after personal service of such written request upon the Secretary
of the Corporation, or within 20 days after mailing such notice within
the United States by certified mail, addressed to the Secretary of the
Corporation at its principal executive offices, than the Holders of
record of at least 25% of the outstanding shares of Series A Preferred
may designate in writing a Holder to call such meeting at the expense of
the Corporation, and such meeting may be called by the Holder so
designated, upon the notice required for the annual meetings of
stockholders of the Corporation, and shall be held at the place for
holding the annual meetings of stockholders. Any Holder so designated
shall have, and the Corporation shall provide, access to the lists of
stockholders to be called pursuant to the provisions hereof.
(v) At any meeting held for the purpose of electing directors at
which the Holders shall have the right, voting together as a separate
class, to elect a director as provided above, (A) the presence in person
or by proxy of the Holders of at least a majority of the outstanding
shares of Series A Preferred entitled to vote thereat shall be required
to constitute a quorum of such Series A Preferred and (B) the election of
a director by Holders pursuant to Section 6(d)(i) hereof shall require
the affirmative vote of at least a majority of the then outstanding
shares of Series A Preferred.
(e) In any case in which the Holders shall be entitled to vote pursuant
to this Section 6 or pursuant to Delaware law, each Holder entitled to vote
with respect to any matter shall be entitled to one vote for each share of
Series A Preferred owned by such Holder.
Section 7. CHANGE OF CONTROL; SALE OF THE CORPORATION.
(a) Immediately following the occurrence of (i) a Change of Control (the
date of such occurrence being the "CHANGE OF CONTROL DATE") or (ii) a Sale
of the Corporation (the date of such occurrence being the "SALE DATE"), the
Corporation shall redeem (the "CHANGE OF CONTROL REDEMPTION" or the "SALE
REDEMPTION," as applicable) all of the outstanding Series A Preferred at a
cash price per share equal to the applicable Redemption Price set forth in
Section 5(a) hereof (the "CHANGE OF CONTROL REDEMPTION PRICE" or the "SALE
REDEMPTION PRICE," as applicable).
(b) If practicable, within 5 Business Days prior to the Change of
Control Date or the Sale Date, as applicable, the Corporation shall send by
first-class mail, postage prepaid, to each Holder of record on the record
date fixed for such redemption at such Holder's address as it appears on the
stock books of the Corporation, a notice stating:
(i) that the Change of Control Redemption or the Sale Redemption, as
applicable, is being or will be made pursuant to this Section 7 and that
all shares of Series A Preferred shall be subject to the terms and
conditions set forth herein;
(ii) the Change of Control Redemption Price or the Sale Redemption
Price, as applicable, and the redemption date (which shall be the Change
of Control Date or the Sale Date, as applicable);
(iii) the number of shares of Series A Preferred held, as of the
appropriate redemption date, by the Holder that the Corporation shall
redeem;
(iv) that, unless the Corporation defaults in the payment of the
Change of Control Redemption Price or the Sale Redemption Price, as
applicable, dividends on the shares of Series A Preferred shall cease to
accumulate on the applicable redemption date, and all rights of Holders
of such redeemed shares shall terminate, except for the right to receive
payment therefor, on the applicable redemption date;
(v) that the Holder is to surrender to the Corporation certificates
representing all of the shares of Series A Preferred held by such Holder,
properly endorsed for transfer, together with such customary documents as
the Corporation and the transfer agent, if any, may reasonably
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<PAGE>
require, in the manner and at the address specified in the notice prior
to the close of business on the Business Day preceding the Change of
Control Redemption Date or the Sale Redemption Date, as applicable; and
(vi) a summary of any other procedures that a Holder must follow in
connection with the Change of Control Redemption or the Sale Redemption,
as applicable.
(c) On the applicable redemption date, the Corporation shall (i) redeem
the shares of Series A Preferred redeemed pursuant to the Change of Control
Redemption or the Sale Redemption, as applicable, in accordance with the
terms set forth in this Section 7, (ii) promptly mail, or cause the transfer
agent, if any, to mail, to the Holders of shares so redeemed the Change of
Control Redemption Price or the Sale Redemption Price, as applicable,
therefor in cash, and (iii) cancel and retire each surrendered certificate.
Unless the Corporation defaults in the payment of the Change of Control
Redemption Price or the Sale Redemption Price, as applicable, dividends
shall cease to accumulate with respect to the shares of Series A Preferred
redeemed, and all rights of the Holders of such shares shall terminate,
except for the right to receive payment therefor, on the Change of Control
Redemption Date or the Sale Redemption Date, as applicable.
Section 8. NO PREEMPTIVE RIGHTS. No shares of Series A Preferred shall
have any rights of preemption whatsoever as to any securities of the
Corporation, or any warrants, rights or options issued or granted with respect
thereto, regardless of how such securities or such warrants, rights or options
may be designated, issued or granted.
Section 9. REISSUANCE OF SERIES A PREFERRED. Shares of Series A Preferred
that have been issued and reacquired in any manner, including shares purchased
or redeemed, shall (upon compliance with any applicable provisions of the laws
of Delaware) have the status of authorized and unissued shares of Preferred
Stock undesignated as to series and may be redesignated and reissued as part of
any series of Preferred Stock.
Section 10. BUSINESS DAY. If any payment or redemption shall be required
by the terms hereof to be made on a day that is not a Business Day, such payment
or redemption shall be made on the immediately succeeding Business Day.
Section 11. MUTILATED OR MISSING SERIES A PREFERRED CERTIFICATES. If any
of the Series A Preferred certificates shall be mutilated, lost, stolen or
destroyed, the Corporation shall issue, in exchange and in substitution for and
upon cancellation of the mutilated Series A Preferred certificate, or in lieu of
and substitution for the Series A Preferred certificate lost, stolen or
destroyed, a new Series A Preferred certificate of like tenor and representing
an equivalent amount of shares of Series A Preferred, but only upon receipt of
evidence of such loss, theft or destruction of such Series A Preferred
certificate and indemnity, if requested, satisfactory to the Corporation and the
transfer agent, if any.
Section 12. SECTION HEADINGS, CONSTRUCTION. The headings of Sections in
this Amended and Restated Certificate of Incorporation are provided for
convenience only and shall not affect the construction or interpretation of any
of the provisions hereof. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Part II of Article FOURTH of this
Amended and Restated Certificate of Incorporation unless specifically noted
otherwise.
Section 13. RESTRICTIONS ON TRANSFER. The shares of Series A Preferred are
transferable subject to the provisions of the Stockholders' Agreement. The
Corporation shall cooperate with the request of the Holders of a majority of the
shares of Series A Preferred in connection with any transfer of shares of
Series A Preferred.
Section 14. WAIVER. Any provision of this Part II of Article FOURTH of
this Amended and Restated Certificate of Incorporation which, for the benefit of
the Holders, prohibits, limits or restricts actions by the Corporation may be
waived in whole or in part, or the application of all or any part of such
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provision in any particular circumstance or generally may be waived, in each
case with the consent of the Holders of at least a majority of the shares of
Series A Preferred then outstanding, either in writing or by vote at a meeting
called for such purpose at which the Holders shall vote as a separate class.
Section 15. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Series A Preferred set forth in this Amended and Restated
Certifi-cate of Incorporation filed pursuant hereto (as this Amended and
Restated Certificate of Incorporation may be amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule or law or
public policy, all other rights, preferences and limitations set forth in this
Amended and Restated Certificate of Incorporation, as amended, which can be
given effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect. No right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
Section 16. NOTICE OF THE CORPORATION. All notices and other
communications required or permitted to be given to the Corporation hereunder
shall be made by first-class mail, postage prepaid, to the Corporation at its
principal executive offices (currently located on the date of the adoption of
this Amended and Restated Certificate of Incorporation at the following address:
Gleason Corporation, 1000 University Avenue, P.O. Box 22970, Rochester, New York
14692-2970, Attention: Secretary). Minor imperfections in any such notice shall
not affect the validity thereof.
Section 17. LIMITATIONS. Except as may otherwise be required by law, the
shares of Series A Preferred shall not have any powers, preferences or relative,
participating, optional or other special rights other than those specifically
set forth in this Amended and Restated Certificate of Incorporation (as may be
amended from time to time).
Section 18. ANNUAL AND QUARTERLY INFORMATION RIGHTS.
(a) QUARTERLY REPORTS. As soon as available, but not later than 45 days
after the end of each quarterly accounting period (other than the fourth
quarter of any fiscal year), the Corporation shall furnish to each Holder a
consolidated balance sheet of the Corporation as of the end of such period
and consolidated statements of income, cash flows and changes in
stockholders' equity for such quarterly accounting period and for the period
commencing at the end of the previous fiscal year and ending with the end of
such period, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding fiscal
year, all prepared in accordance with generally accepted accounting
principals consistently applied, subject to normal year-end adjustments and
the absence of footnote disclosure.
(b) ANNUAL AUDIT. As soon as available, but not later than 90 days after
the end of each fiscal year of the Corporation, the Corporation shall
furnish to each Holder audited consolidated financial statements of the
Corporation, which shall include statements of income, cash flows and
changes in stockholders' equity for such fiscal year and a balance sheet as
of the last day thereof, each prepared in accordance with generally accepted
accounting principals consistently applied, and accompanied by the report of
an independent accounting firm of recognized national standing selected by
the Board of Directors (the "Accountants"). The Corporation and its
subsidiaries shall maintain a system of accounting sufficient to enable the
Accountants to render the report referred to in this Section 18(b).
Section 19. DEFINITIONS. As used in this Part II of Article FOURTH of this
Amended and Restated Certificate of Incorporation the following terms shall have
the following meanings (with terms defined in the singular having comparable
meanings when used in the plural and vice versa), unless the context otherwise
requires:
"ACQUISITION COMPANY" means Torque Acquisition Co., L.L.C., a Delaware
limited liability company.
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"AFFILIATE" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
"BOARD OF DIRECTORS" shall have the meaning provided in the first
paragraph hereof.
"BUSINESS DAY" means any day except a Saturday, a Sunday or any day on
which banking institutions in New York, New York are required or authorized
by law or other governmental action to be closed.
"CAPITAL STOCK" means all equity securities of the Corporation.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) the approval by the holders of the Capital Stock of the
Corporation of any plan or proposal for the liquidation, winding-up or
dissolution of the Corporation; (ii) any "person" or "group" (within the
meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provision to either of the foregoing, including any group acting
for the purpose of acquiring, holding or disposing of securities within the
meaning of Rule 13d-5(b)(1)under the Exchange Act), other than Acquisition
Company and its Affiliates and the Voting Trust (as defined in the
Stockholders' Agreement), becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of shares
representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding voting stock of the Corporation or
any successor to all or substantially all of the Corporation's assets; or
(iii) the first day on which a majority of the members of the Board of
Directors are not Continuing Directors.
"CHANGE OF CONTROL DATE" shall have the meaning provided in Section
7(a) hereof.
"CHANGE OF CONTROL REDEMPTION" shall have the meaning provided in
Section 7(a) hereof.
"CHANGE OF CONTROL REDEMPTION PRICE" shall have the meaning provided in
Section 7(a) hereof.
"COMMON STOCK" means the voting and non-voting common stock, par value
$1.00 per share, of the Corporation.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors who (i) was a member of such Board of
Directors immediately following the Issue Date or (ii) was nominated for
election to such Board of Directors by Acquisition Company or the Voting
Trust (as defined in the Stockholders' Agreement) or with the approval of a
majority of the Continuing Directors who were members of such Board of
Directors at the time of such nomination or election.
"CORPORATION" shall have the meaning provided in the first paragraph
hereof.
"DIVIDEND DEFAULT" shall have the meaning provided in Section
6(d)(i) hereof.
"DIVIDEND PAYMENT DATE" means any date on which the Board of Directors
shall, in its sole discretion, set for the payment of dividends.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"HOLDER" means a holder of shares of Series A Preferred as reflected in
the stock books of the Corporation.
"INITIAL PUBLIC OFFERING" shall have the meaning provided in
Section 5(b) hereof.
"IPO REDEMPTION DATE" shall have the meaning provided in Section 5(b)
hereof.
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"ISSUE DATE" means [ ], 2000.*
"JUNIOR SECURITIES" shall have the meaning provided in Section 2 hereof.
"MANAGEMENT SUBSCRIPTION AGREEMENT" means the Management Subscription
Agreement, dated as of , 2000, by and among the Corporation and
certain members of management of the Corporation.
"NEW MANAGEMENT OPTION PLAN" means the New Management Option Plan, dated
as of , 2000, as adopted by the Board of Directors.
"NET PROCEEDS" means the aggregate proceeds to the Corporation from an
Initial Public Offering, less any underwriter commissions and related
expenses.
"OPTIONAL REDEMPTION DATE" shall have the meaning provided in
Section 5(a) hereof.
"PARITY SECURITIES" shall have the meaning provided in Section 2 hereof.
"PERIODIC REDEMPTION" shall have the meaning provided in
Section 5(c)(i) hereof.
"PERIODIC REDEMPTION DATE" shall have the meaning provided in
Section 5(c)(i) hereof.
"PERIODIC REDEMPTION NOTICE" shall have the meaning provided in
Section 5(c)(i) hereof.
"PERIODIC REDEMPTION NOTICE DATE" shall have the meaning provided in
Section 5(c)(i) hereof.
"PERSON" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof.
"PREFERRED STOCK" means the preferred stock, par value $1.00 per share,
of the Corporation.
"REDEMPTION DATE" shall mean an Optional Redemption Date or Periodic
Redemption Date, as the case may be.
"REDEMPTION DEFAULT" shall have the meaning provided in Section 6(d)(i)
hereof.
"REDEMPTION NOTICE" shall have the meaning provided in Section 5(e)(i)
hereof.
"REDEMPTION PRICE" means, with respect to a share of Series A Preferred,
a price equal to the applicable Redemption Price calculated in the manner
set forth in Section 5(a) hereof.
"RESOLUTION" shall have the meaning provided in the first paragraph
hereof.
"SALE DATE" shall have the meaning provided in Section 7(a) hereof.
"SALE OF THE CORPORATION" means (i) a sale of all or substantially all
of the consolidated assets of the Corporation or (ii) the transfer or other
disposition of more than 50% of the outstanding Common Stock, in each case
with respect to clauses (i) and (ii), in a single transaction or series of
related transactions, whether accomplished by stock purchase, asset
purchase, merger, recapitalization, reorganization or other transaction.
"SALE REDEMPTION" shall have the meaning provided in Section 7(a)
hereof.
"SALE REDEMPTION PRICE" shall have the meaning provided in Section 7(a)
hereof.
"SECURITIES ACT" means the Securities Exchange Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"SENIOR SECURITIES" shall have the meaning provided in Section 2 hereof.
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* Would be the Closing Date of the Merger.
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"SERIES A PREFERRED" shall have the meaning provided in Section 1
hereof.
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement, dated as of
November 29, 1999, by and among the Corporation, Torque Acquisition Co.,
L.L.C., a Delaware limited liability company and a wholly owned subsidiary
of Vestar Capital Partners IV, L.P., Gleason Foundation and certain
stockholders of the Corporation.
"VOTING RIGHTS TRIGGERING EVENT" shall have the meaning provided in
Section 6(d)(i) hereof.
FIFTH: In furtherance and not in limitation of the powers conferred upon it
by the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend, alter or repeal from time to time the By-laws of the
Corporation in any manner not inconsistent with the GCL or this Amended and
Restated Certificate of Incorporation.
SIXTH: The Corporation reserves the right at any time and from time to time
to amend, alter or repeal any provision contained in this Amended and Restated
Certificate of Incorporation in the manner now or as hereafter prescribed by law
or this Amended and Restated Certificate of Incorporation, and all rights,
preferences and privileges conferred upon stockholders, directors and officers
by and pursuant to this Amended and Restated Certificate of Incorporation in its
present form or as hereafter amended are subject to the rights reserved in this
Article SIXTH.
SEVENTH: No director of the Corporation shall be held personally liable to
the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the GCL or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal of this
Article SEVENTH, or any amendment of this Article SEVENTH insofar as it would in
any way enlarge the liability of any director of the Corporation, shall be
ineffective with respect to any acts or omissions occurring prior to the date of
such repeal or amendment.
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IN WITNESS WHEREOF, the undersigned has signed this Amended and Restated
Certificate of Incorporation this day of , 2000.
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ATTEST:
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ANNEX C
AS AMENDED , 2000
AMENDED AND RESTATED BY-LAWS
OF
GLEASON CORPORATION
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of WILMINGTON, County of NEW CASTLE, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders for the
election of directors and the transaction of other proper business shall be held
on such date and at such time and place as the Board of Directors may designate.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the Board of Directors.
SECTION 3. PLACE OF MEETINGS. Meetings of stockholders of the Corporation
shall be held at such place, either within or without the State of Delaware, as
shall be fixed by the Board of Directors and specified in the notice of said
meeting. Unless otherwise provided by action of the Board of Directors, all
meetings of stockholders shall be held at the principal office of the
Corporation.
SECTION 4. NOTICE OF MEETINGS.
(a) Notice of each meeting of stockholders shall be in writing and shall
state the place, date, and hour of the meeting. Notice of a special meeting
shall state the purpose or purposes for which the meeting is being called and
shall indicate that the notice is being issued by or at the direction of the
person or persons calling the meeting. If, at any meeting, action is proposed to
be taken which would, if taken, entitle stockholders to the appraisal rights of
Section 262 of the Delaware General Corporation Law, the notice of such meeting
shall indicate that appraisal rights are available and shall include a copy of
Section 262 of the Delaware General Corporation Law.
(b) A copy of the notice of any meeting shall be given personally or by mail
not less than ten (10) (not less than twenty (20) if action is proposed to be
taken which would, if taken, entitle stockholders to the appraisal rights of
Section 262 of the Delaware General Corporation Law) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at the
meeting. If mailed, such notice is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation.
(c) Notice of meetings need not be given to any stockholder who submits a
signed waiver of notice in person or by proxy whether before or after the
meeting. The attendance of any stockholder at a meeting in person or by proxy
shall constitute a waiver of notice of such meeting, except when the person
attends a
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meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
SECTION 5. QUORUM. At any annual or special meeting of the stock holders,
except where otherwise provided by law or the Certificate of Incorporation, the
holders of a majority of the shares entitled to vote thereat, present in person
or by proxy, shall constitute a quorum for the transaction of any business. When
a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any stockholders.
SECTION 6. ADJOURNED MEETINGS. The stockholders present at a meeting in
person or by proxy may adjourn the meeting to another time and place, despite
the absence of a quorum, and it shall not be necessary to give any notice of the
adjourned meeting, if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken. However, if the
adjournment is for more than thirty days, or if after the adjournment the Board
fixes a new record date for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record on the new record date
entitled to notice under Section 4 of this Article II. At the adjourned meeting
any business may be transacted that might have been transacted on the original
date of the meeting.
SECTION 7. PROXIES.
(a) Every stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period.
(b) Without limiting the manner in which a stockholder may authorize another
person or persons to act for him as proxy pursuant to Subsection (a) of this
Section, the following shall constitute a valid means by which a stock holder
may grant such authority:
(i) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy, execution thereof being accomplished by the
stockholder or his authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing
by any reasonable means including, but not limited to, by facsimile
signature.
(ii) A stockholder may authorize another person or persons to act for
him as proxy by transmitting or authorizing the transmission of a telegram,
cablegram, or other means of electronic transmission to the person who will
be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be
the holder of the proxy to receive such transmission, provided that any such
telegram, cablegram or other means of electronic transmission must either
set forth or be submitted with information from which it can be deter mined
that the telegram, cablegram or other electronic transmission was authorized
by the stockholder. If it is determined that such telegrams, cablegrams or
other electronic transmissions are valid, the inspectors shall specify the
information upon which they relied.
(c) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to Subsection (b) of this Section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
SECTION 8. ORGANIZATION. At every meeting of stockholders, the Chief
Executive Officer or, in his absence, the Chairman of the Board or the President
or, in the absence of all of them, such person as the Board of Directors shall
designate shall act as chairman of the meeting, unless the stockholders shall
appoint another chairman. The Secretary or, in his absence, an Assistant
Secretary, shall act as secretary of the meeting, and, in the absence of both
the Secretary and an Assistant Secretary, a person selected by the chairman of
the meeting shall act as secretary of the meeting.
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SECTION 9. VOTING.
(a) At each meeting of stockholders each stockholder of record of the
Corporation entitled to vote at the meeting shall be entitled to cast one vote
for each share of stock of the Corporation registered in his name on the books
of the Corporation on the record date for the meeting. Whenever any corporate
action, other than the election of directors, is to be taken by a vote of the
stockholders, it shall, except as otherwise required by law, the Certificate of
Incorporation, these Bylaws or the Stockholders' Agreement, dated as of
November 29, 1999, by and among Torque Acquisition Co., L.L.C. and certain
stockholders of the Company (the "Stockholders' Agreement"), be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon. Such votes may be cast in person or by proxy.
(b) The Board of Directors, or the Chief Executive Officer, or such other
officer as will in his absence preside at the meeting, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and to make a written report thereof, and may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of an inspector with strict
impartiality and according to the best of his ability.
(c) The inspectors shall (i) ascertain the number of shares out standing and
the voting power of each, (ii) determine the shares represented at a meeting and
the validity of proxies and ballots, (iii) count all votes and ballots,
(iv) determine and retain for a reasonable period a record of the disposition of
any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist them in the performance of their duties as
inspectors.
(d) The time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting shall be announced at the
meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls.
(e) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, and information provided in accordance with
Section 7(b)(2) of this Article II, ballots and the regular books and records of
the Corporation, except that the inspectors may consider other reliable
information for the limited purpose of reconciling proxies and ballots submitted
by or on behalf of banks, brokers, their nominees or similar persons which
represent more votes than the holder of a proxy is authorized by the record
owner to cast or more votes than the stockholder holds of record. If the
inspectors consider other reliable information for the limited purpose permitted
herein, they shall at the time they make their certification pursuant to
Subsection (c)(v) of this Section 9 specify the precise information considered
by them including the person or persons from whom they obtained the information,
when the information was obtained, the means by which the information was
obtained and the basis for the inspectors' belief that such information is
accurate and reliable.
SECTION 10. LIST OF STOCKHOLDERS. It shall be the duty of the Secretary or
other officer of the Corporation who shall have charge of its stock ledger,
either directly or through another officer of the Corporation designated by him
or through a transfer agent or transfer clerk appointed by the Board of
Directors, to prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder and the number
of shares registered in the name of each stock holder. Such list shall be open
to the examination of any stockholder, for a purpose germane to the meeting,
during ordinary business hours, for said ten (10) days, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of
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meeting, or, if not so specified, at the place where the meeting is to be held.
This list shall be produced and kept at the time and place of the meeting during
the whole time thereof and may be inspected by any stockholder who is present
thereat. The original or duplicate stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, such list or the
books of the Corporation, or to vote in person or by proxy at such meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWER OF BOARD AND QUALIFICATION OF DIRECTORS. The business and
affairs of the Corporation shall be managed under the direction of its Board of
Directors which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or these By-laws required to be exercised or done by the
stockholders. A director need not be a stockholder.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of not
less than five nor more than seven members, the number of directors within such
limits to be determined from time to time by resolution of a majority of the
entire Board of Directors, provided that no decrease in the number of directors
shall shorten the term of any incumbent director, except as provided by the
Stockholders' Agreement.
SECTION 3. ELECTION. Directors shall, except as otherwise required by law
or by the Stockholders' Agreement, be elected by a plurality of the votes cast
at a meeting of stockholders by the holders of shares entitled to vote in the
election.
SECTION 4. RESIGNATION AND REMOVAL. Any director may resign at any time by
giving written notice to the Corporation. Such resignation shall take effect at
the time specified in such notice or, if no time is specified, on delivery.
Subject to the terms of the Stockholders' Agreement, directors may be removed
for cause.
SECTION 5. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the terms
of the Stockholders' Agreement, newly created directorships and vacancies
occurring in the Board of Directors for any reason may be filled by a majority
of the directors then in office, although less than a quorum or by a sole
remaining director, and the directors so chosen shall hold office until the next
annual election and until their successors have been elected and qualified, or
until their earlier death, resignation or removal.
SECTION 6. ORGANIZATIONAL AND REGULAR MEETINGS. As soon as practical after
each annual election of directors, the Board of Directors shall meet for the
purposes of organization, the election of officers and the transaction of other
business. Regular meetings of the Board of Directors shall be held at such place
or places and on such days and at such hours as the Board of Directors may by
resolution appoint. Notice of organizational meetings and regular meetings need
not be given.
SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or President or by any two directors.
Notice of a special meeting shall state the date, place and time of such
meeting, and shall be deemed sufficient if given orally, delivered in writing
(including by facsimile) or sent by telegram not less than twelve (12) hours
before the meeting or mailed not less than forty-eight (48) hours before the
meeting.
SECTION 8. WAIVER OF NOTICE. Notice of a meeting need not be given to any
director if waived by him in writing or by telegraph, cable, wireless, or other
form of recorded communication, whether before or after the meeting or who
attends the meeting.
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SECTION 9. QUORUM AND ACTION BY THE BOARD.
(a) Except as otherwise provided by law, the Certificate of Incorporation or
these By-Laws, a majority of the entire Board of Directors shall constitute a
quorum for the transaction of business; provided, however, that at least one of
each of the Acquisition Company Directors and Voting Trust Directors (as such
terms are defined in the Stockholders' Agreement) must be present in order to
constitute a quorum. Subject to the provisions of the Stockholders' Agreement,
the affirmative vote of a majority of directors present at the time of the vote
if a quorum, as defined in this Section 9(a), is present shall be the act of the
Board.
(b) Any action required or permitted to be taken by the Board of Directors,
or any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing and such
writing or writings are filed with the minutes of the proceedings of the Board
or committee.
(c) Any one or more members of the Board of Directors, or any committee
thereof, may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at a meeting.
SECTION 10. ADJOURNED MEETINGS. A majority of the directors present at a
meeting, whether or not a quorum is present, may adjourn the meeting to another
time and place without notice to any director, except that such notice shall be
given to all directors not present at the time of adjournment if such
adjournment is to a time more than forty-eight (48) hours subsequent.
SECTION 11. COMPENSATION. The Board of Directors shall have authority to
fix the compensation of directors for services in any capacity and shall fix the
compensation of the Chairman of the Board and President.
SECTION 12. INTERESTED DIRECTORS.
(a) No contract or other transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, firm, association or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason or solely because such director
or officer is present at or participates in the meeting of the Board of
Directors or committee thereof, which authorizes such contract or transaction,
or solely because his or their votes are counted for such purpose, if:
(i) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board or
committee, and the Board or committee in good faith authorizes such contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum, or
(ii) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or known to the stockholders entitled
to vote thereon, and such contract or transaction is specifically approved
in good faith by vote of the stockholders, or
(iii) The contract or transaction is fair as to the Corporation at the
time it is authorized, approved, or ratified by the Board, a committee
thereof, or the stockholders.
ARTICLE IV
COMMITTEES
SECTION 1. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate from among its members one or more
committees each of which shall consist of
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three or more directors and shall serve at the pleasure of the Board. The Board
may designate one or more directors as alternate members of any such committee
who may replace any absent or disqualified member at any meeting of such
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Each committee shall have such powers and
authority as provided in the resolution of the Board establishing such
committee, but no committee shall have power or authority in reference to:
(i) Amending the Certificate of Incorporation (except that a committee
may, to the extent authorized in the resolution or resolutions providing for
the issuance of shares of stock adopted by the Board of Directors as
provided in Section 151(a) of the Delaware General Corporation Law, fix any
of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or
classes of stock of the Corporation).
(ii) Amending the By-laws of the Corporation.
(iii) Adopting an agreement of merger or consolidation.
(iv) Recommending to the stockholders the sale, lease or exchange of all
or substantially all of the Corporation's property and assets.
(v) Recommending to the stockholders a dissolution of the Corporation or
a revocation of a dissolution.
Unless a resolution of the Board expressly so provides, no committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the Delaware General Corporation Law.
SECTION 2. Rules of Procedure. Except to the extent otherwise determined
by the Board of Directors, each committee shall fix its own rules of procedure.
Regular meetings of each committee shall be held at such times as may be fixed
from time to time by resolution of the Board or the committee. Special meetings
shall be held whenever called by the Chief Executive Officer or the chairman of
the committee. No notice need be given of regular meetings. Notice of special
meetings shall comply with Article III, Section 7, of the By-laws. At all
meetings of committees a majority of the members of the committee shall
constitute a quorum.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS ENUMERATED. The officers of the Corporation shall be a
Chairman of the Board, President, one or more Vice Presidents, a Secretary and a
Treasurer, and such other officers as the Board of Directors may in its
discretion elect or appoint. Any two or more offices may be held by the same
person.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors,
if there is one, shall preside at all meetings of the Board of Directors at
which he is present, and shall, if he is not the Chief Executive Officer,
perform such other duties and exercise such other powers which may from time to
time be as signed to him by the Chief Executive Officer or the Board of
Directors.
SECTION 3. PRESIDENT. The President shall, in the absence of the Chairman
of the Board, preside at all meetings of the Board of Directors at which he is
present, and shall, if he is not the Chief Executive
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Officer, perform such other duties and exercise such other powers which may from
time to time be assigned to him by the Chief Executive Officer or the Board of
Directors.
SECTION 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
either the Chairman of the Board or the President, as the Board of Directors
shall from time to time determine, and shall have general powers and duties of
management of the Corporation's business and affairs, subject to the control of
the Board of Directors, shall preside at meetings of stockholders and shall
perform such duties which may from time to time be assigned to him by the Board
of Directors. The duties of the Chief Executive Officer shall in the event of
his absence or disability be performed by such other officer as he or the Board
of Directors shall designate.
SECTION 5. VICE PRESIDENTS. The Vice President or, if there be more than
one, Vice Presidents may be designated by such title or titles as the Board of
Directors may determine, and each Vice President shall perform such duties as
may be assigned to him from time to time by the Chief Executive Officer or the
Board of Directors.
SECTION 6. TREASURER. The Treasurer shall have the care and custody of the
funds and securities of the Corporation, shall deposit such funds in the name of
the Corporation in such banks, trust companies or other depositories as are
designated by the Board of Directors, shall have supervision over the accounts
of receipts and disbursements of the Corporation, shall sign such instruments as
require his signature, and shall perform such other duties as usually pertain to
his office or as may be assigned to him by the Chief Executive Officer or the
Board of Directors.
SECTION 7. SECRETARY. The Secretary, when authorized by the Board of
Directors, shall issue notices of all meetings of stockholders, and, when
authorized by the Chairman of the Board, the President or any two directors,
shall issue notices of meetings of the Board of Directors where notice is
required, shall keep the minutes of all meetings of stockholders and the Board
of Directors, shall sign such instruments as require his signature, shall be
custodian of the corporate seal and shall affix it to documents on which it is
duly required, and shall perform such other duties as usually pertain to his
office or as may be assigned to him by the Chief Executive Officer or the Board
of Directors.
SECTION 8. OTHER OFFICERS. The Board of Directors may elect or appoint
such other officers as from time to time it may determine, which officers shall
perform such duties as may be assigned to them by the Chief Executive Officer or
the Board of Directors.
SECTION 9. TERM OF OFFICES. The officers required by Section 1 of this
Article V shall be elected or appointed annually by the Board of Directors at
its organizational meeting following the annual meeting of stockholders. Unless
a shorter term is provided by the Board when electing or appointing each
officer, each officer shall hold office until the organizational meeting of the
Board following the next annual meeting of stockholders and until his successor,
if one is required, has been elected or appointed and qualified.
SECTION 10. REMOVAL OF OFFICERS. Subject to the terms of the Stock
holders' Agreement, any officer may be removed by the Board of Directors, with
or without cause, at any time. Removal of an officer without cause shall be
without prejudice to his contract rights, if any, but his election as an officer
shall not of itself create contract rights.
SECTION 11. RESIGNATIONS. Any officer may, subject to any contract rights
of the Corporation, resign at any time by giving written notice to the
Secretary. Such resignation shall take effect at the time specified in such
notice or, if no time is specified, on delivery.
SECTION 12. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS. Unless
otherwise provided by resolution adopted by the Board of Directors, the Chairman
of the Board, the President, a Vice President, or the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, or any one of them,
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may exercise or appoint an attorney or attorneys, or an agent or agents, to
exercise in the name and on behalf of the corporation the powers and rights
which the Corporation may have as the holder of stock or other securities in any
other corporation to vote or to consent in respect of such stock or other
securities; may instruct the person or persons so appointed as to the manner of
exercising such powers and rights; and may execute or cause to be executed in
the name and on behalf of the Corporation and under its corporate seal, or
otherwise, all such ballots, consents, proxies, powers of attorney or other
written instruments as they or any of them may deem necessary in order that the
Corporation may exercise such powers and rights. Any stock or other securities
in any other corporation which may from time to time be owned by or stand in the
name of the Corporation may, without further action, be endorsed for sale or
transfer or sold or transferred by the Chairman of the Board, the President or a
Vice President, or the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer of the Corporation.
ARTICLE VI
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. STOCK CERTIFICATES. The shares of the Corporation shall be
represented by certificates. Every stockholder shall be entitled to have a
certificate in such form as approved from time to time by the Board of Directors
representing the shares of stock of the Corporation owned by him, signed in the
name of the Corporation by the Chairman of the Board, the President or a Vice
President and by the Treasurer or an Assistant Treasurer or by the Secretary or
an Assistant Secretary. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued,
it may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
SECTION 2. TRANSFER OF SHARES. Shares of the Corporation shall be
transferred on the books of the Corporation only upon surrender to the
Corporation or its authorized transfer agent of the certificate duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer. Every certificate surrendered to the Corporation shall be cancelled,
and no new certificate shall be issued in exchange therefor until the old
certificate has been surrendered and cancel led. The Board of Directors shall
have power and authority to make all such rules and regulations as it may deem
expedient, not inconsistent with this section of the By-Laws, concerning the
issue, registration and transfer of certificates for shares, and may appoint
transfer agents and registrars thereof.
SECTION 3. REGISTERED STOCKHOLDERS. Except as otherwise provided by law,
the Corporation shall be entitled to recognize the exclusive right of a person
registered on its books as the owner of shares to receive dividends or other
distributions, and to vote as such owner, and shall not be bound to recognize
any equitable or legal claim to or interest in such share or shares on the part
of any person.
SECTION 4. RECORD DATE.
(a) For the purpose of determining the stockholders entitled to notice of,
or vote at, any meeting of stockholders or any adjournment thereof, or
determining stockholders entitled to receive payment of any dividend or other
distribution or the allotment or any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix in advance a record date
which shall be not more than sixty (60) nor less than ten (10) days before the
date of any such meeting, nor more than sixty (60) days prior to any other such
action.
(b) In each such case, except as otherwise provided by law, only such
persons as shall be stockholders of record on the date so fixed shall be
entitled to notice of, and to vote at, such meeting and any adjournment thereof,
or to receive payment of such dividend or such allotment of rights, or otherwise
to be recognized as stockholders for the purpose of any other action affecting
the interests of stock holders,
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notwithstanding any registration of transfer of shares on the books of the
Corporation after any such record date so fixed.
SECTION 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors
may direct a new certificate for shares to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue of
a new certificate, the Board may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such allegedly lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends on the outstanding shares of the
Corporation may be declared and paid out of the surplus or in the case there
shall be no such surplus, out of its net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year, as often and in such
amounts as the Board of Directors may determine.
SECTION 2. OBLIGATIONS. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all notes or other
evidence of indebtedness of the Corporation shall be signed on behalf of the
Corporation by such officer or officers or other person or persons as shall be
designated by the Board of Directors.
SECTION 3. SEAL. The seal of the Corporation shall be in the form approved
by the Board of Directors and shall at least bear the name of the Corporation
and its year of incorporation.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION. To the full extent authorized by law, the
Corporation shall indemnify any person made, or threatened to be made, a party
in any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was a director or officer of the Corporation, or is serving or served any
other corporation, or any partnership, joint venture, trust, employee benefit
plan or other enterprise, in any such capacity at the request of the
Corporation, ("indemnitee") against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection therewith.
SECTION 2. ADVANCEMENT OF EXPENSES. Expenses actually and reasonably
incurred by an indemnitee in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon an undertaking by or on behalf of such
indemnitee to repay such amount if it shall ultimately be determined, by final
judicial decision from which there is no further right of appeal, that he is not
entitled to be indemnified by the Corporation. The indemnitee shall, however,
cooperate in good faith with any request by the Corporation that common counsel
be used by parties to such action or proceeding who are similarly situated
unless it would be inappropriate to do so because of actual or potential
conflicts between the interests of such parties.
SECTION 3. SUIT FOR INDEMNIFICATION. If a claim for indemnification under
Section 1 is not paid in full within sixty days, or if a claim for advancement
of expenses under Section 2 is not paid in full within twenty days, after
receipt of the written claim by the Corporation, the indemnitee may at any time
thereafter prior
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to such payment bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in such suit, the indemnitee
shall be entitled also to recover from the Corporation that proportion of the
expenses (including attorneys' fees) actually and reasonably incurred by him in
such suit as the amount recovered therein bears to the amount of his unpaid
claim or claims sued upon. Neither the failure of the Board of Directors, legal
counsel or the stockholders of the Corporation to make a determination that the
indemnitee is entitled to indemnification, nor a determination by any of them
that he is not entitled to indemnification, for whatever reason, shall create a
presumption in such a suit that the indemnitee has not met the applicable
standard of conduct or be a defense to such suit. In any such suit the burden of
establishing that the indemnitee is not entitled to indemnification or
advancement of expenses shall be on the Corporation.
SECTION 4. CONTRACT RIGHT. This Article shall be deemed to constitute a
contract between the Corporation and each person who serves as a director or
officer at any time while this Article is in effect. No repeal or amendment of
this Article, insofar as it reduces the extent of the indemnification of any
such person shall without his written consent be effective as to such person
with respect to any event, act or omission occurring or allegedly occurring
prior to (a) the date of such repeal or amendment if on that date he is not
serving as a director or officer, or (b) the thirtieth day following delivery to
him of written notice of such amendment as to any such capacity in which he is
then serving for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise at the Corporation's request, or
(c) the later of the thirtieth day following delivery to him of such notice or
the end of the term of any office (for whatever reason) he is serving as
director or officer of the Corporation on the date of such repeal or amendment,
with respect to service in that capacity. This Article shall be binding on any
successor to the Corporation. The right to indemnification and advancement of
expenses provided by this Article shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person.
SECTION 5. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Corporation may,
to the extent authorized by the Board of Directors, grant rights of
indemnification and advancement of expenses to any employee or agent of the
Corporation to the full extent of the provisions of this Article with respect to
indemnification and advancement of expenses of directors and officers of the
Corporation.
SECTION 6. NON-EXCLUSIVITY. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which any person
covered hereby may be entitled other than pursuant to this Article.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. Subject to the terms of the Stockholders'
Agreement, the By-laws of the Corporation may be amended, repealed or adopted by
vote of the holders of the shares entitled to vote or by the Board of Directors.
C-10
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ANNEX D
TERMS OF WARRANTS
TERMS NOT OTHERWISE DEFINED HEREIN HAVE THE MEANING GIVEN TO THEM IN THAT
CERTAIN STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 29, 1999 AMONG GLEASON
CORPORATION AND CERTAIN OF ITS STOCKHOLDERS (THE "STOCKHOLDERS AGREEMENT").
<TABLE>
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Issuer.................................... Gleason Corporation ("COMPANY").
Holders................................... Each party who receives a Warrant pursuant to the terms
of the Merger Agreement is referred to as an "INITIAL
HOLDER." To the extent, such Initial Holder is the
Gleason Foundation ("FOUNDATION HOLDER"), the Foundation
Holder and the Foundation Holder's Permitted Transferees
are each referred to as a "FOUNDATION ORIGINAL HOLDER,"
and, the Foundation Holder and the Foundation Holder's
Permitted Transferees are collectively referred to as
the "FOUNDATION HOLDER GROUP." To the extent such
Initial Holder is Torque Acquisition Co., L.L.C.
("ACQUISITION HOLDER"), the Acquisition Holder and the
Acquisition Holder's Permitted Transferees are each
referred to as an "ACQUISITION ORIGINAL HOLDER," and,
the Acquisition Holder and the Acquisition Holder's
Permitted Transferees are collectively referred to as
the "ACQUISITION HOLDER GROUP." Foundation Original
Holders and Acquisition Original Holders are
collectively referred to as "ORIGINAL HOLDERS."
Investment................................ An aggregate amount equal to 10% of the aggregate
investment by the Initial Holders at the time of the
Closing in respect of the Warrants and Preferred Stock.
Warrants.................................. The number of detachable Warrants to be issued by the
Company in connection with the Merger (as defined in the
Merger Agreement) is equal to the aggregate number of
shares of Common Stock which has been converted into the
Series A Preferred/Warrant Consideration (as such term
is defined in the Merger Agreement). Each Warrant shall
initially entitle the holder to acquire one share of
Common Stock, subject in each case to anti-dilution
adjustments, as described below. In the event that
additional shares of Preferred Stock and Warrants are to
be sold pursuant to Section 6.11 of the Merger
Agreement, the number of detachable Warrants to be
issued by the Company pursuant to such Section 6.11
shall be equal to the aggregate cash consideration paid
in respect of such Preferred Stock and Warrants divided
by the Offer Price.
Merger Consideration Adjustment(1)........ The Merger consideration with respect to each Warrant
shall be adjusted as follows: (i) upon the achievement
by the Foundation Original Holder Group of the Initial
Hurdle Rate (as defined below) or the Acquisition
Original Holder Group of the Initial Hurdle Rate (as
defined below), as the case may be, each Foundation
Original Holder or Acquisition Original Holder, as the
case may be, shall be obligated to promptly pay the
</TABLE>
D-1
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<TABLE>
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Company as a contribution to capital an amount equal to
its Pro Rata Share (as defined below) of the Initial
Adjustment Amount (as defined below), and (ii) upon the
achievement by the Foundation Original Holder Group of
the Final Hurdle Rate (as defined below) or the
Acquisition Original Holder Group of the Final Hurdle
Rate (as defined below), as the case may be, each
Foundation Original Holder or Acquisition Original
Holder, as the case may be, shall be obligated to
promptly pay to the Company as a contribution to capital
an amount equal to an amount equal to its Pro Rata Share
of the Final Adjustment Amount (as defined below). In
the case of Acquisition Holder Group, the obligations of
Acquisition Holder and its Permitted Transferees to make
the foregoing capital contributions shall be the
obligation of Acquisition Holder on behalf of itself and
any such transferee, the payment of which shall be
guaranteed by Vestar Capital Partners IV, L.P. In the
case of the Foundation Holder Group, the obligations of
the Foundation Holder and its Permitted Transferees to
make the foregoing capital contributions shall be the
obligation of the Foundation Holder on behalf of itself
and any such transferee. To the extent an Original
Holder receives freely tradeable marketable securities
in the achievement of its respective Initial Hurdle Rate
or Final Hurdle Rate, as the case may be, such Original
holder may satisfy its respective obligations to the
Company by delivering to the Company an amount of such
freely tradeable marketable securities having a Fair
Market Value (which is the same Fair Market Value that
was determined in calculating the achievement of the
Initial Hurdle Rate or the Final Hurdle Rate, as the
case may be) equal to the Initial Adjustment Amount or
Final Adjustment Amount, as the case may be, PROVIDED
that if such Original Holder receives a combination of
cash and freely tradeable marketable securities in the
achievement of either the Initial Hurdle Rate or the
Final Hurdle Rate, it may satisfy its obligation to the
Company by delivery of a combination of such freely
tradeable marketable securities (based on such Fair
Market Value) and cash.
"FAIR MARKET VALUE" means the average of the closing
prices of the sales of such security on all securities
exchanges on which such security may at the time be
listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and
lowest asked prices on all such exchanges at the end of
such day, or, if on any day such security is not so
listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 PM,
Eastern Time, or, if on any day such security is not
quoted in the NASDAQ System, the average of the highest
bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National
Quotation Bureau Incorporated, or any similar successor
organization, in each such case averaged over a period
of 21 days consisting of the day as of which the fair
market value
</TABLE>
D-2
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<TABLE>
<S> <C>
is being determined and the 20 consecutive trading days
prior to such day; PROVIDED, HOWEVER, that if such
holder holds more than 5% of the aggregate outstanding
amount of such securities, the fair market value of such
securities shall be determined by an Appraiser employing
a methodology that takes into account lack of liquidity
and any other discount factors such Appraiser deems
appropriate.
"FINAL ADJUSTMENT AMOUNT" means, with respect to the
Foundation Holder Group or Acquisition Holder Group, as
the case may be, an amount equal to the excess, if any,
of (x) the actual amount that the Foundation Holder
Group or Acquisition Holder Group, as the case may be
(and, with respect to any shares of Preferred Stock
transferred by any Foundation Original Holder or
Acquisition Original Holder, as the case may be, any and
all transferees of such Foundation Original Holder or
Acquisition Original Holder, as the case may be) has
been paid by the Company in respect of its shares of
Preferred Stock over (y) the sum of (I) the amount that
the Foundation Holder Group or Acquisition Holder Group,
as the case may be (and, with respect to any shares of
Preferred Stock transferred by any Foundation Original
Holder or Acquisition Original Holder, as the case may
be, any and all transferees of such Foundation Original
Holder or Acquisition Original Holder, as the case may
be) would have been paid by the Company in respect of
its shares of Preferred Stock if (i) the Liquidation
Value of such shares of Preferred Stock was equal to the
aggregate investment by such Foundation Holder Group or
Acquisition Holder Group, as the case may be, in shares
of Preferred Stock and Warrants at the time of the
Closing, (ii) the Redemption Price was at all times
equal to 100% of such Liquidation Value and (iii) the
dividend rate per annum thereon was calculated at a rate
per annum equal to 4%, plus (II) the Initial Adjustment
Amount.
"FINAL HURDLE RATE" means the rate of return which would
cause the Foundation Holder Group or Acquisition Holder
Group, as the case may be, to realize in respect of
securities of the Company owned by such Foundation
Holder Group or Acquisition Holder Group, as the case
may be (but not including any transactional fees,
management fees or similar fees) in cash or freely
tradeable marketable securities (other than securities
of the Company or its Subsidiaries) (valued at Fair
Market Value measured at the time of receipt) of an
Internal Rate of Return equal to or greater than 30% in
respect of the aggregate amount invested by such
Foundation Holder Group or Acquisition Holder Group, as
the case may be, in all securities of the Company and
all capital contributions to the Company (after taking
into account the payment by such Foundation Holder Group
or Acquisition Holder Group, as the case may be, to the
Company of such Final Adjustment Amount and the payment
of any Initial Adjustment Amount).
</TABLE>
D-3
<PAGE>
<TABLE>
<S> <C>
"INITIAL ADJUSTMENT AMOUNT" means, with respect to the
Foundation Holder Group or Acquisition Holder Group, as
the case may be, an amount equal to the excess, if any,
of (x) the actual amount that the Foundation Holder
Group or Acquisition Holder Group, as the case may be
(and, with respect to any shares of Preferred Stock
transferred by any Foundation Original Holder or
Acquisition Original Holder, as the case may be, any and
all transferees of such Foundation Original Holder or
Acquisition Original Holder, as the case may be) has
been paid by the Company in respect of its shares of
Preferred Stock over (y) the amount that the Foundation
Holder Group or Acquisition Holder Group, as the case
may be (and, with respect to any shares of Preferred
Stock transferred by any Foundation Original Holder or
Acquisition Original Holder, as the case may be, any and
all transferees of such Foundation Original Holder or
Acquisition Original Holder, as the case may be) would
have been paid by the Company in respect of its shares
of Preferred Stock if (i) the Liquidation Value of such
shares of Preferred Stock was equal to the aggregate
investment by the Foundation Holder Group or Acquisition
Holder Group, as the case may be, in shares of Preferred
Stock and Warrants at the time of the Closing, (ii) the
Redemption Price was at all times equal to 100% of such
Liquidation Value and (iii) the dividend rate per annum
thereon was calculated at a rate per annum equal to
7.5%.
"INITIAL HURDLE RATE" means the rate of return which
will cause the Foundation Holder Group or Acquisition
Holder Group, as the case may be, to realize in respect
of securities of the Company owned by such Foundation
Holder Group or Acquisition Holder Group, as the case
may be (but not including any transactional fees,
management fees or similar fees) in cash or freely
tradeable marketable securities (other than securities
of the Company or its Subsidiaries) (valued at Fair
Market Value measured at the time of receipt) an
Internal Rate of Return equal to or greater than 20%, in
respect of the aggregate amount invested by such
Foundation Holder Group or Acquisition Holder Group, as
the case may be, in all securities of the Company
including capital contributions to the Company (after
taking into account the payment by such Foundation
Holder Group or Acquisition Holder Group, as the case
may be, to the Company of such Initial Adjustment
Amount).
"INTERNAL RATE OF RETURN" means with respect to any
determination of achieving a certain hurdle rate, an
annual internal rate of return based upon the actual
timing of investment inflows and outflows, aggregated
monthly. In determining the achievement of a particular
Internal Rate of Return, any consideration paid in
connection with any transfer by and among the Initial
Holders and their respective Permitted Transferees shall
be ignored. In addition, notwithstanding the foregoing,
any distribution of securities of the Company by
</TABLE>
D-4
<PAGE>
<TABLE>
<S> <C>
Vestar Capital Partners IV, L.P. to its limited partners
shall be deemed to be a transfer to a Person other than
its Permitted Transferees for this purpose, and the
value attributed to such distributed securities shall be
that value ascribed thereto under the terms of the
Agreement of Limited Partnership of Vestar Capital
Partners IV, L.P. in effect at the time of such
distribution. Further, in determining the Internal Rate
of Return with respect to Foundation Original Holders,
their investment for purposes of this calculation shall
be deemed to be (i) the value (I.E., the product of
(x) the Offer Price and (y) the number of shares of
Common Stock converted by the Foundation Holder into
Series A Preferred/Warrant Consideration) at Closing of
the Series A Preferred/Warrant Consideration received by
the Foundation Original Holder and (ii) with respect to
any shares of Common Stock retained by the Foundation
immediately following the Closing, the value of each
such share of Common Stock shall be the Offer Price.
"PRO RATA SHARE" means (i) with respect to a Foundation
Original Holder, (a) the Initial Adjustment Amount or
Final Adjustment Amount, as applicable, with respect to
such Foundation Original Holder over (b) the Initial
Adjustment Amount or Final Adjustment Amount, as
applicable, of all Foundation Original Holders, and
(ii) with respect to an Acquisition Original Holder,
(a) the Initial Adjustment Amount or Final Adjustment
Amount, as applicable, with respect to such Acquisition
Original Holder over (b) the Initial Adjustment Amount
or Final Adjustment Amount, as applicable, of all
Acquisition Original Holders.
Exercise Price............................ An amount per share equal to the Offer Price per share
of Common Stock, subject to anti-dilution adjustments,
as described below. The exercise price for the Warrants
may be paid by delivery for cancellation of Warrants
with a fair market value (as determined under
Section 8(e) of the Stockholders Agreement) equal to the
exercise price for the shares of Common Stock underlying
the Warrants which are the subject of such exercise.
Exercise Period........................... Exercisable into non-voting common stock of the Company
by the holder at any time, in whole or in part (provided
that such non-voting common stock shall not be
convertible into voting Common Stock until after the
first to occur of (i), (ii) and (iii) of this paragraph)
and exercisable into voting Common Stock in whole or in
part, at any time on or after the first to occur of
(i) an initial underwritten offering of equity
securities of the Company registered under the
Securities Act after the Closing, (ii) a Sale of the
Company, or (iii) a Change in Control (as defined in the
Certificate of Designation of the Company with respect
to the Preferred Stock).
Anti-Dilution Rights:..................... The Warrants will be entitled to (i) customary
adjustments for stock splits, dividends, etc. and
(ii) standard weighted anti-
</TABLE>
D-5
<PAGE>
<TABLE>
<S> <C>
dilution protection (I.E., issuances of Common Stock or
rights to acquire Common Stock for less than the
Exercise Price (described above) will result in an
adjustment to the number of shares and such Exercise
Price of the Warrants to make up the difference in the
dilution caused by the number of shares sold at a price
per share below the then Exercise Price).
</TABLE>
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(1) To be included in a letter agreement by and among the Acquisition Holder,
the Foundation Holder, the Company and Vestar Capital Partners IV, L.P., which
will be executed simultaneously with the Warrant Agreement.
D-6
<PAGE>
EXHIBIT IV
EXCERPTS FROM THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE RELATING TO THE RIGHTS
OF DISSENTING STOCKHOLDERS
262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g)), Section 252, Section 254, Section 257, Section 258,
Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
Section Section251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
IV-1
<PAGE>
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within twenty days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days following the
sending of the first notice, such second notice need only be sent to each
stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the
IV-2
<PAGE>
secretary or assistant secretary or of the transfer agent of the corporation
that is required to give either notice that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholder entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given; provided that, if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation surviving
the merger or resulting from the consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such written statement shall be
mailed to the stockholder within 10 days after his written request for such
a statement is received by the surviving or resulting corporation or within
10 days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified mail
to the surviving or resulting corporation and to the stockholders shown on
the list at the addresses therein stated. Such notice shall also be given by
1 or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Court, and the
costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have
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had to pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed
to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of
stock to the Register in Chancery, if such is required, may participate
fully in all proceedings until it is finally determined that he is not
entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section or
thereafter with the written approval of the corporation, then the right of
such stockholder to an appraisal shall cease. Notwithstanding the foregoing,
no appraisal proceeding in the Court of Chancery shall be dismissed as to
any stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
IV-4
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or his broker, dealer, commercial bank, trust company or other
nominee to the Depositary, at the applicable address set forth below:
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
BY MAIL: BY HAND: BY OVERNIGHT COURIER:
Reorganization Department Reorganization Department Reorganization Department
PO Box 3301 120 Broadway 85 Challenger Rd.
South Hackensack, NJ 07606 13(th) Floor Mail Stop--Reorg
New York, NY 10271 Ridgefield, NJ 07660
</TABLE>
BY FACSIMILE TRANSMISSION:
(201) 296-4293
(for eligible institutions only)
FOR CONFIRMATION TELEPHONE: (201) 296-4860
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
the other tender offer materials may be directed to the Information Agent at the
address and telephone number set forth below. Stockholders may also contact
their broker, dealer, commercial bank, trust company or other nominee for
assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
17 State Street, 10(th) Floor
New York, NY 10004
Banks and Brokers Call Collect (212) 440-9800
All Others Call Toll Free (800) 223-2064
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
OF
GLEASON CORPORATION
AT $23.00 NET PER SHARE
PURSUANT TO THE OFFER TO PURCHASE
DATED DECEMBER 15, 1999
OF
TORQUE ACQUISITION CO., L.L.C.,
A WHOLLY OWNED SUBSIDIARY OF
VESTAR CAPITAL PARTNERS IV, L.P.,
AND
GLEASON CORPORATION
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME,
ON THURSDAY, JANUARY 27, 2000, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of the Company or such
stockholder's broker, dealer, commercial bank or other nominee to the Depositary
at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
Reorganization Department Reorganization Department Reorganization Department
P.O. Box 3301 85 Challenger Rd. 120 Broadway
South Hackensack, NJ 07606 Mail Stop--Reorg 13(th) Floor
Ridgefield, NJ 07660 New York, NY 10271
</TABLE>
BY FACSIMILE TRANSMISSION:
(201) 296-4293
(for Eligible Institutions only)
FOR CONFIRMATION TELEPHONE: (201) 296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE, OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. THE INSTRUCTIONS
CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders of Gleason
Corporation either if certificates are to be forwarded herewith or, unless an
Agent's Message (as defined in the section captioned "THE OFFER--Procedures for
Tendering Shares" of the Offer to Purchase) is utilized, if delivery is to be
made by book-entry transfer to an account maintained by the Depositary at the
Book-Entry Transfer Facility (as defined in and pursuant to the procedures set
forth in the section captioned "THE OFFER--Procedures for Tendering Shares" of
the Offer to Purchase). Stockholders who deliver Shares by book-entry transfer
are referred to herein as "Book-Entry Stockholders" and other stockholders who
deliver Shares are referred to herein as "Certificate Stockholders."
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver either the certificates for, or a Book-Entry Confirmation (as
defined in the section captioned "THE OFFER--Procedures for Tendering Shares" of
the Offer to Purchase) with respect to, their Shares and all other documents
required hereby to the Depositary prior to the Expiration Date (as defined in
the section captioned "INTRODUCTION" of the Offer to Purchase) must tender their
Shares pursuant to the guaranteed delivery procedures set forth in the section
captioned "THE OFFER--Procedures for Tendering Shares" of the Offer to Purchase.
See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
WILL NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
1
<PAGE>
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE
THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY
DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s) _____________________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If delivered by Book-Entry Transfer, check box: / /
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED
APPEAR(S) ON SHARE CERTIFICATE(S) AND SHARE(S) TENDERED) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
REPRESENTED BY
SHARE CERTIFICATE SHARE NUMBER OF SHARES
NUMBER(S) (1) CERTIFICATE(S) (1) TENDERED (2)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by Book-Entry Stockholders.
(2) Unless otherwise indicated, it will be assumed that all Shares represented
by each Share certificate delivered to the Depositary are being tendered
hereby. See Instruction 4.
2
<PAGE>
SIGNATURES MUST BE PROVIDED AT THE END OF THIS LETTER OF TRANSMITTAL.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS.
Ladies and Gentlemen:
The undersigned hereby tenders to Torque Acquisition Co., L.L.C., a newly
formed Delaware limited liability company and a wholly owned subsidiary of
Vestar Capital Partners IV, L.P. ("Acquisition Company"), and Gleason
Corporation, a Delaware corporation (the "Company" and, together with
Acquisition Company, the "Purchasers"), all of the above-referenced shares of
common stock, par value $1.00 per share (the "Common Stock"), of the Company,
together with the associated preferred share purchase rights (the "Rights" and,
together with the Common Stock, the "Shares"), at a purchase price of $23.00 per
Share, net to the seller in cash (such amount, or any greater amount per Share
paid pursuant to the Offer, being referred to herein as the "Offer Price"),
without interest thereon, with Acquisition Company agreeing to pay for and
purchase the first 2,318,126 Shares tendered pursuant to the Offer and the
Company agreeing to pay for and purchase all Shares in excess of such 2,318,126
Shares paid for and purchased by Acquisition Company, upon terms and subject to
the conditions set forth in the Offer to Purchase dated December 15, 1999 and in
this Letter of Transmittal (which, as amended or supplemented from time to time,
together constitute the "Offer"). The undersigned understands that the
Purchasers reserve the right to transfer or assign, in whole at any time, or in
part from time to time, to one or more of their affiliates, the right to
purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve the Purchasers of their
obligations under the Offer and will in no way prejudice the rights of tendering
stockholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
The Company has distributed one Right for each outstanding Share pursuant to
the Rights Agreement (as defined in the Offer to Purchase). The Rights are
currently evidenced by and trade with certificates evidencing the Common Stock.
Any tender of Shares will include a tender of the associated Rights. The Company
has taken such action so as to make the Rights Agreement inapplicable to the
Offer, the Merger, the Merger Agreement and the other transactions contemplated
thereby.
3
<PAGE>
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of December 8, 1999 (the "Merger Agreement"), by and among the Company,
Acquisition Company and Torque Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of Acquisition Company.
Upon the terms and subject to the conditions of the Offer (and if the Offer
is extended or amended, the terms of any such extension or amendment), subject
to, and effective upon, acceptance for payment of, and payment for, the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, the Purchasers all
right, title and interest in and to all the Shares that are being tendered
hereby (and any and all non-cash dividends, distributions, rights, other Shares
or other securities issued or issuable in respect thereof on or after the date
of the Merger Agreement (collectively, "Distributions")) and irrevocably
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares (and any and all
Distributions), with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (i) deliver
certificates for such Shares (and any and all Distributions), or transfer
ownership of such Shares (and any and all Distributions) on the account books
maintained by the Book-Entry Transfer Facility, together, in any such case, with
all accompanying evidences of transfer and authenticity, to or upon the order of
the Purchasers, (ii) present such Shares (and any and all Distributions) for
transfer on the books of the Company, and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
and all Distributions), all in accordance with the terms of the Offer.
4
<PAGE>
By executing this Letter of Transmittal, the undersigned irrevocably
appoints Sander M. Levy and Arthur J. Nagle in their respective capacities as
officers of Acquisition Company, and each of them, as the attorneys-in-fact and
proxies of the undersigned, each with full power of substitution and
resubstitution, to vote at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof or otherwise in such
manner as each such attorney-in-fact and proxy or his substitute shall in his
sole discretion deem proper with respect to, to execute any written consent
concerning any matter as each such attorney-in-fact and proxy or his substitute
shall in his sole discretion deem proper with respect to, and to otherwise act
as each such attorney-in-fact and proxy or his substitute shall in his sole
discretion deem proper with respect to, all of the Shares (and any and all
Distributions) tendered hereby and accepted for payment by the Purchasers. This
appointment will be effective if, when, and only to the extent that, the
Purchasers accept such Shares for payment pursuant to the Offer. This power of
attorney and proxy are irrevocable and are granted in consideration of the
acceptance for payment of such Shares in accordance with the terms of the Offer.
Such acceptance for payment shall, without further action, revoke any prior
powers of attorney and proxies granted by the undersigned at any time with
respect to such Shares (and any and all Distributions), and no subsequent powers
of attorney, proxies, consents or revocations may be given by the undersigned
with respect thereto (and, if given, will not be deemed effective). The
Purchasers reserve the right to require that, in order for Shares (or other
Distributions) to be deemed validly tendered, immediately upon the Purchasers'
acceptance for payment of such Shares, the Purchasers must be able to exercise
full voting, consent and other rights with respect to such Shares (and any and
all Distributions), including voting at any meeting of the Company's
stockholders, provided that such requirement shall not apply to Shares purchased
by the Company with respect to any record date for the determination of
stockholders entitled to vote which is set after the date of purchase of Shares
by the Company.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, that the undersigned owns the Shares tendered
hereby within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that the tender of the
tendered Shares complies with Rule 14e-4 under the Exchange Act, and that when
the same are accepted for payment by the Purchasers, the Purchasers will acquire
good, marketable and unencumbered title thereto and to all Distributions, free
and clear of all liens, restrictions, charges and encumbrances and the same will
not be subject to any adverse claims. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Depositary or the
Purchasers to be necessary or desirable to complete the sale, assignment and
transfer of the Shares tendered hereby and all Distributions. In addition, the
undersigned shall remit and transfer promptly to the Depositary for the account
of the Purchasers all Distributions in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer, and, pending such
remittance and transfer of appropriate assurance thereof, the Purchasers shall
be entitled to all rights and privileges as owner of each such Distribution and
may withhold the entire purchase price of the Shares tendered hereby or deduct
from such purchase price, the amount of value of such Distribution as determined
by the Purchasers in their sole discretion.
5
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, successors and assigns of the
undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in the section of the Offer to Purchase
captioned "THE OFFER--Procedures for Tendering Shares" and the instructions
hereto will constitute a binding agreement between the undersigned and the
Purchasers upon the terms and subject to the conditions of the Offer (and if the
Offer is extended or amended, the terms or conditions of any such extension or
amendment). Without limiting the foregoing, if the price to be paid in the Offer
is amended in accordance with the Merger Agreement, the price to be paid to the
undersigned will be the amended price notwithstanding the fact that a different
price is stated in this Letter of Transmittal. The undersigned recognizes that
under certain circumstances set forth in the Offer to Purchase, the Purchasers
may not be required to accept for payment any of the Shares tendered hereby.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of all Shares purchased and/or return any
certificates for Shares not tendered or accepted for payment in the name(s) of
the registered holder(s) appearing above under "Description of Shares Tendered."
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please mail the check for the purchase price of all Shares purchased and/or
return any certificates for Shares not tendered or not accepted for payment (and
any accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing above under "Description of Shares Tendered." In the event
that the boxes entitled "Special Payment Instructions" and "Special Delivery
Instructions" are both completed, please issue the check for the purchase price
of all Shares purchased and/or return any certificates evidencing Shares not
tendered or not accepted for payment (and any accompanying documents, as
appropriate) in the name(s) of, and deliver such check and/or return any such
certificates (and any accompanying documents, as appropriate) to, the person(s)
so indicated. Unless otherwise indicated herein in the box entitled "Special
Payment Instructions," please credit any Shares tendered herewith by book-entry
transfer that are not accepted for payment by crediting the account at the
Book-Entry Transfer Facility designated above. The undersigned recognizes that
the Purchasers have no obligation, pursuant to the "Special Payment
Instructions," to transfer any Shares from the name of the registered holder
thereof if the Purchasers do not accept for payment any of the Shares so
tendered.
6
<PAGE>
/ / CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE
BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 11.
NUMBER OF SHARES REPRESENTED BY LOST, DESTROYED OR STOLEN CERTIFICATES: ____
------------------------------------------------SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares
accepted for payment is to be issued in name of someone other than the
undersigned, if certificates for Shares not tendered or not accepted for
payment are to be issued in the name of someone other than the undersigned
or if Shares tendered hereby and delivered by book-entry transfer that are
not accepted for payment are to be returned by credit to an account
maintained at the Book-Entry Transfer Facility other than the account
indicated above.
Issue check and/or Share certificate(s) to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
____________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9)
Credit Shares delivered by book-entry transfer and not purchased to the
Book-Entry Transfer Facility account.
____________________________________________________________________________
(ACCOUNT NUMBER)
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment is to be sent to someone other than the undersigned or
to the undersigned at an address other than that shown under "Description of
Shares Tendered."
Mail check and/or Share certificates to:
Name: ______________________________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9)
-----------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
____________________________________________________________________________
____________________________________________________________________________
(SIGNATURE(S) OF STOCKHOLDER(S))
Dated: ___________________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
the Share certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting
in a fiduciary or representative capacity, please provide the following
information and see Instruction 5.)
Name(s) ____________________________________________________________________
(PLEASE PRINT)
Name of Firm _______________________________________________________________
Capacity (full title) ______________________________________________________
(SEE INSTRUCTION 5)
Address ____________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _____________________________________________
Taxpayer Identification or Social Security Number __________________________
(SEE SUBSTITUTE FORM W-9)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature _______________________________________________________
Name(s) ____________________________________________________________________
(PLEASE PRINT)
Title ______________________________________________________________________
Name of Firm _______________________________________________________________
Address ____________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _____________________________________________
----------------------------------------------------------------------------
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program (each, an "Eligible Institution"), unless
(i) this Letter of Transmittal is signed by the registered holder(s) of Shares
(which term, for the purposes of this document, shall include any participant in
a Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Shares) tendered hereby and such holder(s) has (have) not
completed either the box entitled "Special Delivery Instructions" or the box
entitled "Special Payment Instructions" on this Letter of Transmittal or
(ii) such Shares are tendered for the account of an Eligible Institution. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed by stockholders
either if Share Certificates are to be forwarded herewith or if a tender of
Shares is to be made pursuant to the procedures for delivery by book-entry
transfer set forth in the section captioned "THE OFFER--Procedures for Tendering
Shares" of the Offer to Purchase. Share Certificates evidencing all physically
tendered Shares, or confirmation ("Book-Entry Confirmation") of any book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility of
Shares delivered by book-entry as well as a properly completed and duly executed
Letter of Transmittal, must be received by the Depositary, at one of the
addresses set forth herein prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase). If Share Certificates are forwarded to the
Depositary in multiple deliveries, a properly completed and duly executed Letter
of Transmittal must accompany each such delivery. Stockholders whose Share
Certificates are not immediately available, who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date or who cannot comply with the book-entry transfer procedures on
a timely basis may tender their Shares by properly completing and duly executing
a Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures
set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure,
(i) such tender must be made by or through an Eligible Institution, (ii) a
properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Purchasers, must be received by the
Depositary (as provided in (iii) below) prior to the Expiration Date and
(iii) the Share Certificates evidencing all physically tendered Shares (or
Book-Entry Confirmation with respect to such Shares), as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantees and any other documents required by this
Letter of Transmittal, must be received by the Depositary within three New York
Stock Exchange trading days after the date of execution of such Notice of
Guaranteed Delivery, all as provided in the section captioned "THE
OFFER--Procedures for Tendering Shares" of the Offer to Purchase.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, SHARE CERTIFICATES AND
ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE
SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. All
tendering stockholders, by execution of this Letter of Transmittal (or facsimile
hereof), waive any right to receive any notice of the acceptance of their Shares
for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares Tendered" is inadequate, the certificate numbers and/or the number of
Shares tendered should be listed on a separate signed schedule and attached
hereto.
4. PARTIAL TENDERS. (Not applicable to stockholders who tender by
book-entry transfer.) If fewer than all the Shares evidenced by the Share
Certificate submitted are to be tendered, fill in the number of Shares which are
to be tendered in the box entitled "Number of Shares Tendered." In such case,
new Share Certificate(s) evidencing the remainder of the Shares that were
evidenced by the old Share Certificate(s) will be sent to the registered holder,
unless otherwise provided in the appropriate box on this Letter of Transmittal,
as soon as practicable after the Expiration Date. All Shares represented by the
Share Certificates delivered to the Depositary will be deemed to have been
tendered unless otherwise indicated.
9
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signatures(s) must correspond exactly with the names(s) as
written on the face of the Share Certificate(s) without alternation, enlargement
or any change whatsoever. If any of the Shares tendered hereby are held of
record by two or more persons, all such persons must sign this Letter of
Transmittal.
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of such Shares.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares evidenced by Share Certificates listed and transmitted hereby, no
endorsements of Share Certificates or separate stock powers are required unless
payments is to be made to or Share Certificates evidencing Shares not tendered
or purchased are to be issued in the name of a person other than the registered
holder(s), in which case the Share Certificate(s) evidencing the Shares tendered
hereby must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s) appear(s) on such
Share Certificates(s). Signatures on such certificates and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, the Share Certificate(s)
evidencing the Shares tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name or names of
the registered holder or holders appear on the Share Certificate(s). Signatures
on such Share Certificate(s) or stock powers must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Share Certificates or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or any person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Purchasers of such person's authority so to act must be
submitted.
6. STOCK TRANSFER TAXES. Except as set forth in this Instruction 6, the
Purchasers will pay or cause to be paid any stock transfer taxes with respect to
the transfer and sale of Shares to them or their order pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or if Share
Certificates evidencing Shares not tendered or purchased are to be registered in
the name of, any person other than the registered holder(s), or if Share
Certificates evidencing tendered shares are registered in the name of the person
other than the person(s) signing this Letter of Transmittal, the amount of any
stock transfer taxes (whether imposed on the registered holder(s) or such other
person) payable on account of the transfer to such person will be deducted from
the purchase price unless satisfactory evidence of the payment of such taxes or
exemption therefrom is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES(S) LISTED IN THIS LETTER
OF TRANSMITTAL.
10
<PAGE>
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares tendered hereby is to be issued, or Share Certificate(s)
evidencing Shares not tendered or not purchased are to be issued, in the name of
a person other than the person(s) signing this Letter of Transmittal or if such
check or any such Share Certificate is to be sent and/or any Share Certificates
are to be returned to someone other than the signer above, or to the signer
above but at an address other than that shown in the box entitled "Description
of Shares Tendered" above, the appropriate boxes on this Letter of Transmittal
should be completed. Stockholders tendering Shares by book-entry transfer may
request that Shares not purchased be credited to such account maintained at any
of the Book-Entry Transfer Facilities as such stockholder may designate under
"Special Delivery Instructions." If no such instructions are given, any such
Share not purchased will be returned by crediting the account at the Book-Entry
Transfer Facility designated above.
8. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may
be directed to, or additional copies of the Offer to Purchase, this Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent at the telephone number and address set forth below.
Stockholders may also contact their broker, dealer, commercial bank or trust
company.
9. WAIVER OF CONDITIONS. Except as otherwise provided in the Offer to
Purchase and subject to the terms of the Merger Agreement, Acquisition Company
reserves the right in its sole discretion to waive in whole or in part at any
time or from time to time any of the specified conditions of the Offer or any
defect or irregularity in tender with regard to any Shares tendered.
10. SUBSTITUTE FORM W-9. The tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN"), generally
the stockholder's social security or employer identification number, on
Substitute Form W-9, which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, whether he or she is subject to
backup withholding of federal income tax. If a tendering stockholder is subject
to backup withholding, he or she must cross out item (2) of the Certification
Box on Substitute Form W-9. Failure to provide the information on Substitute
Form W-9 may subject the tendering stockholder to 31% federal income tax
withholding on the payment of the purchase price. If the tendering stockholder
has not been issued a TIN and has applied for a number or intends to apply for a
number in the near future, he or she should write "Applied For" in the space
provided for the TIN in Part I, sign and date the Substitute Form W-9 and sign
and date the Certificate of Awaiting Taxpayer Identification Number. If "Applied
For" is written in Part I, the Depositary will be required to withhold 31% of
all payments made for surrendered shares except that if the Depositary is
provided with a TIN within 60 days, the amount of such withholding will be
refunded to the tendering stockholder.
11. LOST, DESTROYED OR STOLEN SHARE CERTIFICATES. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary by checking the box immediately preceding the
special payment/ special delivery instructions and indicating the number of
Shares lost. The stockholder will then be instructed as to the steps that must
be taken in order to replace the Share certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Share certificates have been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, OR AN AGENT'S MESSAGE IN THE CASE OF A BOOK-ENTRY
TRANSFER, TOGETHER WITH CERTIFICATES (OR BOOK-ENTRY CONFIRMATION) AND ALL OTHER
REQUIRED DOCUMENTS OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF
GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE
EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
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<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder surrendering certificates must,
unless an exemption applies, provide the Exchange Agent (as payer) with his
correct TIN on Substitute Form W-9 included in this Letter of Transmittal. If
the stockholder is an individual, his TIN is his social security number. If the
correct TIN is not provided, the stockholder may be subject to a $50 penalty
imposed by the Internal Revenue Service and payments of cash to the stockholder
(or other payee) may be subject to backup withholding of 31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding. In
order for an exempt foreign stockholder to avoid backup withholding, that person
should complete, sign and submit a Form W-8, Certificate of Foreign Status,
signed under penalties of perjury, attesting to his exempt status. A Form W-8
can be obtained from the Exchange Agent. Exempt stockholders, other than foreign
stockholders, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 and sign, date and return the Substitute Form W-9 to the
Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any payment made to payee. Backup withholding is not an additional tax.
Rather, the federal income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If backup withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder,
the stockholder is required to notify the Exchange Agent of his correct TIN (or
the TIN of any other payee) by completing the Substitute Form W-9 included in
this Letter of Transmittal certifying (1) that the TIN provided on the
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN), and
that (2) the stockholder is not subject to backup withholding because (i) the
stockholder has not been notified by the Internal Revenue Service that the
stockholder is subject to backup withholding as a result of a failure to report
all interest and dividends or (ii) the Internal Revenue Service has notified the
stockholder that the stockholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the TIN, generally the
social security number or employer identification number, of the record owner of
the Shares. If the Shares are in more than one name or are not in the name of
the actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the stockholder has not been issued a TIN and has applied
for a number or intends to apply for a number in the near future, he or she
should write "Applied For" in the space provided for the TIN in Part I, sign and
date the Substitute Form W-9 and sign and date the Certificate of Awaiting
Taxpayer Identification Number, which appears in a separate box below the
Substitute Form W-9. If "Applied For" is written in Part I, the Depositary will
be required to withhold 31% of all payments made for surrendered Shares except
that if the Depositary is provided with a TIN within 60 days, the amount of such
withholding will be refunded to the tendering stockholder.
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<PAGE>
<TABLE>
<S> <C> <C>
PAYOR: CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY Social Security Number
Department of the Treasury BY SIGNING AND DATING BELOW. OR
Internal Revenue Service
Employer Identification No.
(If awaiting TIN write"Applied
For")
PART II--For payees NOT subject to backup withholding, see the
enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 and complete as instructed therein.
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be issued
to me), and
(2) I am not subject to backup withholding because either (a) I
am exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION withholding.
NUMBER ("TIN") CERTIFICATE INSTRUCTIONS--You must cross out item (2) above if
you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on
your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another
notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see
instructions in the enclosed Guidelines.)
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATES REQUIRED
TO AVOID BACKUP WITHHOLDING.
SIGNATURE: Date:
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND IN BACKUP WITHHOLDING OF 31%
OF ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR" IN
PART I OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification
Number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a Taxpayer Identification Number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a Taxpayer
Identification Number to the Depositary by the time of payment, 31% of all
reportable payments made to me thereafter will be withheld, but that such
amounts will be refunded to me if I provide a certified Taxpayer
Identification Number to the Depositary within sixty (60) days.
<TABLE>
<S> <C>
------------------------------------- -------------------------
Signature Date
</TABLE>
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<PAGE>
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Letter of Transmittal and other tender offer materials may be
directed to the Information Agent at its address and telephone number as set
forth below:
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
17 State Street, 10(th) Floor
New York, NY 10004
Banks and Brokers Call Collect (212) 440-9800
All Others Call Toll Free (800) 223-2064
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