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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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PEERLESS INDUSTRIAL GROUP, INC.
(NAME OF SUBJECT COMPANY)
PEERLESS INDUSTRIAL GROUP, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, NO PAR VALUE
CLASS B COMMON STOCK, NO PAR VALUE
(TITLE OF CLASS OF SECURITIES)
254680-10-1
(CUSIP NUMBER OF COMMON STOCK)
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WILLIAM H. SPELL
CHIEF EXECUTIVE OFFICER
PEERLESS INDUSTRIAL GROUP, INC.
2430 METROPOLITAN CENTRE
333 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
(612) 371-9650
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF
THE PERSON(S) FILING STATEMENT)
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COPY TO:
BRIAN D. WENGER, ESQ.
BRIGGS AND MORGAN, PROFESSIONAL ASSOCIATION
2400 IDS CENTER
MINNEAPOLIS, MINNESOTA 55402
(612) 334-8400
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Peerless Industrial Group, Inc., a
Minnesota corporation (the "Company"). The address of the principal executive
offices of the Company is 2430 Metropolitan Centre, 333 South Seventh Street,
Minneapolis, Minnesota 55402. The classes of equity securities to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
relates are the Common Stock, no par value (the "Common Stock"), and Class B
Common Stock, no par value (the "Class B Common Stock") (hereinafter the
Common Stock and the Class B Common Stock shall be collectively referred to as
the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer disclosed in the Tender
Offer Statement on Schedule 14D-1 dated April 17, 1997 (the "Schedule 14D-1"),
by R-B Acquisition Corporation, a Minnesota corporation (the "Purchaser") and
a wholly owned subsidiary of R-B Capital Corporation, a Delaware corporation
("Parent"), to purchase all outstanding Shares at a price of $1.67 per Share,
net to the seller thereof in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 17, 1997 (the "Offer
to Purchase") and the related Letter of Transmittal (which together constitute
the "Offer" and are filed as Exhibit 1 hereto). Parent and Purchaser are
corporations formed by Ridge Capital Corporation, Pandora Capital Corporation
and their affiliates (collectively, "Ridge") and William Blair Mezzanine
Capital Fund II, L.P. ("Blair Mezzanine Fund") in connection with the Offer
and the transactions contemplated thereby. The Offer is being made pursuant to
the terms of the Agreement and Plan of Merger dated as of April 11, 1997 (the
"Merger Agreement"), among the Company, Parent and the Purchaser. The Merger
Agreement provides, among other things, that after completion of the Offer,
subject to the terms and conditions of the Merger Agreement, the Purchaser and
the Company will be merged (the "Merger") and each outstanding Share (other
than those held by Parent, the Purchaser, any other direct or indirect
subsidiary of Parent or by shareholders of the Company who dissent from the
Merger and comply with all of the provisions of the Minnesota Business
Corporation Act ("MBCA") concerning dissenters' rights) will be converted at
the effective time of the Merger (the "Effective Time") into the right to
receive $1.67 in cash, without interest. The terms of the Merger Agreement are
described more fully below in Item 3. The purpose of the Offer and the Merger
is for Parent to acquire the entire equity interest in the Company. The Offer
is intended to increase the likelihood that such acquisition will be effected
and to permit Parent to acquire control of the Company at the earliest
practicable date. The purpose of the Merger is to permit Parent to acquire all
outstanding Shares not tendered and purchased pursuant to the Offer.
The Offer is conditioned upon, among other things, at least a majority of
the Shares and a number of outstanding Shares entitled to elect a majority of
the Company's Board of Directors, in each case on a fully-diluted basis (or,
if the Purchaser so elects in its sole discretion, on the basis of the number
of Shares outstanding at the expiration date of the Offer) being validly
tendered and not withdrawn prior to the expiration of the Offer ("Minimum
Condition").
The address of the principal executive offices of the Purchaser, as set
forth in the Schedule 14D-1, is 257 East Main Street, Barrington, Illinois,
60010.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and address of the Company, which is the person filing this
Schedule 14D-9, are set forth in Item 1 above.
(b) The Merger Agreement
The following is a brief summary of the Merger Agreement, and is qualified
in its entirety by reference to the text of the Merger Agreement, a copy of
which has been filed by Parent as an exhibit to the Schedule 14D-l.
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THE OFFER
Pursuant to the Merger Agreement, the Purchaser was required to commence the
Offer as promptly as practicable, but in any event within five business days
after the public announcement of the Merger Agreement. Subject to the prior
satisfaction or waiver of the conditions to the Offer described in Section 13
of the Offer to Purchase, the Purchaser is obligated to accept for payment all
Shares validly tendered pursuant to the Offer, and not withdrawn, as soon as
legally permissible and to pay for all such Shares as soon as practicable
thereafter; provided, however, that, subject to the terms of the Merger
Agreement, the Offer may be extended by the Purchaser, in its sole discretion,
for not more than ten business days beyond the initially scheduled expiration
date thereof. Without the prior written consent of the Company, the Purchaser
may not decrease the price per Share, decrease the number of Shares being
sought in the Offer, change the form of consideration payable in the Offer,
add additional conditions to the Offer, or, subject to the preceding sentence,
make any other change in the terms of the Offer which is materially adverse to
the holders of Shares. The Merger Agreement provides that the Offer will be
subject only to the conditions described in Section 13 of the Offer to
Purchase, which are for the benefit of the Purchaser and may be asserted or
waived by the Purchaser in whole or in part at any time and from time to time,
in its sole discretion; provided, however, that the Purchaser may not waive
the Minimum Condition without the prior written consent of the Company.
The Merger Agreement requires that, as soon as practicable on the date of
commencement of the Offer, (i) Parent and the Purchaser shall file with the
Commission a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer (the "Schedule 14D-1"), which will contain the offer to purchase and
form of the related letter of transmittal and (ii) the Company will file with
the Commission, and mail to its shareholders, this Schedule 14D-9 containing
the recommendation of the Board of Directors of the Company that the Company's
shareholders accept the Offer and tender their Shares.
BOARD OF DIRECTORS
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the
Company's Board of Directors that equals the product of (i) the total number
of directors on the Company's Board of Directors and (ii) the percentage that
the number of Shares owned by Purchaser and its affiliates (including any
Shares purchased pursuant to the Offer) bears to the total number of
outstanding Shares. The Company will either increase the size of its Board of
Directors or use its best efforts to secure the resignation of such number of
directors as is necessary to enable Purchaser's designees to be elected to
such Board of Directors, and shall cause Purchaser's designees to be so
elected.
Following the election or appointment of Purchaser's designees, any
amendment of the Merger Agreement or the Restated Articles of Incorporation or
By-Laws of the Company, 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 Parent or Purchaser or any waiver of any
of the Company's rights under the Merger Agreement will require the
concurrence of a majority of the directors of the Company then in office who
are not designees of Purchaser or employees of the Company.
THE MERGER
The Merger Agreement provides that, promptly after the purchase of Shares
pursuant to the Offer and the receipt of any required approval by the
Company's shareholders of the Merger Agreement and the satisfaction or waiver
of certain other conditions, the Purchaser and the Company will be merged.
Upon consummation of the Merger (the "Effective Time"), each then outstanding
Share (other than Shares owned by the Purchaser or Shares held by shareholders
of the Company who have exercised their dissenters' rights in accordance with
Section 473 of the MBCA) will be converted into the right to receive an amount
in cash (the "Merger Consideration") equal to the per Share price paid
pursuant to the Offer.
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Following consummation of the Merger, the Company will be the surviving
corporation. The Merger Agreement also provides that the Articles of
Incorporation and the Bylaws of the Purchaser at the Effective Time will be
the Articles of Incorporation and Bylaws of the surviving corporation and that
the directors and officers of the Purchaser at the Effective Time will be the
directors and officers of the surviving corporation.
The Merger Agreement provides that at or prior to the Effective Time, each
option and warrant granted pursuant to the Company's stock option plans and
other agreements (the "Stock Purchase Rights"), whether or not then
exercisable, which was outstanding as of the date of the Merger Agreement and
which has not been exercised prior to the acquisition of Shares pursuant to
the Offer, shall be cancelled and each holder of a cancelled Stock Purchase
Right shall be entitled to receive from the Company, in cancellation and
settlement of the Stock Purchase Right, an amount in cash (less applicable
withholding taxes) equal to the product of (x) the number of Shares previously
subject to the Stock Purchase Right and (y) the excess, if any, of the
purchase price paid pursuant to the Offer over the exercise price per Share
provided for in the Stock Purchase Right.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the Company, including representations by the Company as to (i)
organization, qualification and similar corporate matters of the Company and
its subsidiaries (ii) the capitalization of the Company and its subsidiaries,
(iii) the authorization, execution, delivery and enforceability of the Merger
Agreement, (iv) the lack of required consents and approvals in connection with
the Merger Agreement, and the non-contravention by the Merger Agreement and
the related transactions of any article provision, by-law, material contract,
order, law or regulation to which the Company or its subsidiaries is a party
or by which it is bound or obligated, (v) the filing of required Commission
reports, the absence of untrue statements of material facts or omissions of
material facts in such reports, and the absence of other undisclosed
liabilities, (vi) the absence of changes or events which have had a material
adverse effect on the Company, and the absence of casualty losses,
declarations of dividends, certain compensation arrangements, material
commitments or transactions and certain other events, (vii) the absence of
payments to any intermediary other than Coopers & Lybrand Securities L.L.C.
and of any finder's or other fee or commission, (viii) the absence of untrue
statements of material facts or omissions of material facts in the Schedule
14D-9 and the proxy statement to be sent to shareholders in connection with
the Merger, (ix) possession of all necessary rights and licenses in
intellectual property, (x) the absence of claims and litigation, (xi) labor
matters, (xii) the filing of tax returns and the payment of taxes, (xiii) the
absence of environmental claims and compliance with all environmental laws and
regulations, (xiv) employee benefits matters, (xv) compliance with laws,
rules, statutes, orders, ordinances or regulations, and material notes, bonds,
mortgages, indentures, contracts, agreements, leases, licenses, permits,
franchise or other instruments or obligations of the Company or any of its
subsidiaries which would result in a material adverse effect, (xvi) real
property ownership and the possession and enforceability of all real property
leases, (xvii) the absence of notices, citations or decisions of governmental
or regulatory bodies and recalls with respect to any product produced,
manufactured, marketed or distributed by the Company, (xviii) applicable
voting requirements and (xix) inapplicability of certain state takeover laws.
The Merger Agreement also contains various customary representations and
warranties of the Parent and the Purchaser, including representations by
Parent and Purchaser as to (i) organization, qualification and similar
corporate matters of Parent and Purchaser, (ii) the authorization, execution,
delivery, and enforceability of the Merger Agreement, (iii) the absence of
untrue statements of material facts or omissions of material facts in any
documents related to the Offer or in the Schedule 14D-1, (iv) the absence of
untrue statements of material facts or omissions of material facts in any
information provided to the Company in connection with the proxy statement,
(v) the lack of required consents and approvals in connection with the Merger
Agreement, and the non-contravention by the Merger Agreement and the related
transactions of any charter provision, by-law, material contract, order, law
or regulation to which Parent or Purchaser is a party or by which it is bound
or obligated and (vi) the possession of all funds necessary to satisfy
Purchaser's obligations under the Merger Agreement.
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In general, the representations and warranties in the Merger Agreement do
not survive the payment for shares in the Offer.
COVENANTS
No Solicitation. The Merger Agreement requires the Company to immediately
cease any existing discussions or negotiations with any third parties
conducted prior to the date of the Merger Agreement with respect to any
Acquisition Proposal (as defined below). The Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent,
or any of its subsidiaries, or otherwise (i) solicit, initiate, continue or
encourage any inquiries, proposals or offers that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of
shares of capital stock (including, without limitation, by way of a tender
offer), liquidation, reorganization or similar transactions involving the
Company or any of its subsidiaries or divisions, other than the transactions
contemplated by the Merger Agreement (any of the foregoing inquiries or
proposals being referred to as an "Acquisition Proposal"), (ii) solicit,
initiate, continue or engage in negotiations or discussions concerning, or
provide any information or data to any person or entity relating to, or
otherwise cooperate in any way with, or assist or participate in, or
facilitate or encourage any Acquisition Proposal or (iii) agree to, approve or
recommend any Acquisition Proposal; provided, that the foregoing does not
prevent the Company from, prior to the acceptance for payment by the Purchaser
of Shares pursuant to the Offer, furnishing non-public information to, or
entering into discussions or negotiations with, any person or entity in
connection with an unsolicited Acquisition Proposal by such person or entity
(including a new and unsolicited Acquisition Proposal received by the Company
after the execution of the Merger Agreement from a person or entity whose
initial contact with the Company may have been solicited by the Company prior
to the execution of the Merger Agreement), and may recommend such an
unsolicited bona fide written Acquisition Proposal to the shareholders of the
Company, if and only to the extent that (i) the Board of Directors of the
Company determines in good faith (after consultation with and based upon the
advice of its financial advisor and considering the affect of such Acquisition
Proposal upon the employees, customers and the community) that such
Acquisition Proposal would, if consummated, result in a transaction more
favorable to the shareholders of the Company than the Offer and Merger and
that the person or entity making such Acquisition Proposal has the financial
means, or the ability to obtain the necessary financing, to conclude such
transaction (any such more favorable Acquisition Proposal being referred to as
a "Superior Proposal"), (ii) the Board of Directors of the Company determines
in good faith (after consultation with and based upon the advice of its
outside legal counsel) that the failure to take such action would be
inconsistent with the fiduciary duties of such Board of Directors to its
shareholders under applicable law and (iii) prior to furnishing such non-
public information to, or entering into discussions or negotiations with, such
person or entity, such Board of Directors receives from such person or entity
an executed confidentiality agreement with confidentiality provisions not
materially less favorable to the Company than those contained in the
confidentiality agreement between the Company and Ridge. The Company's
exercise of the rights described above may create an obligation to pay a fee
to Parent as described below. See "The Merger Agreement--Termination Fee;
Expenses."
The Company has also agreed not to release any third party from, and to
enforce strictly any confidentiality or standstill agreement to which the
Company and such third party are parties. The Company will promptly notify
Parent in writing if any proposal or offer, or any inquiry or contact with any
person with respect thereto, is made, or if any information is provided to any
person, and any such notice shall include a description of the terms of any
proposal or offer, or the nature of any inquiry or contact, which is made.
Termination of Stock Plans. Prior to the consummation of the Offer, the
Company's Board of Directors (or, if appropriate, any committee thereof) will
adopt resolutions or take other actions necessary to ensure that, following
the Effective Time, no participant in any stock, stock option, stock
appreciation or other benefit plan of the Company or any of its subsidiaries
or any holder of any option will have any right thereunder to acquire any
capital stock of the surviving corporation or any subsidiary thereof.
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Conduct of Business of the Company. From the date of the Merger Agreement to
the Effective Time, the Company and its subsidiaries will each conduct its
operations in the ordinary course of business consistent with past practice,
and the Company and its subsidiaries will each use its reasonable best efforts
to preserve intact its business organization, to keep available the services
of its officers and employees and to maintain existing relationships with
licensors, licensees, suppliers, contractors, distributors, customers and
others having business relationships with it.
Accordingly, prior to the Effective Time, neither the Company nor any of its
subsidiaries may, without prior written consent of Purchaser, engage or agree
to engage in an enumerated list of transactions generally characterized as
being outside the ordinary course of business. Transactions requiring
Purchaser's prior approval include actions by the Company or its subsidiaries
to (i) amend its articles of organization or by-laws, (ii) issue, pledge or
sell any capital stock or any other securities, except as required by option
agreements and option plans as in effect as of the date of the Merger
Agreement, or split, combine or reclassify any shares of its capital stock,
(iii) declare, set aside, pay or make any dividend or other distribution or
payment (whether in cash, stock, or property) in respect of its capital stock,
or repurchase or redeem any of its capital stock or any capital stock of its
subsidiaries, (iv) subject to certain exceptions, enter into, adopt, amend or
terminate any bonus, compensation, severance, termination, or employee benefit
arrangement, (v) waive any provision of any confidentiality agreement, (vi)
other than ordinary course borrowings under existing lines of credit, incur
any debt or assume, guarantee or endorse the obligations of any other person,
make any loans, advances or capital contributions to, or investments in, any
other person (other than to wholly owned subsidiaries of the Company), pledge
or otherwise encumber shares of capital stock of the Company or any of its
subsidiaries or mortgage or pledge any of its assets or create any Lien
thereupon, (vi) acquire, sell, lease, license, encumber, transfer or dispose
of any assets of the Company and its subsidiaries, (vii) change any of the
accounting principals or practices used by it, except as may be required as a
result of a change in law or in generally accepted accounting principles, or
make any tax election, (viii) acquire any corporation, partnership or other
business organization or division thereof, authorize any new capital
expenditures exceeding $100,000 in the aggregate or settle any litigation for
amounts in excess of $25,000 individually or $50,000 in the aggregate, (ix)
pay, discharge or satisfy any claims, liabilities or obligations outside the
ordinary course or not in accordance with their terms, except where such
action would not result in a material adverse effect, (x) enter into any
transaction or amend any existing transaction with any affiliate of the
Company or (xi) take or agree to take any action which would make any of the
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect or would result in any of the conditions to the Offer not
being satisfied.
Access to Information. The Company will give Parent and Purchaser and their
representatives reasonable access to all necessary information, subject to a
confidentiality agreement.
Certain Filings, Etc. Parent, the Purchaser and the Company shall cooperate
with one another (i) in promptly determining whether any filings are required
to be made or consents, approvals, permits or authorizations are required to
be obtained under any federal, state or foreign law or regulation or any
consents, approvals or waivers are required to be obtained from other parties
to loan agreements or other contracts material to the business of the Company
and its wholly owned operating subsidiary, Peerless Chain Company, a Minnesota
corporation ("Peerless"), in connection with the consummation of the Offer or
the Merger and (ii) in promptly making any such filings, furnishing
information required in connection therewith and seeking timely to obtain any
such consents, permits, authorizations, approvals or waivers.
Proxy Statement. If necessary to consummate the Merger, promptly after the
termination or expiration of the Offer, the Company shall prepare the Proxy
Statement, file it with the Commission and mail it to all holders of Shares.
Parent, the Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement.
State Takeover Statutes. The Company shall (i) take all action, if any,
necessary to exempt the Offer and the Merger from the effects of any state
takeover law and (ii) upon the request and at the expense of the
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Purchaser, take all reasonable steps to assist in any challenge by the
Purchaser to the validity, or applicability to the Offer or the Merger, of any
such state takeover law.
Best Efforts. Subject to the terms and conditions of the Merger Agreement,
each of the parties will use its best efforts to take all actions and do all
things necessary to consummate and make effective the transactions
contemplated by the Merger Agreement.
Indemnification. The surviving corporation will assume the indemnification
and expense advancement obligations of the Company and its subsidiaries to
present and former directors, officers, employees and agents (i) pursuant to
certain indemnification agreements between the Company and each of such
individuals, as described in this Item 3 under the caption "Indemnification
Agreements" and (ii) as provided in the Articles of Incorporation and by-laws
of the Company and its subsidiaries as in effect at the time of execution of
the Merger Agreement (the "Indemnification Obligations"). From and after the
Effective Time, Parent will guarantee and cause the surviving corporation to
perform all of the Indemnification Obligations.
Consulting Agreement. At the Effective Time, Parent shall cause the Company,
as the surviving corporation in the Merger, and Peerless to enter into a
consulting agreement with Mr. William H. Spell, as described in this Item 3
under the caption "Consulting Agreement."
Notification of Certain Matters. The Company will give prompt notice to
Parent or Purchaser, and Parent or Purchaser will give prompt notice to the
Company, as the case may be, of the occurrence, or non-occurrence of any event
which would cause any representation or warranty contained in this Agreement
to be untrue or inaccurate.
Public Announcements. Parent and Purchaser, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by the Merger Agreement.
CONDITIONS
The obligations of the Company, the Purchaser and Parent to effect the
Merger are subject to the satisfaction of certain conditions set forth in the
Merger Agreement, including (i) the acceptance and purchase by the Purchaser
of Shares pursuant to the Offer, (ii) the receipt of shareholder approval of
the Company, if required, and (iii) there being no order, decree or injunction
of a court of competent jurisdiction which prohibits consummation of the
Merger and there shall not have been any action taken or any statute, rule, or
regulation enacted, promulgated or deemed applicable to the Merger by any
governmental or regulatory authority, agency, commission or other entity,
domestic or foreign, that makes consummation of the Merger illegal.
TERMINATION
According to its terms, the Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether prior
to or after approval by the shareholders of the Company, by the mutual written
consent of Parent, the Purchaser and the Company. In addition, the Merger
Agreement may be terminated by the Company if (i) the Offer shall not have
been commenced within five business days from the date of public announcement
of the Merger Agreement or the Offer shall have expired and the Purchaser
shall not have accepted for payment Shares pursuant to the Offer (provided,
that the right to terminate the Merger Agreement thereby shall not be
available if the Company's failure to fulfill any obligation under the Merger
Agreement has been the cause of, or results in, the Offer not being so
commenced or consummated) or (ii) there has been a material breach by Parent
or the Purchaser of any representation, warranty, covenant or agreement as set
forth in the Merger Agreement on the part of Parent or the Purchaser and which
Parent or the Purchaser, as the case may be, fails to cure within 10 days
after notice thereof is given by the Company. The Merger Agreement may be
terminated by either Parent or the Company if (i) the Offer terminates or
expires pursuant to its terms on account of the failure of any condition to
the Offer described in Section 13 of the Offer to Purchase
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to have been satisfied without the Purchaser having purchased any Shares
thereunder (provided, that the right to so terminate the Merger Agreement
shall not be available to any party whose failure to fulfill any obligation
under the Merger Agreement has been the cause of, or results in, the failure
of any such condition), (ii) either Parent or the Company (or any permitted
assignee) is prohibited by an order or injunction of a court of competent
jurisdiction from consummating the Merger and all means of appeal and all
appeals from such order or injunction have been finally exhausted; (iii) prior
to the purchase of Shares pursuant to the Offer (x) the Company shall have
received (other than in violation of the Company's non-solicitation covenant)
a Superior Proposal (as defined in the Merger Agreement), and (y) Parent does
not make, within five business days of receipt of written notice of the
Company's desire to accept such Superior Proposal, an offer that the Board of
Directors believes, in good faith after consultation with its financial
advisors, is at least as favorable, from a financial point of view, to the
shareholders of the Company, as the Superior Proposal or (iv) the Purchaser
has not accepted Shares for payment on or before July 11, 1997, provided that
the right to terminate the Merger Agreement as described in this clause (iv)
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 such failure
to accept Shares for payment or the failure to satisfy any condition set forth
in the Merger Agreement, and shall not be available to the Company if any
shareholder of the Company shall have breached any provision of the Tender
Agreement. The Merger Agreement may be terminated by Parent if (i) there has
been a material breach by the Company of any representation, warranty,
covenant or agreement set forth in the Merger Agreement on the part of the
Company and which the Company fails to cure within 10 days after notice
thereof is given by the Parent, (ii) prior to the purchase of Shares pursuant
to the Offer, any person, corporation, entity or "group," as defined in
Section 13(d)(3) of the Exchange Act (other than Parent or the Purchaser)
shall have acquired beneficial ownership of 25% or more of the outstanding
Shares or (iii) the Board of Directors of the Company shall have withdrawn or
modified, or resolved to withdraw or modify, in any manner which is materially
adverse to Parent or the Purchaser, its recommendation or approval of the
Offer, the Merger or the Merger Agreement.
TERMINATION FEE; EXPENSES
If (i) the Merger Agreement is terminated after the occurrence of a
Triggering Event (as defined below), and (ii) within six months after such
termination the Company either (a) consummates any Alternative Transaction (as
defined below) or (b) becomes a party to any agreement relating to an
Alternative Transaction that is thereafter consummated, then upon the
consummation of such Alternative Transaction the Company shall pay Parent a
non-refundable fee of $900,000 (the "Termination Fee") which amount shall be
payable by wire transfer of same day funds on the date such Alternative
Transaction is consummated. The Company shall reimburse the Parent in
connection with any legal or other fees incurred by the Parent in connection
with the collection of the Termination Fee from the Company.
A "Triggering Event" shall mean any of the following:
(i) the Board of Directors of the Company shall have withdrawn or
modified its recommendation of the Offer or shall have resolved or publicly
announced its intention to do so; or
(ii) an Alternative Transaction shall have taken place or the Board of
Directors of the Company shall have recommended such an Alternative
Transaction to shareholders, or shall have resolved or publicly announced
its intention to recommend or engage in an Alternative Transaction; or
(iii) a tender offer or exchange offer with respect to shares of the
Company shall have been commenced or a registration statement with respect
thereto shall have been filed (other than by Parent and its affiliates),
and the Board of Directors of the Company shall have (1) recommended (or
shall have resolved or publicly announced its intention to recommend) that
the shareholders of the Company tender their shares in such tender or
exchange offer or (2) resolved or publicly announced its intention to take
no position with respect to such offer; or
(iv) the Offer shall have expired without satisfaction of the Minimum
Condition, and at any time during the Offer an Alternative Transaction
shall have been publicly announced and not absolutely and unconditionally
withdrawn and abandoned; or
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(v) a material breach by the Company of the Merger Agreement shall have
occurred, and at the time of such breach or any termination based thereon
an Alternative Transaction shall have been publicly announced and not
absolutely and unconditionally withdrawn and abandoned; or
(vi) the Company shall have negotiated with, furnished information to,
entered into any agreement with, or consummated or recommended any
transaction with, any person other than Parent or its affiliates, based on
a determination regarding a "Superior Proposal"; or
(vii) the Company shall have breached its non-solicitation covenant.
An "Alternative Transaction" shall mean (i) any transaction or series of
transactions by which any person or group (other than Parent and its
affiliates) acquires or would acquire shares (or securities exercisable or
convertible into shares) representing 20% or more of the outstanding shares of
the Company, pursuant to a tender offer, exchange offer or otherwise, (ii) a
merger, consolidation, share exchange, sale of substantial assets or other
business combination involving the Company, (iii) any other transaction or
series of transactions whereby any person acquires or would acquire control of
the board of directors, business or assets of the Company, or (iv) any
agreement with respect to any of the foregoing, which in the case of any
transaction or agreement described in clauses (i) through (iv) above, involves
a greater value (considering the amounts payable to shareholders and all
payments under employment, consulting and other arrangements in connection
therewith) than the value of the Offer and the Merger and the other
arrangements related thereto.
Except as described above and except as described below in Item 6, each of
the Company, Parent and the Purchaser shall bear its own expenses in
connection with the Merger Agreement and the transactions contemplated
thereby.
AMENDMENT
Subject to the applicable provisions of the MBCA, the Merger Agreement may
be amended by action taken by the Company, Parent and the Purchaser at any
time prior to the Effective Time.
Tender and Stock Option Agreement
In connection with the Merger Agreement, certain shareholders of the Company
have executed and delivered a Tender and Stock Option Agreement, pursuant to
which such shareholders have (1) agreed to tender in the Offer an aggregate of
approximately 4.45 million Shares (approximately 71% of the Shares outstanding
on the date hereof), together with additional Shares under certain
circumstances and (2) granted to Purchaser an option to purchase, under
certain circumstances, Shares equal to 19.9% of the outstanding Shares. The
Tender and Stock Option Agreement is described more fully in Item 6 below.
Employment Agreements
Peerless entered into employment agreements effective December 13, 1995
(hereinafter collectively referred to as the "Employment Agreements") with the
Company's executive officers (hereinafter collectively referred to as the
"Executives"), as identified below.
<TABLE>
<CAPTION>
PARTICIPATION
IN EXECUTIVE
NAME POSITION WITH PEERLESS ANNUAL SALARY BONUS POOL
---- ---------------------- ------------- -------------
<S> <C> <C> <C>
William H. Spell........ Chairman $ 96,000 None
Jan C. van Osnabrugge... President and Chief Executive Officer $192,000 22.9%
Robert Deter............ Chief Financial Officer $ 76,000 11.8%
</TABLE>
Each Employment Agreement defines the respective Executive's position, base
salary (to be reviewed and, in the sole discretion of Peerless' board of
directors, increased on an annual basis) and level of participation in the
executive bonus pool as outlined above. Mr. Spell is not eligible to
participate in the executive bonus pool. The actual amount of the executive
bonus pool to be paid out to the Executive is based upon Peerless' actual
year-end EBITDA compared to its projected year-end EBITDA for the relevant
year.
The term of employment for each Executive pursuant to the Employment
Agreements is four years, subject to earlier termination upon resignation by
the Executive, disability of the Executive, violation of the Employment
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Agreement or certain types of misconduct or illegal acts by the Executive. Each
Executive is entitled to severance pay equivalent to twelve months of his or
her base salary in effect at the time of termination in the event Peerless
terminates the Executive's employment for any reason other than those
identified in the Employment Agreement. Pursuant to the Employment Agreements,
each Executive agrees to keep confidential during and after Executive's
employment with Peerless certain proprietary information and to refrain from
competing with Peerless for a period of two years following the termination of
Executive's employment, whether voluntary or involuntary, with Peerless.
The Employment Agreement with Mr. Spell will be terminated at the Effective
Time. Mr. Spell will enter into a consulting agreement with the Company and
Peerless described more fully below. The other Employment Agreements will
remain in effect following the Effective Time. The Employment Agreements are
filed as Exhibit 3 and Exhibit 4 hereto and are incorporated herein by
reference.
Indemnification Agreements
The Company has indemnification agreements (collectively, the
"Indemnification Agreements") with each of its directors and executive
officers. Each Indemnification Agreement provides that the Company will defend,
hold harmless and indemnify the director or executive officer party thereto to
the full extent permitted by its Articles of Incorporation, Bylaws and the
provisions of the MBCA, as it may be amended from time to time. Pursuant to
each Indemnification Agreement, the Company will indemnify and hold harmless
the director or executive officer party thereto against all reasonable
expenses, liability and loss actually incurred or suffered by such director or
executive officer in connection with any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (i) to which
such director or executive officer is or was a party or is threatened to be
made a party by reason of any action or inaction in his or her capacity as a
director or executive officer of the Company, (ii) with respect to which such
director or executive officer is otherwise involved by reason of the fact that
he or she is or was serving as a director, officer, employee or agent of the
Company, or of any subsidiary or division of the Company, or while a director
of a corporation, is or was serving at the request of the Company as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The Company is not liable under the Indemnification Agreements to make any
payment for any liability incurred in a proceeding in which a director or
executive officer is adjudged liable to the Company or is subjected to
injunctive relief in favor of the Company (i) for any appropriation, in
violation of his or her duties, of any business opportunity of the Company,
(ii) for acts or omissions which involve intentional misconduct or a knowing
violation of law, (iii) for the types of liability set forth in the MBCA, as
the same exists or may hereafter be amended, or (iv) for any transaction from
which he or she received any improper personal benefit. Also, the Company is
not liable under the Indemnification Agreements to make any payment in
connection with any claim made against a director or executive officer (i) for
which payment is actually made to such director or executive officer under a
valid and collectible insurance policy, except in respect of any excess beyond
the amount of payment under such insurance, (ii) for which payment is actually
made to such director or executive officer by the Company otherwise than
pursuant to the Indemnification Agreement, except in respect of any excess
beyond the amount of such payment, or (iii) for an accounting of profits made
from the purchase or sale by such director or executive officer of securities
of the Company within the meaning of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or similar provision of any state statutory law.
In addition, pursuant to each Indemnification Agreement, unless the director
or executive officer otherwise elects, the Company shall pay for or reimburse
all reasonable expenses incurred in defending any civil or criminal action,
suit or proceeding in advance of the final disposition of such action, suit or
proceeding upon receipt of (i) a written agreement from such director or
executive officer in form and substance satisfactory to the Company to repay
such amount if it shall be ultimately determined that he or she is not entitled
to be indemnified by the Company under the Indemnification Agreement and (ii) a
written affirmation of his or her good faith belief that he or she has met the
standard of conduct required under the MBCA to enable the Company to indemnify
such director or executive officer.
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<PAGE>
The form of Indemnification Agreement is attached as Exhibit 5 hereto and is
incorporated by reference herein.
The Merger Agreement provides that from and after the Effective Time, the
corporation which survives the Merger will assume the indemnification and
expense advancement obligations of the Company and its subsidiaries (i)
pursuant to the Indemnification Agreement and (ii) as provided in the Articles
of Incorporation and Bylaws of the Company and its subsidiaries to present and
former directors, officers, employees and agents.
Stock Options
The Company has granted stock options to its officers and directors pursuant
to the Company's stock option plan (the "Stock Option Plan"). Outstanding
options for executive officers and directors pursuant to the Stock Option Plan
are identified below.
<TABLE>
<CAPTION>
NAME TITLE OUTSTANDING OPTIONS
---- ----- -------------------
<S> <C> <C>
Harry Spell........... Director, Chairman of the Board 129,000
William Spell......... Director, Chief Executive Officer 405,000
Jan C. van Osnabrugge. President 60,000
Robert Deter.......... Chief Financial Officer 33,000
Reynold Anderson...... Director 92,000
Richard Perkins....... Director 129,000
Michael Platt......... Director 50,000
Bruce Richard......... Director 123,000
Brian Smith........... Director 50,000
</TABLE>
According to the terms of the Stock Option Plan, in the event of a merger of
the Company, the Board of Directors shall, in its sole discretion, in
connection with the Board's adoption of the plan of merger, provide for one or
more of the following: (i) the acceleration of the exercisability of any or all
outstanding options; (ii) the complete termination of the Stock Option Plan and
cancellation of outstanding options not exercised prior to a date specified by
the Board; and (iii) the continuance of the Stock Option Plan with respect to
the exercise of options outstanding as of the date of adoption by the Board of
the plan of merger. Pursuant to the terms of the Merger Agreement, the
outstanding options will be cancelled and each holder of outstanding options
will receive an amount in cash equal to the product of the number of shares
subject to the option times the excess, if any, of the consideration to be paid
per Share pursuant to the Merger Agreement over the exercise price of such
option.
The Company issued warrants to purchase Common Stock at a purchase price of
$1.10 per share (the "Warrants") to each of Harry W. Spell and Richard W.
Perkins for 15,000 shares and to each of Reynold Anderson, Bruce Richard and
William Spell for 10,000 shares. The Warrants become fully exercisable
immediately upon issuance and delivery, and are exercisable in whole or in part
upon 20 days written notice to the Company. The Warrants expire March 12, 2001.
Pursuant to the terms of the Merger Agreement, the outstanding warrants will be
cancelled and each warrant holder will receive an amount in cash equal to the
product of the number of shares subject to the warrant times the excess, if
any, of the consideration to be paid per share pursuant to the Merger Agreement
over the exercise price of such warrant.
Consulting Agreement
Pursuant to the terms of the Merger Agreement, at the Effective Time Parent
will cause the Company and Peerless to enter into a consulting agreement with
the Company's Chief Executive Officer, William H. Spell (the "Consulting
Agreement"). Pursuant to the terms of the Consulting Agreement, Mr. Spell will
provide consulting services to the Company and Peerless as requested by the
Company for a two year period following the Effective Time. In exchange for
such consulting services, the Company and Peerless, jointly and severally, will
pay Mr. Spell $120,000 within seven days of the execution of the Consulting
Agreement, $25,000 per quarter for the first four quarters of the Consulting
Agreement, payable quarterly in arrears, and $22,500 per quarter for the second
four quarters of the Consulting Agreement, payable quarterly in arrears. The
Company and Peerless, jointly and severally, will reimburse Mr. Spell for all
expenses incurred by Mr. Spell with the prior approval of the Company
10
<PAGE>
in connection with the performance of services pursuant to the Consulting
Agreement. The Consulting Agreement also includes confidentiality and non-
competition provisions.
Except as set forth above, to the best knowledge of the Company, there are
no contracts, agreements or understandings or any actual or potential
conflicts of interest between the Company or its affiliates and (i) the
Company's executive officers, directors or affiliates or (ii) the Parent or
the Purchaser or their respective executive officers, directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
Recommendation of the Board of Directors
At a special meeting held on April 7, 1997, the Board of Directors of the
Company and a special committee of the Board of Directors unanimously approved
the Merger Agreement and the transactions contemplated thereby and determined
that the Merger Agreement and the transactions contemplated thereby, including
the Offer and the Merger, are fair to and in the best interests of the holders
of Shares. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. Copies of a press release
and a letter to the Company's shareholders communicating such approval and
recommendation are filed as Exhibit 8 and Exhibit 9, respectively, and are
incorporated herein by reference.
Background of the Merger and the Offer
In early 1996, the Board of Directors of the Company began analyzing
alternative ways of expanding and furthering the Company's business. As a
result of this analysis, the Company considered the possibility of acquiring
another entity. Throughout 1996, the Company evaluated potential acquisition
targets and discussed the possibility of acquisition with several such
targets. Such discussions were discontinued when the Company's continued
analysis and evaluation indicated that such acquisitions would not further the
Company's financial or strategic expansion objectives.
On September 17, 1996, the Company's Board of Directors approved the
engagement of Coopers & Lybrand Securities L.L.C. ("Coopers & Lybrand") to
explore and evaluate financial and strategic expansion alternatives for the
Company. Coopers & Lybrand analyzed various equity financing alternatives and
entered into discussions with several entities identified by the Company as
potentially desirable strategic partners. Additional evaluation of these
possibilities led the Company to conclude that neither the financing
alternatives nor the proposed relationships with potential strategic partners
met with the Company's expansion objectives.
During the fall of 1996, the Company received unsolicited expressions of
interest concerning the acquisition of the Company. In October 1996, the
Company's Board of Directors authorized Coopers & Lybrand to explore such
expressions of interest, and to actively solicit other potential acquirors of
the Company. From late October 1996 through mid-November 1996, Coopers &
Lybrand met with senior management of the Company for the purpose of gathering
information about the Company and compiled information for distribution to
potential acquirors. From late October 1996 through December 15, 1996, Coopers
& Lybrand contacted potential acquirors and negotiated confidentiality and
non-disclosure agreements with certain potential acquirors, including Ridge.
By December 16, 1996, the Company had received several preliminary
expressions of interest to acquire the Company, including that of Ridge. On
December 18, 1996, the Company's Board of Directors met to discuss the
expressions of interest received. The Board of Directors authorized Coopers &
Lybrand and the Board's Executive Committee to continue negotiations with six
potential acquirors offering the highest prices for the acquisition of the
Company. The Board of Directors further authorized senior management of the
Company to schedule interview and due diligence sessions with such potential
acquirors at the Company's manufacturing facilities in Winona, Minnesota.
For a two-week period from late January 1997 through early February 1997,
Coopers & Lybrand and senior management of the Company met with potential
acquirors at the Company's facilities in Winona, Minnesota for
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<PAGE>
the interview and due diligence process. Such meetings included: (i)
discussions with senior management of the Company; (ii) a tour of the
Company's facilities in Winona, Minnesota and (iii) presentation of various
financial and strategic plans of the Company. Senior executives of Ridge
participated in the Company's interview and due diligence process on January
24, 1997. Subsequently, Ridge selected Blair Mezzanine Fund as its equity
partner and source of subordinated debt financing. The Ridge executives
requested that Blair Mezzanine Fund be invited to participate in the due
diligence process in early February 1997. Executives of Blair Mezzanine Fund
participated in such process in Winona, Minnesota on February 4 and 5, 1997.
A total of six potential acquirors participated in the interview and due
diligence process. Some potential acquirors visited the Company's facilities
in Winona, Minnesota on two separate occasions. The Company informed all six
potential acquirors that it would consider written acquisition offers
delivered to the Company no later than February 21, 1997. Four of the
potential acquirors provided the Company with acquisition proposals by such
date.
The Board of Directors of the Company met on February 26, 1997 to discuss
the four acquisition proposals received, including the proposal received from
Ridge. The members of the Board of Directors, representatives from Coopers &
Lybrand and other advisors to the Company discussed the advantages and
disadvantages of each offer, focusing on the two most attractive offers, the
Ridge offer and an offer from an alternative buyer (the "Alternative Buyer").
Factors considered included the price differential between the offers, the
possible delays in consummating the transaction with Alternative Buyer
resulting from the necessity of receiving approval for such proposed
transaction under the Hart-Scott-Rodino Act as well as the more comprehensive
due diligence Alternative Buyer desired to perform, the risk that the proposed
transaction with Alternative Buyer would not be consummated due to the
significant contingencies related to Alternative Buyer's offer, the likelihood
of retention of current management by the potential acquirors and other
factors. The Board of Directors also considered a fairness opinion presented
by Summit Investment Corporation concerning the fairness of the proposals to
the Company's shareholders from a financial point of view and described more
fully below. As a result of these deliberations, the Board of Directors
authorized Mr. Spell to continue negotiating with Ridge regarding its most
recent offer. On February 28, 1997, Ridge, joined by Blair Mezzanine Fund,
submitted a revised bid to acquire the Company at a price of $1.67 per share.
Negotiations continued over March 2, 1997 and March 3, 1997.
On March 4, 1997, the Company received a revised version of the Ridge and
Blair Mezzanine Fund offer. On the same date, the Board of Directors held
another meeting at which Mr. Spell provided an update on the status of
negotiations and the Board reviewed the offer from Ridge and Blair Mezzanine
Fund along with the final offers received from all potential acquirors.
Alternative Buyer proposed to conduct a tender offer for all of the
outstanding Shares of Company at $1.695 per share.
At its March 4, 1997 meeting, the Board of Directors again considered the
advantages and disadvantages of the offers from Ridge and Blair Mezzanine Fund
and from Alternative Buyer, focusing on the price differential between the
offers, the impact from a financial perspective of the possible delays in
consummating the transaction with Alternative Buyer resulting from the
necessity of receiving approval for such proposed transaction under the Hart-
Scott-Rodino Act as well as the more comprehensive due diligence Alternative
Buyer desired to perform and the risk that the proposed transaction with
Alternative Buyer would not be consummated due to the significant
contingencies related to Alternative Buyer's offer. After considering the
advantages and disadvantages of each offer, the Board of Directors authorized
the Company to enter into a letter of intent with Ridge and Blair Mezzanine
Fund whereby the Company agreed to negotiate exclusively with Ridge and Blair
Mezzanine Fund through April 7, 1997 (later extended through April 11, 1997)
for the acquisition of the Company at a price of $1.67 per share, subject to
satisfactory completion of Ridge's due diligence investigation of the Company,
the negotiation of definitive agreements, and the availability of financing.
From March 4 through April 11, 1997, Ridge and Blair Mezzanine Fund
continued their due diligence investigations of the Company. Ridge and Blair
Mezzanine Fund also met with operating management of the Company to discuss
the terms of their continued employment by the Company, and the prospect that
certain members of management might be invited to invest in the Parent. During
this period, counsel for Ridge, Blair
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<PAGE>
Mezzanine Fund and the Company exchanged drafts of and comments on a form of
Agreement and Plan of Merger and related disclosure schedules, a form of
Tender and Stock Option Agreement, and the documents required to be filed and
disseminated in connection with the Offer. Also during this period, Parent and
Purchaser were organized.
On April 7, 1997, the Company's Board of Directors gave final approval to
the Merger and the Offer, and authorized execution and delivery of the Merger
Agreement. On April 11, 1997 the Company, Parent and Purchaser executed and
delivered the Merger Agreement, and Parent, Purchaser and the shareholders
party thereto executed and delivered the Tender Agreement.
Reasons for the Recommendation of the Company's Board of Directors
In reaching its conclusion and making its determinations as outlined in
paragraph (a) above, the Board of Directors considered a number of factors,
including, without limitation, the following:
(i) the consideration to be paid by Ridge and the other terms of the
Offer and the Merger relative to (A) the offers made by other potential
acquirors, (B) the Company's historical sales, earnings and book value, (C)
management's internal forecast of sales, earnings and book value, and (D)
the recent and historic market prices of the Shares;
(ii) the superiority of Ridge's offer, taken as a whole, over other
offers received by the Company;
(iii) the necessity of receiving approval under the Hart-Scott-Rodino Act
for the proposed transaction with Alternative Buyer as well as the more
comprehensive due diligence Alternative Buyer desired to perform and the
likelihood of delays and risk of non-consummation of the transaction as a
result thereof;
(iv) the Board of Directors' belief that the consideration proposed to be
paid by Parent pursuant to the Offer and the Merger reflects the values
inherent in the Company;
(v) the Board of Directors' familiarity with the business, financial
condition and prospects of the Company, the nature of the Company's
industry and markets, including the Board of Directors' belief that in
order to be competitive in its industry, the Company would require
substantial capital resources and expansion;
(vi) the opinion of Summit Investment Corporation (described below) to
the effect that the consideration to be received by shareholders of the
Company pursuant to the Offer and the Merger is fair, from a financial
point of view, to such shareholders (the full text of the fairness opinion
received by the Company from Summit Investment Corporation is filed as an
exhibit to this Schedule 14D-9 and is also attached hereto as Annex A, and
the Board of Directors of the Company urges shareholders to read such
opinion in its entirety);
(vii) the fact that although the Merger Agreement does not permit the
Company, any of its officers, directors, employees, representatives or
agents, or any of its subsidiaries to solicit, initiate, continue or
encourage any inquiries, proposals or offers that constitute, or could
reasonably be expected to lead to an Acquisition Proposal (as defined in
the Merger Agreement), the Company may, in response to an unsolicited
Acquisition Proposal, furnish non-public information to, or enter into
discussions or negotiations with, the maker of such an unsolicited
Acquisition Proposal, provided that (i) the Board of Directors determines
in good faith (after consultation with and based upon the advice of its
financial advisor and considering the effect of such Acquisition Proposal
upon the employees, customers and the community) that such Acquisition
Proposal would constitute a Superior Proposal (as defined in the Merger
Agreement), (ii) the Board of Directors determines in good faith (after
consultation with and based upon the advice of its outside legal counsel)
that the failure to take such action would be inconsistent with the
fiduciary duties of the Board of Directors under applicable law, and (iii)
the party making such unsolicited Acquisition Proposal enters into an
appropriate confidentiality agreement; and
(viii) the fact that the Board of Directors may terminate the Merger
Agreement if the Company has received (other than in violation of the
Company's non-solicitation covenant) a Superior Proposal (as defined in the
Merger Agreement), and Parent does not make, within five business days of
receipt of written
13
<PAGE>
notice of the Company's desire to accept such Superior Proposal, an offer
that the Board of Directors believes, in good faith after consultation with
its financial advisors, is at least as favorable, from a financial point of
view, to the shareholders of the Company, as the Superior Proposal;
provided, however, the Company would be required to pay a fee of $900,000
if within six months after such termination the Company either (i)
consummates any Alternative Transaction (as defined in the Merger
Agreement) or (ii) becomes a party to any agreement relating to an
Alternative Transaction that is thereafter consummated.
The Board of Directors did not assign relative weights to the above factors
or determine that any factor was of particular importance. Rather, the Board
viewed its position and recommendations as being based on the totality of the
information presented to and considered by it.
The Board of Directors recognized that tendering in the Offer would
eliminate the opportunity for shareholders to participate in future growth and
profits of the Company. The Board of Directors believes that such loss of
opportunity is reflected in the Offer price of $1.67 per share. The Board of
Directors also recognized that there can be no assurance as to the level of
growth or profits, if any, to be attained by the Company in the future.
It is expected that, if the shares are not purchased by Purchaser in
accordance with the terms of the Offer, the Company will continue to seek an
alternative purchaser of the Company.
OPINION OF FINANCIAL ADVISOR
The Company retained Summit Investment Corporation ("Summit") to act as its
financial advisor in connection with the Company's consideration of the
possible business combination with Parent. Summit was selected as the
Company's financial advisor because of its previous associations with the
Company, its familiarity with the Company and its operations, and its standing
as a recognized investment banking firm which is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements, and
valuations for estate, corporate and other purposes.
Summit has delivered its written opinion to the Board of Directors of the
Company dated March 20, 1997 and reaffirmed as of April 7, 1997, to the effect
that the consideration to be received by the holders of the Company's Shares
in the Offer and the Merger is fair to the shareholders from a financial point
of view.
The full text of Summit's opinion is attached hereto as Annex A and is
incorporated by reference herein. While the Company believes the description
of the opinion set forth herein is accurate, shareholders are urged to read
the opinion in its entirety.
Summit's opinion is directed to the Company's Board of Directors only and
relates solely to the consideration in the Offer and the Merger and does not
constitute a recommendation to any shareholder of the Company.
In connection with its opinion, Summit (i) reviewed certain publicly
available financial statements and other information of the Company, (ii)
reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of the
Company, (iii) analyzed certain financial projections prepared by the
management of the Company, (iv) discussed the past and current operations and
financial condition and the prospects of the Company with senior executives of
the Company, (v) reviewed the reported prices and trading activity for the
Company's Common Stock, (vi) compared the financial performance of the Company
and the prices and trading activity of the Common Stock with that of certain
other comparable publicly-traded companies and their securities, (vii)
reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions, (viii) reviewed the Merger Agreement and
(ix) performed such other analyses as it deemed appropriate. No limitations
were imposed by the Board of Directors upon Summit with respect to the
investigations made or procedures followed by it in rendering its opinion.
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<PAGE>
In its review and analysis, and in arriving at its opinion, Summit relied
upon and assumed the completeness and accuracy of all the factual, historical,
financial and other information and data publicly available or furnished to it
by the Company. Summit also assumed that the financial projections provided to
it were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the senior management of the Company. In addition,
Summit did not make nor was it provided with an independent evaluation or
appraisal of the assets of the Company.
The following is a summary of the analyses performed and factors considered
by Summit in connection with rendering its opinion.
HISTORICAL FINANCIAL POSITION. In rendering its opinion, Summit reviewed and
analyzed the historical and current financial condition of the Company which
included among other things (i) an assessment of recent financial statements,
(ii) an analysis of revenue growth, margin trends and other operating
performance indicators and (iii) an analysis of capital structure.
COMPARATIVE STOCK PRICE PERFORMANCE. In rendering its opinion, Summit
reviewed and analyzed the daily market (bid) prices and trading volume for the
Company's Common Stock from the beginning of 1996 to February 25, 1997,
separately and in relation to the market prices of (i) the Nasdaq Industrial
Index and (ii) a composite index of publicly traded companies which Summit
judged to be similar to the business of the Company (the "Comparable Public
Companies"). The Comparable Public Companies consisted of the following:
Columbus McKinnon Corporation; Federal Screw Works, Inc.; Giddings & Lewis,
Inc.; Greenfield Industries, Inc.; Knape & Vogt Manufacturing, Inc.; Raymond
Corporation and LS Starrett Company. Summit observed that over such period,
the market price of the Company's Common Stock underperformed the Nasdaq
Industrial Index and the composite index of Comparable Public Companies.
ANALYSIS OF COMPARABLE PUBLIC COMPANIES. This analysis examines a company's
financial condition, operating performance and outlook relative to a group of
publicly traded peers to determine an implied unaffected market trading value.
Summit compared certain financial data of the Company to corresponding data
for the Comparable Public Companies. Summit calculated equity market values as
multiples to latest twelve months ("LTM") net income, current fiscal year
estimated net income (estimates of future net income were compiled by
Institutional Brokers Estimate System) and book value. The respective
multiples of the Comparable Public Companies were between the following
ranges: (i) LTM net income: 8.0x to 33.0x (with a median of 12.4x); (ii)
current fiscal year estimated net income: 9.3x to 16.6x (with a median of
9.3x); and book value: .9x to 2.0x (with a median of 1.5x). Summit calculated
enterprise value (defined as market value of common equity plus book value of
total debt less cash) as multiples to LTM revenue, LTM earnings before
interest and taxes ("EBIT") and LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA") of the Comparable Public Companies.
The respective multiples of the Comparable Public Companies were between the
following ranges: (i) LTM revenue: .5x to 1.6x (with a median of .7x); LTM
EBIT: 5.8x to 23.4x (with a median of 12.0x); and (ii) LTM EBITDA: 4.3x to
12.8x (with a median of 7.0x).
Summit also analyzed operating statistics of the Comparable Public Companies
including, among other things, operating margins, net profit margins, three-
year historical revenue growth, return on equity, and debt capitalization
ratios, in each case as compared to the Company. Summit then derived from this
and other data (based on the relative comparability of the Comparable Public
Companies to that of the Company) the ranges of these multiples deemed most
meaningful for its analysis and applied these multiples to the Company. This
analysis resulted in equity values per share for the Company of between $0.36
to $1.46 with a median of $0.96. Summit noted that its comparable public
company analysis did not give effect to any change-of-control premium that may
arise in connection with a transaction such as the Offer and the Merger.
COMPARABLE MERGER AND ACQUISITION TRANSACTIONS. This analysis provides
indications of value based upon financial information of companies in the same
or similar industries as the target which have been acquired in recent
transactions. Summit reviewed publicly available financial information for
merger and acquisition transactions consummated since 1994 involving similar
metal fabrication companies. Such analysis resulted in
15
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four transactions as follows (acquiror/target): Textron, Inc./Elco Industries,
Inc; Greenfield Industries, Inc./Rule Industries, Inc.; Vista 2000,
Inc./American Consumer Products, Inc.; and Park-Ohio Industries, Inc./RB&W
Corporation. Summit compared selected financial data including enterprise
value as a multiple of LTM revenue, LTM EBIT, LTM EBITDA and the premium paid
over the market price ten days prior to the announcement of the transaction
("acquisition premium paid"). The respective multiples of the comparable
merger and acquisition transactions were between the following ranges: LTM
revenue: .12x to .70x (with a median of .50x); LTM EBIT: 10.6x to 20.0x (with
a median of 12.4x); LTM EBITDA: 5.4x to 13.6x (with a median of 6.4x); and
acquisition premium paid: 17.8% to 104.0% (with a median of 67.0%). Summit
applied a range of multiples derived from such analysis to the corresponding
financial data of the Company (based on the relative comparability of the
Company to the comparable companies acquired in the transactions) and arrived
at an estimated range of equity values per share for the Company of between
$0.95 to $1.66 with a median of $1.45. Summit noted that its comparable merger
and acquisition transaction analysis did give effect to a change-of-control
premium.
ACQUISITION PREMIUM ANALYSIS. Summit analyzed the $1.67 per share cash
consideration to be received by the holders of the Company's Common Stock
pursuant to the Offer and the Merger in relation to the February 25, 1997
market price of the Company's Common Stock and the ten-day, three-month and
six-month average market prices of the Company's Common Stock. Such analysis
indicated that the $1.67 per share consideration to be received represented a
premium of (i) 33.6% based on the February 25, 1997 market price of $1.25 and
the ten-day average market price of $1.25 and (ii) 36.9% based on the three-
month average market price of $1.22 and the six-month average market price of
$1.22. Summit noted that foregoing premiums were within the 17.8% to 104.0%
range of acquisition premiums paid and below the 67.0% median acquisition
premium paid in the four comparable merger and acquisition transactions. Using
industry sources which compile information from merger and acquisition
transactions of publicly held corporations across all industry categories,
Summit reviewed the mean and median purchase price premiums paid for 965
corporate acquisitions occurring from 1994 to 1996. Summit indicated that the
annual mean premium ranged from 36.6% to 44.7% and the annual median premium
ranged from 27.3% to 35.0%. Due to the small number of comparable merger and
acquisition transactions, Summit considered the mean and median acquisition
premiums observed in the 965 corporate acquisitions from 1994 to 1996 to be
more meaningful for the purpose of its fairness determination.
DISCOUNT CASH FLOW ANALYSIS. This analysis is a traditional valuation
methodology used to derive a valuation of a corporate entity by capitalizing
the estimated future earnings and calculating the estimated future free cash
flow of such corporate entity and discounting such aggregated results back to
the present. Summit performed a discounted cash flow analysis of the Company
based upon estimates of projected financial performance for the five-year
period ending December 31, 2001 as prepared by the management of the Company.
Summit calculated a range of implied equity values of the Company based upon
the discounted present value of the sum of (i) the projected five-year stream
of unleveraged free cash flow and (ii) the projected terminal value at the
year 2001 based upon a range of unleveraged free cash flow growth rates in
perpetuity and then subtracted the current net debt. In conducting this
analysis, Summit applied discount rates ranging from 14% to 16% and assumed
unleveraged free cash flow growth rates, in perpetuity, ranging from 2.0% to
4.0%. Based on this analysis, Summit derived implied equity values per share
ranging from a low of $0.68 to a high of $1.75 with a median value of $1.07.
Summit noted that its discounted cash flow analysis did not give effect to any
change-of-control premium that may arise in connection with a transaction such
as the Offer and the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Summit's opinion. In arriving at its fairness
determination, Summit considered the results of all such analyses. No company
or transaction used in the above analyses as a comparison is directly
comparable to the Company. The analyses were prepared solely for purposes of
Summit providing its opinion to the Company's Board of Directors as to the
fairness of the consideration to be received by the holders of the Company's
Shares in the Offer and the Merger and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual
16
<PAGE>
future results, which may be significantly more or less favorable than
suggested by such analyses. As described above, Summit's opinion to the Board
of Directors was one of many factors taken into consideration by the Company's
Board of Directors in making its determination to approve the Merger
Agreement.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company retained Coopers & Lybrand to provide financial advisory
services to the Company in connection with a possible sale or merger of the
Company, strategic alliance, joint venture or purchase of another entity by
the Company. This engagement was confirmed by a letter agreement dated
September 17, 1996 and later modified by oral agreement (the "Coopers
Agreement"). Pursuant to the Coopers Agreement, the Company agreed to pay
Coopers (i) a non-refundable retainer of $10,000 upon execution of the Letter
Agreement and (ii) $300,000, less retainer, upon sale of all or part of the
Company with the non-refundable retainer to be applied to any payments made
pursuant to either a sale of all or part of the Company. In addition, the
Company agreed to reimburse Coopers for out-of-pocket expenses, including
reasonable fees and disbursements of legal counsel, incurred in connection
with its engagement, and agreed to indemnify Coopers against certain
liabilities.
The Company retained Summit to render a fairness opinion with respect to the
Company's consideration of a possible business combination with Parent. Under
the terms of the Company's engagement letter with Summit, the Company has paid
Summit a fee of $32,500 for the preparation and delivery of its fairness
opinion. If, after submitting its fairness opinion, the Company requests
Summit to expand upon, elaborate or update such opinion, or provide expert
testimony or give depositions related to such opinion, the Company will
compensate Summit at an hourly rate of $165. In addition, the Company has
agreed to indemnify Summit against certain liabilities.
Neither the Company, nor, to the best of the Company's knowledge, any person
acting on its behalf intends to employ, retain or compensate any person to
make solicitations or recommendations to shareholders in connection with the
Offer and the Merger.
ITEM 6. RECENT TRANSACTIONS.
(a) To the best knowledge of the Company, no transactions in Shares have
been effected within the last 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best knowledge of the Company, each of the Company's executive
officers, directors and affiliates presently intends to tender all of the
Shares held of record or beneficially owned by them. Certain of such persons
have entered into a Tender and Stock Option Agreement dated April 11, 1997
among R-B Acquisition Corporation, R-B Capital Corporation and certain
shareholders of the Company (the "Tender and Stock Option Agreement"). The
shareholders who are parties to the Tender and Stock Option Agreement have
each severally agreed (i) to validly tender (or cause the record owner of any
Shares to tender) pursuant to the Offer all outstanding Shares beneficially
owned by such shareholder and his or its affiliates, not later than the fifth
business day after commencement of the Offer, (ii) to validly tender pursuant
to the Offer all Shares thereafter acquired by such shareholder or his or its
affiliates, within one business day following the acquisition thereof and
(iii) to the maximum extent permitted by law, not to withdraw any Shares so
tendered without the prior written consent of Purchaser. Such shareholders
have further agreed that if Parent or Purchaser shall notify the shareholders
at any time after the commencement of the Offer that additional Shares are
required to be tendered so that at least (x) 50% or (y) 90%, as specified by
Parent or Purchaser, of all outstanding Shares shall have been validly
tendered in the Offer, then each such shareholder shall (and shall cause his,
her or its affiliates to), exercise such options, warrants and other rights to
acquire additional shares in such amounts as may be specified by Parent or
Purchaser in order to cause at least (x) 50% or (y) 90%, as specified by
Parent or Purchaser, of all outstanding Shares to have been validly tendered
in the Offer, and shall tender or cause to be tendered in the Offer all Shares
acquired by such shareholder (or his, her or its affiliates) upon exercise of
such options, warrants and other rights. Parent and Purchaser have agreed that
(i) they shall not make any such request except to the extent required to
cause at least (x) 50% or (y) 90% of all outstanding Shares to have been
validly tendered in the Offer, and (ii) to the extent practicable, such
request shall be made to all shareholders pro rata,
17
<PAGE>
on the basis of the Shares owned by all such shareholders and their respective
affiliates on a fully-diluted basis. The shareholders that are parties to the
Tender and Stock Option Agreement have further granted to Purchaser an
irrevocable option (the "Stock Option") to purchase a certain number of Shares
owned by such shareholder or its affiliates at a purchase price equal to $1.67
per share in cash net to the seller; provided that in no event shall the
aggregate number of such Shares subject to the Stock Options granted by all
shareholders pursuant to the Tender and Stock Option Agreement exceed an
amount equal to 19.9% of the outstanding Shares, and if the aggregate number
of such Shares subject to the Stock Options granted by all such shareholders
would otherwise exceed 19.9% of the outstanding Shares, then the number of
such Shares subject to the Stock Options granted by all such shareholders
shall be reduced, on a pro rata basis, so that the aggregate number of Shares
subject to the Stock Options granted by all such shareholders will not exceed
an amount equal to 19.9% of the outstanding Shares of Company Common Stock.
The shareholders who are parties to the Tender and Stock Option Agreement have
further agreed, jointly and severally, that if (i) the Offer and the Merger
shall be consummated and (ii) the total transaction expenses (including,
without limitation, legal and accounting expenses and fees and commissions
payable to Coopers & Lybrand and other investment bankers and financial
advisors to the Company) incurred by the Company in connection with the Offer,
the Merger, the Merger Agreement and the transactions contemplated thereby and
not reflected on the Company's audited balance sheet as of December 31, 1996
shall exceed $502,000, then such shareholders, jointly and severally, shall
reimburse Parent for all such transaction expenses in excess of $502,000
promptly upon demand made within 60 days after the Effective Time of the
Merger. The Tender and Stock Option Agreement is attached as Exhibit 7 hereto
and is incorporated by reference herein.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as described in Items 2 and 3(b) hereof, no negotiation is
underway or is being undertaken by the Company in response to the Offer which
relates to or could result in (i) an extraordinary transaction, such as a
merger or reorganization, involving the Company or any of its subsidiaries,
(ii) a purchase, sale or transfer of a material amount of assets by the
Company or any of its subsidiaries, (iii) a tender offer for or other
acquisition of securities by or of the Company or (iv) any material change in
the present capitalization or dividend policy of the Company.
(b) Except as described in Items 3(b) and 4 hereof, there are no
transactions, board resolutions, agreements in principle or signed contracts
in response to the Offer, which relate to or would result in one or more of
the matters referred to in Item 7(a).
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
The opinion of Summit dated March 20, 1997 and reaffirmed as of April 7,
1997 is attached hereto as Annex A and incorporated by reference herein. The
Information Statement attached hereto as Annex B is being furnished in
connection with the contemplated designation by Purchaser, pursuant to Merger
Agreement, of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's shareholders, following the
purchase by Purchaser of the number of Shares pursuant to the Offer and the
Tender and Stock Option Agreement necessary to satisfy the Minimum Condition.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1--Offer to Purchase of R-B Acquisition Corporation dated April 17,
1997 and related Letter of Transmittal.
Exhibit 2--Agreement and Plan of Merger dated as of April 11, 1997 among the
Company, R-B Acquisition Corporation and R-B Capital Corporation. The
Schedules to the Agreement and Plan of Merger have been omitted. The
Company agrees to furnish supplementally a copy of any Schedule to
the Commission.
18
<PAGE>
Exhibit 3--Employment Agreement dated December 13, 1995 between Peerless and
Jan C. van Osnabrugge (incorporated by reference to Exhibit No. 10.31
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995).
Exhibit 4--Employment Agreement dated December 13, 1995 between Peerless and
Robert Deter (incorporated by reference to Exhibit No. 10.32 to the
Company's Annual Report on Form 10-KSB for the year ended December
31, 1995).
Exhibit 5--Form of Indemnification Agreement between the Company and each of
its directors and executive officers.
Exhibit 6--Opinion of Summit Investment Corporation dated March 20, 1997 and
reaffirmed as of April 7, 1997 (attached as Annex A).*
Exhibit 7--Tender and Stock Option Agreement dated April 11, 1997 among R-B
Acquisition Corporation, R-B Capital Corporation and certain
Stockholders of the Company.
Exhibit 8--Joint press release issued by the Company and Ridge Capital
Corporation on April 14, 1997.
Exhibit 9--Letter to Company's shareholders dated April 17, 1997 from the
Company's Chairman and Chief Executive Officer.*
Exhibit10--Information Statement Pursuant to Section 14(f) of the Securities
Exchange Act of 1934 and Rule 14f-1 thereunder. (attached as Annex
B).*
- --------
*Included in copies being mailed to the shareholders.
19
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Peerless Industrial Group, Inc.
Dated: April 17, 1997 /s/ William H. Spell
By: _________________________________
William H. Spell
Chief Executive Officer
20
<PAGE>
[Letterhead of Summit Investment Corporation]
April 7, 1997
Board of Directors
Peerless Industrial Group, Inc.
333 South Seventh Street, Suite 2430
Minneapolis, MN 55402
Members of the Board:
We understand that Peerless Industrial Group, Inc. ("Peerless" or the
"Company"), R-B Capital Corporation ("Parent") and R-B Acquisition Corporation
("Purchaser") propose to enter into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which Purchaser will acquire all of the
common stock and outstanding options to purchase common stock of Peerless.
Under the terms of the Merger Agreement, Purchaser will offer to purchase all
of the outstanding shares of Peerless common stock for $1.67 per share cash in
a tender offer (the "Offer"). As more fully described therein, the Merger
Agreement also provides for the merger of Purchaser with and into the Company
(the "Merger") following expiration of the Offer, subject to certain
conditions. At the effective time of the Merger, the remaining shares of
Peerless common stock will be converted into the right to receive
consideration of $1.67 per share in cash.
You have requested our opinion as to whether the consideration to be
received by the holders of the shares of Peerless common stock is fair from a
financial point of view to such holders.
Summit Investment Corporation ("Summit"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, initial and secondary
underwritings, private placements and valuations for estate, corporate and
other purposes.
<PAGE>
In developing our opinion, we have, among other things:
1. Reviewed certain publicly available financial statements and other
information of the Company;
2. Reviewed certain internal financial statements and other financial and
operating data concerning the Company prepared by the management of
the Company;
3. Analyzed certain financial projections prepared by the management of
the Company;
4. Discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
5. Reviewed the reported prices and trading activity for the Peerless
common stock;
6. Compared the financial performance of the Company and the prices and
trading activity of the common stock with that of certain other
comparable publicly-traded companies and their securities;
7. Reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
8. Reviewed a draft of the Merger Agreement dated April 2, 1997; and
9. Performed such other analyses as we deemed appropriate.
In our review and analysis, and in arriving at our opinion, we have relied
upon and assumed the completeness and accuracy of all the factual, historical,
financial and other information and data publicly available or furnished to us
by Peerless. We have assumed that the financial projections provided to us
were reasonably prepared on bases reflecting the best currently available
estimates and judgements of the senior management of Peerless. In addition, we
have not made nor been provided with an independent evaluation or appraisal of
the assets of Peerless. Our opinion is necessarily based on economic, stock
market and other conditions as they exist and can be evaluated as of the date
hereof.
This opinion has been prepared for the use of the Board of Directors of
Peerless and does not constitute a recommendation to any stockholder with
respect to whether to tender shares of Peerless common stock pursuant to the
Offer or whether to vote in favor of the Merger. We hereby consent, however,
to the inclusion of this opinion as an exhibit to Parent's Tender Offer
Statement on Schedule 14D-1, the Peerless Solicitation/Recommendation
Statement on Schedule 14D-9 or to any proxy statement distributed in
connection with the Offer and the Merger.
Based on the foregoing, we are of the opinion as of the date hereof that the
consideration to be received by the Peerless stockholders pursuant to the
Offer and the Merger is fair from a financial point of view to such holders.
Very truly yours,
Summit Investment Corporation
2
<PAGE>
ANNEX B
PEERLESS INDUSTRIAL GROUP, INC.
2430 METROPOLITAN CENTRE
333 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
(612) 371-9650
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND
RULE 14f-1 THEREUNDER
April 17, 1997
This information is being furnished by Peerless Industrial Group, Inc., a
Minnesota corporation (the "Company"), to its shareholders in connection with
the possible designation by R-B Acquisition Corporation, a Minnesota
corporation (the "Purchaser"), a wholly owned subsidiary of R-B Capital
Corporation, a Delaware corporation ("Parent"), pursuant to the Agreement and
Plan of Merger dated as of April 11, 1997 (the "Merger Agreement") among the
Company, Parent and the Purchaser of persons to be elected to the Board of
Directors of the Company other than at a meeting of the Company's
shareholders.
Pursuant to the Merger Agreement, the Purchaser commenced a tender offer
(the "Offer"), disclosed in the Tender Offer Statement on Schedule 14D-1 dated
April 17, 1997 to purchase all of the outstanding shares of Common Stock, no
par value (the "Common Stock"), and Class B Common Stock, no par value (the
"Class B Common Stock") (hereinafter the Common Stock and Class B Common Stock
shall be collectively referred to as the "Shares") of the Company at a price
of $1.67 per share, net to the seller in cash. The terms and conditions of the
Offer are set forth in the Offer to Purchase dated April 17, 1997 (the "Offer
to Purchase") and related Letter of Transmittal (which together constitute the
"Offer"), which are being mailed by the Purchaser to the Company's
shareholders concurrently herewith. The Merger Agreement also provides, among
other things, that after completion of the Offer, subject to the terms and
conditions of the Merger Agreement, the Purchaser and the Company will be
merged (the "Merger") as more fully described in the Offer to Purchase and in
the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") to which this statement is appended.
The Company had 5,045,151 shares of Common Stock and 1,227,273 shares of
Class B Common Stock issued and outstanding as of April 15, 1997. Each holder
of Common Stock is entitled to that number of votes equal to the number of
shares of Common Stock held by the shareholder. Each holder of Class B Common
Stock is entitled to that number of votes equal to the number of shares of
Common Stock into which such holder's shares of Class B Common Stock are
convertible as provided in the Company's Articles of Incorporation.
THE BOARD OF DIRECTORS
GENERAL
The Company's Articles of Incorporation provide that, so long as Northland
Business Capital, L.L.P. or its affiliates continue to own at least 100,000
shares of Class B Common Stock (i) the Board of Directors shall consist of not
more than nine members, (ii) the holders of Class B Common Stock, exclusively
and voting as a single class, shall be entitled, by a vote of a majority of
the outstanding shares of Class B Common Stock held by such holders, to elect
one director of the Company and to exercise any right of removal or
replacement of such director, and (iii) the holders of Common Stock,
exclusively and voting as a single class, shall be entitled, by a vote of a
majority of the outstanding shares of Common Stock held by such holders, to
elect not more than eight of the directors of the Company and to exercise any
right of removal or replacement of such directors. As of the date hereof,
Northland Business Capital, L.L.P. owns in excess of 100,000 shares of Class B
Common Stock and the Board of Directors consists of seven members.
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CURRENT DIRECTORS
The persons named below are the current members of the Board of Directors
and serve for a term of one year expiring at the 1997 Annual Meeting of
Shareholders and upon the election and qualification of their successors or
until earlier resignation or removal.
<TABLE>
<CAPTION>
POSITION WITH
NAME AGE COMPANY
- ---- --- -------------
<S> <C> <C>
Harry W. Spell......................... 73 Chairman of the Board and Director
William H. Spell....................... 40 Chief Executive Officer and Director
Bruce A. Richard....................... 67 Secretary and Director
Reynold M. Anderson.................... 66 Director
Michael E. Platt....................... 55 Director
Richard W. Perkins..................... 66 Director
Brian K. Smith......................... 37 Director
</TABLE>
BUSINESS EXPERIENCE
Harry W. Spell. Harry W. Spell has been a Director of the Company since 1994
and is the father of William H. Spell. He has been Chairman of the Board and
Chief Executive Officer of Eagle Pacific Industries, Inc. ("Eagle Pacific")
since 1992. Eagle Pacific manufactures PVC pipe and polyethylene tubing in
plants in Nebraska, Oregon and Utah. He was employed by Northern States Power
from 1949 until August 1988, when he retired from all positions. From April
1988 through August 1988, Mr. Spell was a Senior Vice President of Northern
States Power Company. From November 1980 through August 1988, he served as a
Director of Northern States Power Company--Wisconsin (a subsidiary of Northern
States Power Company). Mr. Spell was Senior Vice President--Finance and Chief
Financial Officer of Northern States Power Company from May 1983 until April
1988. Mr. Spell currently serves as a Director of Appliance Recycling Centers
of America, Inc.
William H. Spell. William H. Spell has been a Director of the Company since
1994 and is the son of Harry W. Spell, a Director of the Company. He has been
President and Chief Operating Officer of Eagle Pacific and a member of its
Board of Directors since January 1992. From October 1990 through May 1993, Mr.
Spell was a founder, President and Chairman of the Board of National
Acquisition Corp., a public company which merged with Garment Graphics, Inc. a
designer, producer and marketer of silkscreen imprinted, embroidered and
decorative activewear. From 1981 to May of 1988, Mr. Spell was Vice President
and Director of Corporate Finance for John G. Kinnard and Company,
Incorporated, a regional investment banking firm. Mr. Spell holds a BS degree
and an MBA from the University of Minnesota.
Bruce A. Richard. Bruce A. Richard has been a Director of the Company since
1994 and currently serves as the Company's Secretary. He has been a Director
of Eagle Pacific since March 1992 and has served as its Vice
B-2
<PAGE>
Chairman, Secretary, Treasurer and a Director since September 1993. From 1985
through October 1986, he was President and Chief Operating Officer of Northern
States Power Company, from which duties he retired. From July 1954 through
1984, Mr. Richard held various management and other positions with Northern
States Power Company.
Reynold M. Anderson. Reynold M. Anderson has been a Director of the Company
since 1984, is a founder of the Company and served as Executive Vice President
from April 1985 through November 1991. The Company acquired Peerless Chain
Company in December 1995. See "Certain Transactions." He also served as the
Company's Chief Financial Officer and Secretary between 1983 and April 1985.
Since 1985, he has been a general partner of Zaeco Associates Limited
Partnership, which engages in the ownership and management of real estate.
From 1984 to June 1992, Mr. Anderson served as a Director and executive
officer of Mintesota, Inc., which operated two Perkins Restaurants in Florida.
From 1986 to May 1992, he served as a Director and executive officer of
T.H.I.S. Corporation ("T.H.I.S."), which operated seven Perkins Restaurants in
the Palm Beach County, Florida area. In November 1991, T.H.I.S. filed a
Petition for Reorganization under Chapter 11 of the Bankruptcy Code of 1978 in
the United States Bankruptcy Court for the Southern District of Florida.
T.H.I.S. was subsequently liquidated. Mr. Anderson is a professional civil
engineer registered in the State of Minnesota and received a degree in civil
engineering from the University of Minnesota.
Michael E. Platt. Michael E. Platt has been a Director of the Company since
1983, is a founder of the Company and was employed as its Chief Executive
Officer from August 1983 through June 1994, and served as the Company's
President from June 1994 through January 1996. The Company acquired Peerless
Chain Company in December 1995. See "Certain Transactions." He currently
serves as President and Chief Executive Officer of Fresh Food Ventures, Inc.,
which operates several Mexican-style restaurants. He is also President and a
Director of Regal One Corporation, which is engaged in the development of an
automatic emission control product. Between 1976 and July 1983, he held
various marketing positions with The Pillsbury Company and was its Director of
Acquisitions between 1980 and 1983. Prior to joining Pillsbury, he was Vice
President of Marketing with Steak & Shake, Inc., from October 1975 to May
1976. He served as Director of New Products and New Programs with Kentucky
Fried Chicken Corporation, from November 1972 to September 1975. He received a
BS degree from Massachusetts Institute of Technology and an MBA degree from
Harvard University.
Richard W. Perkins. Richard W. Perkins has been a Director of the Company
since 1993. He has been President, Chief Executive Officer and a Director of
Perkins Capital Management, Inc. since December 1985. He has over 30 years
experience in the investment business. Prior to establishing Perkins Capital
Management, Inc., Mr. Perkins was a Senior Vice President at Piper Jaffray
Incorporated, where he was involved in corporate finance and venture capital
activities, as well as rendering investment advice to domestic and
international investment managers. He held various positions with Piper
Jaffray from May 1966 through December 1984. Mr. Perkins is also a Director of
the following public companies: Bio-Vascular, Inc., LifeCore Biomedical, Inc.,
Children's Broadcasting Corporation, Garment Graphics, Inc., CNS, Inc., Eagle
Pacific, Nortech Systems, Inc. and Quantech Ltd.
Brian K. Smith. Brian K. Smith has been a Director of the Company since
January 1996. Since 1994, he has been a General Partner of Northland Business
Capital, L.L.P., a provider of mezzanine and equity funds. Northland Business
Capital, L.L.P. is a subsidiary of the Northern Company, a $1 billion private
financial services company. From 1990 through 1994, Mr. Smith served as Vice
President of Norwest Bank Minnesota, N.A., working in their Structured Finance
Group providing senior and subordinate debt for leveraged buy-outs. Norwest
Bank Minnesota, N.A. is a subsidiary of Norwest Corp.
PURCHASER DIRECTOR DESIGNEES
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of Shares pursuant to the Offer and from time to time thereafter, Purchaser
will be entitled to designate up to such number of directors ("Purchaser
Designees"), rounded up to the next whole number, on the Company's Board of
Directors that equals the product of (i) the total number of directors on the
Board (giving effect to the election of any additional
B-3
<PAGE>
directors pursuant to such provision), and (ii) the percentage that the number
of Shares owned by Purchaser and its affiliates (including any Shares
purchased pursuant to the Offer) bears to the total number of outstanding
Shares, and the Company will, upon request by Purchaser, subject to the
provisions of the Merger Agreement, promptly either increase the size of the
Board (and will, if necessary, amend the Company's Bylaws to permit such an
increase) or use its best efforts to secure the resignation of such number of
directors as is necessary to enable Purchaser Designees to be elected to the
Board and will cause Purchaser Designees to be so elected.
Information concerning the Purchaser Designees is set forth in Exhibit A
hereto. Such information was provided by the Purchaser and the Company does
not assume any responsibility for the accuracy or completeness thereof. To the
best knowledge of the Company, other than as disclosed on Exhibit A hereto,
none of the Purchaser Designees beneficially owns any equity securities of the
Company.
DIRECTORS' COMPENSATION
Directors who are also employees of the Company receive no additional
compensation for their services as directors. Non-employee directors receive a
fee of $6,000 per year for their services as members of the Board of
Directors.
Pursuant to the Company's Stock Option Plan, non-employee directors are
entitled to options to purchase 18,000 shares of Company Common Stock at a
price equal to the fair market value of the Company's Common Stock. The
options vest up to 6,000 shares on the first, second and third anniversary
dates of the options, if the person is a director as of such vesting date.
Directors will also receive options for 18,000 shares on the same terms
described above upon such director being re-elected for his or her fourth,
seventh, tenth and thirteenth one-year terms. The Stock Option Plan further
provides that options automatically granted to non-employee directors elected
after January 1, 1994 and prior to January 1, 1996 will be increased from
18,000 shares to 62,000 shares, and that options granted to outside directors
first elected after January 1, 1996 will be increased from 18,000 shares to
50,000 shares.
The Purchaser Designees will not receive options under the Company's Stock
Option Plan.
MEETINGS AND COMMITTEES
The Board of Directors held seven meetings during the fiscal year ended
December 31, 1996 (fiscal 1996). The Board of Directors has an Audit
Committee, a Compensation Committee, an Executive Committee and a Nomination
Committee. No director attended fewer than 75% of the total number of the
meetings of the Board and of the Committees on which such member served.
The Audit Committee is composed of Richard W. Perkins, Michael E. Platt,
Brian K. Smith and Bruce A. Richard. The function of the Audit Committee is to
recommend the selection of independent auditors, review the scope and results
of the audit and make inquiries as to the adequacy of the Company's
accounting, financial and operating controls. The Audit Committee did not have
any formal meetings in fiscal 1996.
The Compensation Committee consists of Bruce A. Richard, Richard W. Perkins,
Brian K. Smith and Reynold M. Anderson. The Compensation Committee, which
considers and makes recommendations concerning executive compensation, did not
have any formal meetings in fiscal 1996.
The Executive Committee consists of William H. Spell, Bruce A. Richard and
Harry W. Spell. The Executive Committee met informally throughout 1996.
The Nomination Committee consists of Reynold M. Anderson, William H. Spell
and Harry W. Spell. The Nomination Committee did not have any formal meetings
in fiscal 1996. The Nomination Committee does not consider nominees
recommended by shareholders.
B-4
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Harry W. Spell................... 73 Chairman and Director
William H. Spell................. 40 Chief Executive Officer and Director
Jan C. van Osnabrugge............ 54 President
Robert E. Deter.................. 52 Chief Financial Officer
Bruce A. Richard................. 67 Secretary and Director
</TABLE>
Harry W. Spell. See "The Board of Directors--Current Directors."
William H. Spell. See "The Board of Directors--Current Directors."
Jan C. van Osnabrugge. Jan C. van Osnabrugge has been employed by the
Company's operating subsidiary, Peerless Chain Company ("Peerless") since
January 1994 and served as President of Peerless since December 1995. Prior to
joining Peerless, he served as Chief Executive Officer of Wolfking Belam BV
(NL) from September 1992 through September 1993. Between November 1990 and
September 1992 he was employed by Stork RMS BV and Stork NON BV in various
executive capacities, including Chief Executive Officer and Vice President of
Sales and Marketing. Mr. van Osnabrugge is subject to an employment agreement
with Peerless dated December 13, 1995.
Robert E. Deter. Robert E. Deter has been employed by Peerless since 1979.
Mr. Deter served as Peerless' Controller from 1987 to April 1995 and as its
Chief Financial Officer from April 1995 to December 1995, when he was named
Chief Financial Officer of the Company. Mr. Deter is subject to an employment
agreement with Peerless dated December 13, 1995.
Bruce A. Richard. See "The Board of Directors--Current Directors."
All executive officers are elected by the Company's Board of Directors and
serve subject to termination, resignation or until their successors are duly
elected.
EXECUTIVE COMPENSATION
The following table sets forth certain information about compensation paid
to or accrued by the Company's Chief Executive Officer and each of the
Company's executive officers receiving in excess of $100,000 for services
rendered to the Company during the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------------
NAME AND ANNUAL COMPENSATION SECURITIES
PRINCIPAL --------------------------- UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($) OTHER OPTIONS (#) COMPENSATION ($)
- --------- ---- --------- -------- ------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Jan C. van
Osnabrugge 1996 192,000 12,210 17,455 -- --
President 1995 192,000(1) 37,082 -- 60,000 --
1994 32,493(2) -- -- -- --
William H. Spell 1996 96,000 -- 2,400 -- --
Chief Executive
Officer 1995 60,000 125,000 -- 175,000 --
1994 35,000 -- -- 230,000 --
</TABLE>
The Company did not grant any options to the persons named in the table
above during the fiscal year ended December 31, 1996. The following table
summarizes stock option exercises during the fiscal year ended December 31,
1996 to or by such executive officers and certain other information relative
to such options.
B-5
<PAGE>
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS AT
AT FY-END (#) FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Jan C. van Osnabrugge... -- -- 0/60,000 0/12,750
William H. Spell........ -- -- 300,000/105,000 37,375/22,313
</TABLE>
BENEFICIAL OWNERSHIP OF SHARES
The following table contains certain information as of March 3, 1997,
regarding the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each director, nominee for director and executive officer
of the Company, (iii) each of the named executive officers as defined in Item
402(a)(2), and (iv) the executive officers of the Company and directors as a
group, and as to the percentage of the outstanding shares held by them on such
date. Any shares which are subject to an option or a warrant exercisable
within 60 days are reflected in the following table and are deemed to be
outstanding for the purpose of computing the percentage of Common Stock owned
by the option or warrant holder but are not deemed to be outstanding for the
purpose of computing the percentage of Common Stock owned by any other person.
Unless otherwise noted, each person identified below possesses sole voting and
investment power with respect to such shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE PERCENTAGE OF
OWNER OF BENEFICIAL OWNERSHIP OUTSTANDING STOCK(1)
- ------------------------------ ----------------------- --------------------
<S> <C> <C>
Richard W. Perkins............... 2,294,949(2) 36.0%
730 East Lake Street
Wayzata, Minnesota 55391
Perkins Capital Management, Inc.. 1,368,500 21.8%
730 East Lake Street
Wayzata, Minnesota 55391
Northland Business Capital
L.L.P........................... 1,247,273(3) 19.8%
1285 Northland Lane
St. Paul, Minnesota 55120
Brian K. Smith................... 1,247,273(3) 19.8%
1285 Northland Lane
St. Paul, Minnesota 55120
Reynold M. Anderson.............. 1,108,220(4) 17.5%
4130 Burton Lane
Minneapolis, Minnesota 55406
William H. Spell................. 857,266(5) 13.0%
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Harry W. Spell................... 646,902(6) 10.1%
2430 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL AMOUNT AND NATURE PERCENTAGE OF
OWNER OF BENEFICIAL OWNERSHIP OUTSTANDING STOCK(1)
- ------------------------------ ----------------------- --------------------
<S> <C> <C>
Bruce A. Richard.................. 602,630(7) 9.5%
2458 Farrington Circle
Roseville, Minnesota 55113
Michael E. Platt.................. 542,500(8) 8.6%
7173 Oak Pointe Curve
Bloomington, Minnesota 55438
Z. Albin E. Anderson Irrevocable
Trust............................ 370,000 5.9%
c/o Reynold M. Anderson
4130 Burton Lane
Minneapolis, Minnesota 55406
Jan C. van Osnabrugge............. 109,090(9) 1.7%
1416 East Sanborn Street
Winona, Minnesota 55987
Robert E. Deter................... 59,090(9) 0.9%
1416 East Sanborn Street
Winona, Minnesota 55987
All Directors and Officers as a
Group (9 Persons)................ 4,211,263(10) 60.4%
</TABLE>
- --------
(1) Calculated assuming the conversion of all Class B Common Stock into Common
Stock.
(2) Includes: (i) 1,368,500 shares owned by Perkins Capital Management, Inc.
("PCM") over which Mr. Perkins, President of PCM, disclaims beneficial
ownership, (ii) 72,000 shares owned by the Richard W. Perkins Trust dated
6/14/78, (iii) 25,000 owned by the Perkins Capital Management, Inc. Profit
Sharing Plan & Trust dated 12/15/86, (iv) 50,000 shares owned by Quest
Venture Partners, (v) 250,000 shares owned by Pyramid Partners, LP, (vi)
89,000 shares purchasable upon the exercise of vested stock options, (vii)
15,000 shares purchasable pursuant to warrants, and (viii) 425,449 shares
owned by the management of Peerless Chain Company over which Mr. Perkins
holds shared voting power.
(3) Includes 1,227,273 shares of Class B Common Stock, which is convertible
into an equal number of shares of Common Stock, and 10,000 shares
purchasable upon the exercise of vested stock options granted to Brian K.
Smith. Also includes 10,000 shares purchasable pursuant to a warrant owned
by Northland Business Capital, L.L.P., of which Mr. Smith is a General
Partner.
(4) Includes 370,000 shares owned by the Z. Albin E. Anderson Irrevocable
Trust, of which Mr. Anderson is a trustee and a beneficiary, 771 shares
owned by Mr. Anderson's spouse, 52,000 shares purchasable upon the
exercise of vested stock options, 10,000 shares purchasable pursuant to a
warrant, and 425,449 shares owned by the management of Peerless Chain
Company over which Mr. Anderson holds shared voting power.
(5) Includes 18,181 shares owned by the Spell Family Foundation of which Mr.
Spell is a director, 300,000 shares purchasable upon the exercise of
vested stock options, 10,000 shares purchasable pursuant to a warrant, and
425,449 shares owned by the management of Peerless Chain Company over
which Mr. Spell holds shared voting power.
(6) Includes 18,181 shares owned by the Spell Family Foundation of which Mr.
Spell is a director, 89,000 shares purchasable upon the exercise of vested
stock options, 15,000 shares purchasable pursuant to warrants, and 425,449
shares owned by the management of Peerless Chain Company over which Mr.
Spell holds shared voting power.
(7) Includes 83,000 shares purchasable upon the exercise of vested stock
options, 10,000 shares purchasable pursuant to a warrant, and 425,449
shares owned by the management of Peerless Chain Company over which Mr.
Richard holds shared voting power.
B-7
<PAGE>
(8) Includes 14,000 shares owned by Mr. Platt's spouse and 10,000 shares
purchasable upon the exercise of vested stock options.
(9) Represents shares over which Messrs. Richard W. Perkins, Reynold M.
Anderson, William H. Spell, Harry W. Spell and Bruce A. Richard hold
shared voting power.
(10) Includes: (i) 1,227,273 shares of Class B Common Stock, which is
convertible into an equal number of shares of Common Stock, owned by
Northland Business Capital, L.L.P., of which Mr. Smith is a General
Partner, (ii) 633,000 shares purchasable upon the exercise of vested
stock options, (iii) 70,000 shares purchasable pursuant to warrants, (iv)
18,181 shares owned by the Spell Family Foundation of which Messrs. Harry
W. Spell and William H. Spell are directors, (v) 425,449 shares owned by
the management of Peerless Chain Company over which Messrs. Harry W.
Spell, William H. Spell, Bruce A. Richard, Richard W. Perkins and Reynold
M. Anderson hold shared voting power, (vi) 72,000 shares owned by the
Richard W. Perkins Trust dated 6/14/78, (vii) 25,000 shares owned by the
Perkins Capital Management, Inc. Profit Sharing Plan & Trust dated
12/15/86, (viii) 50,000 shares owned by Quest Venture Partners, (ix)
250,000 shares owned by Pyramid Partners, LP, (x) 370,000 shares owned by
the Z. Albin E. Anderson Irrevocable Trust of which Mr. Reynold M.
Anderson is a trustee and a beneficiary, (xi) 771 shares owned by Mr.
Reynold M. Anderson's spouse, and (xii) 14,000 shares owned by Mr.
Michael E. Platt's spouse.
CERTAIN TRANSACTIONS
In June 1994, Discus Acquisition Corporation, now the Company, sold to
Fuddruckers Inc. nine of its franchised Fuddruckers(R) restaurants for a
purchase price of approximately $5.5 million. In 1995 the Company disposed of
its remaining operations and property consisting of a Fuddruckers(R)
restaurant operated in Cottage Grove, Minnesota and a limited partnership
interest in a non-Fuddruckers restaurant facility. The Company used the major
portion of the net proceeds from these sales, after payment of obligations,
together with other equity and debt financing raised in 1995 and 1996, to
acquire Peerless in December of 1995.
In connection with the Company's acquisition of Peerless in December 1995,
the Company sold an aggregate of 2,388,874 shares of Common Stock for a
purchase price of $2,627,761, or $1.10 per share, to a group of investors in a
private placement transaction, including five of the Company's directors or
their affiliates. The proceeds from such private placement of Common Stock
were used to partially fund the acquisition of Peerless. The following
officers/directors participated in the private placement, individually or
indirectly through other entities in which they had beneficial interests,
purchasing the number of shares indicated: William H. Spell, Chief Executive
Officer and a Director (81,817 shares); Harry W. Spell, Chairman and a
Director (95,453 shares); Reynold M. Anderson, Director (100,000 shares);
Bruce A. Richard, Director (68,181 shares); and Richard W. Perkins, Director
(375,000 shares). Pursuant to negotiations which commenced immediately prior
to the acquisition of Peerless, Northland Business Capital, L.L.P.
("Northland"), of which Brian K. Smith is a General Partner, acquired
1,227,273 shares of Class B Common Stock pursuant to the terms of a Stock
Purchase Agreement entered into between the Company and Northland in January
1996. The Common Stock sold to the foregoing persons was issued directly by
the Company to the purchasers in a private placement transaction without
registration of such shares under the Securities Act of 1933, as amended (the
"Act"), pursuant to a claimed exemption therefrom. The shares constitute
"restricted securities" as that term is defined under Rule 144 of the Act and
may not be resold unless registered under the Act or an exemption from
registration becomes available under Rule 144 or another provision under the
Act.
On November 1, 1995 the Board of Directors of the Company authorized the
sale of the shares as a part of the plan to acquire Peerless and finance that
acquisition, subject to receiving a fairness opinion. The Board of Directors
engaged Summit Investment Corporation ("Summit"), an investment banking firm,
to provide an opinion to the Company as to the fairness of the purchase price
for the Common Stock. On November 29, 1995, Summit rendered its opinion that
the financing involving the sale of the Company's equity securities was fair
from a financial point of view to the Company and its shareholders. On that
date the bid and ask prices for the
B-8
<PAGE>
Company, based upon information available from the NASD Bulletin Board, were
$1.375 and $1.75 per share, respectively. In establishing the price for the
Common Stock to be sold, the Board of Directors also took into account the
market price for the Common Stock of the Company and the fact that the shares
to be sold were not registered under the Act and would be restricted as to
sale, transfer and disposition.
In connection with the acquisition of Peerless, the Company determined that
it was desirable to permit certain members of the Peerless management to
participate in the acquisition, by providing them the opportunity to acquire a
proprietary interest in the Company through the purchase of Common Stock. The
Company arranged for loans to nine members of the Peerless management from
American Commercial Bank totalling $468,000. The Company has guaranteed the
repayment of such loans. To induce the American Commercial Bank to make such
loan, and as a condition of such financing, the Bank required additional
credit enhancements in the form of personal guarantees from certain directors
of the Company. Accordingly, and in consideration of the issuance of warrants
to them, William H. Spell, Harry W. Spell, Reynold M. Anderson, Richard W.
Perkins, and Bruce A. Richard personally guaranteed payment of such
obligations, in consideration for which the Company issued to each of them
warrants to purchase 10,000 shares of the Company's Common Stock at $1.10 per
share. As security for the guarantees by the Company and the directors, the
nine members of the Peerless management (along with their wives if stock was
issued to them jointly) pledged their shares of Common Stock to the Company
and the directors to secure payment of the obligations guaranteed.
In connection with the Peerless acquisition, Pyramid Partners, L.P., an
affiliate of Richard W. Perkins, and Harry W. Spell loaned the Company
$125,000 and $100,000, respectively, in December 1995, on the basis of short-
term unsecured promissory notes bearing interest at the rate of 20 percent per
annum. The notes were repaid in January, February and March 1996.
The Purchaser Designees are affiliates of Parent and Purchaser. The
relationship among Purchaser Designees, Parent and Purchaser are described
more fully under the caption "Certain Information Concerning Ridge, Blair
Mezzanine Fund, the Purchaser and Parent" in the Offer to Purchase and such
description is incorporated by reference herein.
CHANGE IN CONTROL
The Offer, if consummated, will result in a change in control of the
Company. See the Offer to Purchase for additional information concerning the
Offer, Parent and the Purchaser.
B-9
<PAGE>
EXHIBIT A
PURCHASER DIRECTOR DESIGNEES
The following table sets forth the name, business address, age, principal
occupation or employment at the present time and during the last five years and
business background of each of the Purchaser Designees.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS ADDRESS AGE AND FIVE YEAR EMPLOYMENT HISTORY
------------------------- --- ------------------------------------------
<S> <C> <C>
Harrington Bischof.......... 62 President, sole director and sole
257 East Main Street shareholder of Pandora Capital Corporation
Barrington, Illinois 60010 since July 1996 and Senior Advisor to Ridge
Capital Corporation and its affiliates
since January 1, 1997. Mr. Bischof served
as Senior Advisor to Prudential Securities,
Inc. from 1991 through June 1996.
J. Bradley Davis............ 57 President, sole director and sole
257 East Main Street shareholder of Ridge Capital Corporation,
Barrington, Illinois 60010 Ridge Advisors, Inc. and affiliated
companies since 1989.
Clark F. Davis.............. 30 Vice President, Ridge Capital Corporation
257 East Main Street since 1992. Manager, Flint Creek Farm,
Barrington, Illinois 60010 Inc., Barrington, Illinois since May 1989.
Terrance M. Shipp........... 38 General Partner of William Blair Mezzanine
222 West Adams Street Capital Partners, L.P., a private
Chicago, Illinois 60606 investment firm, and a managing director of
William Blair Mezzanine Capital Partners
II, L.L.C., the general partner of Blair
Mezzanine Fund, since its organization in
September 1996.
Marc J. Walfish............. 44 General Partner of William Blair Mezzanine
222 West Adams Street Capital Partners, L.P., a private
Chicago, Illinois 60606 investment firm, and a managing director of
William Blair Mezzanine Capital Partners
II, L.L.C., the general partner of Blair
Mezzanine Fund, since its organization in
September 1996.
</TABLE>
<PAGE>
EXHIBIT 1
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK AND CLASS B COMMON STOCK
OF
PEERLESS INDUSTRIAL GROUP, INC.
AT
$1.67 NET PER SHARE
BY
R-B ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
R-B CAPITAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK TIME,
ON THURSDAY, MAY 15, 1997 UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED PRIOR TO THE EXPIRATION OF THE OFFER AND NOT WITHDRAWN A NUMBER OF
SHARES OF COMMON STOCK AND CLASS B COMMON STOCK (COLLECTIVELY, THE "SHARES")
OF PEERLESS INDUSTRIAL GROUP, INC. (THE "COMPANY") WHICH WILL CONSTITUTE AT
LEAST (1) A MAJORITY OF THE SHARES, AND (2) A NUMBER OF OUTSTANDING SHARES
ENTITLED TO ELECT A MAJORITY OF THE BOARD OF DIRECTORS OF THE COMPANY, IN EACH
CASE ON A FULLY DILUTED BASIS (OR, IF THE PURCHASER SO ELECTS IN ITS SOLE
DISCRETION, ON THE BASIS OF THE NUMBER OF SHARES THEN OUTSTANDING) AS OF THE
DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER. THE OFFER ALSO
IS SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE.
SEE INTRODUCTION AND SECTIONS 1 AND 13 HEREOF.
THE OFFER IS BEING MADE IN CONNECTION WITH THE AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 11, 1997 (THE "MERGER AGREEMENT"), AMONG THE COMPANY, R-B
ACQUISITION CORPORATION ("PURCHASER") AND R-B CAPITAL CORPORATION ("PARENT"),
PURSUANT TO WHICH, FOLLOWING THE CONSUMMATION OF THE OFFER, PURCHASER WILL BE
MERGED WITH AND INTO THE COMPANY (THE "MERGER"). THE BOARD OF DIRECTORS OF THE
COMPANY AND AN INDEPENDENT COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY,
UNANIMOUSLY HAVE DETERMINED THAT EACH OF THE OFFER AND THE MERGER IS FAIR TO
AND IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS, HAVE APPROVED THE
OFFER AND THE MERGER AND RECOMMEND THAT THE COMPANY'S SHAREHOLDERS ACCEPT THE
OFFER AND TENDER ALL OF THEIR SHARES PURSUANT THERETO.
IN CONNECTION WITH THE MERGER AGREEMENT, CERTAIN SHAREHOLDERS OF THE COMPANY
(INCLUDING ALL OF THE COMPANY'S DIRECTORS) HAVE EXECUTED AND DELIVERED A
TENDER AND STOCK OPTION AGREEMENT (THE "TENDER AGREEMENT"), PURSUANT TO WHICH
SUCH SHAREHOLDERS HAVE (1) AGREED TO TENDER IN THE OFFER AN AGGREGATE OF
APPROXIMATELY 4.45 MILLION SHARES (APPROXIMATELY 71% OF THE SHARES OUTSTANDING
ON THE DATE HEREOF), PLUS ADDITIONAL SHARES UNDER CERTAIN CIRCUMSTANCES AND
(2) GRANTED TO PURCHASER AN OPTION TO PURCHASE, UNDER CERTAIN CIRCUMSTANCES,
SHARES EQUAL TO 19.9% OF THE OUTSTANDING SHARES. SEE SECTION 11 HEREOF.
IMPORTANT
Any shareholder desiring to tender all or any portion of his or her Shares
should either (1) complete and sign the Letter of Transmittal or a facsimile
thereof in accordance with the instructions in the Letter of Transmittal and
deliver the Letter of Transmittal or such manually signed facsimile and any
other required documents to the Depositary, and either deliver the
certificate(s) representing 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 Section 3 hereof, or (2) request his or her
broker, dealer, bank, trust company or other nominee to effect the transaction
for such shareholder. Shareholders having Shares registered in the name of a
broker, dealer, bank, trust company or other nominee must contact such broker,
dealer, bank, trust company or other nominee if they desire to tender such
Shares.
A shareholder who desires to tender Shares and whose certificates for such
Shares are not immediately available, or who cannot comply with the procedure
for book-entry transfer on a timely basis, may tender such Shares by following
the procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent at its address and telephone number set forth on the back cover of this
Offer to Purchase. Requests for additional copies of this Offer to Purchase,
the Letter of Transmittal or the Notice of Guaranteed Delivery may be directed
to the Information Agent or to brokers, dealers, banks or trust companies.
---------------
The Information Agent for the Offer is:
LOGO
April 17, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
INTRODUCTION.............................................................. 1
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS........................ 2
THE TENDER OFFER.......................................................... 3
1. Terms of the Offer................................................ 3
2. Acceptance for Payment and Payment for Shares..................... 4
3. Procedure for Tendering Shares.................................... 5
4. Withdrawal Rights................................................. 7
5. Certain Federal Income Tax Consequences of the Offer.............. 8
6. Price Range of Shares; Dividends.................................. 9
7. Effect of the Offer on Market for the Shares, NASDAQ Quotation,
and Exchange Act Registration..................................... 9
8. Certain Information Concerning the Company........................ 10
Certain Information Concerning Ridge, Blair Mezzanine Fund, the
9. Purchaser and Parent.............................................. 12
10. Background of the Merger and the Offer; Contacts with the Company. 14
11. Purpose of the Offer; Plans for the Company; the Merger Agreement;
the Tender Agreement; Dissenters' Rights.......................... 15
12. Source and Amount of Funds........................................ 26
13. Certain Conditions of the Offer................................... 27
14. Dividends and Distributions....................................... 29
15. Certain Legal Matters............................................. 29
16. Fees and Expenses................................................. 31
17. Miscellaneous..................................................... 31
SCHEDULE I................................................................ 33
SCHEDULE II............................................................... 34
</TABLE>
<PAGE>
TO THE HOLDERS OF COMMON STOCK AND CLASS B
COMMON STOCK OF PEERLESS INDUSTRIAL GROUP, INC.:
INTRODUCTION
R-B Acquisition Corporation, a Minnesota corporation (the "Purchaser") and a
wholly owned subsidiary of R-B Capital Corporation, a Delaware corporation
("Parent"), hereby offers to purchase any and all of the outstanding shares of
Common Stock, no par value, and any and all of the outstanding shares of Class
B Common Stock, no par value (collectively, the "Shares"), of Peerless
Industrial Group, Inc., a Minnesota corporation (the "Company"), at $1.67 per
Share (the "Offer Price"), net to the seller in cash, upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the
related Letter of Transmittal (which together constitute the "Offer").
Parent and Purchaser are corporations formed by Ridge Capital Corporation,
Pandora Capital Corporation and their affiliates (collectively, "Ridge") and
William Blair Mezzanine Capital Fund II, L.P. ("Blair Mezzanine Fund") in
connection with the Offer and the transactions contemplated thereby. For
information concerning Ridge, Blair Mezzanine Fund and their respective
principals, see Section 9.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 11, 1997 (the "Merger Agreement"), among the Company, Parent and
the Purchaser, pursuant to which, after the completion of the Offer and on the
terms and subject to the conditions set forth therein, the Purchaser will
merge with and into the Company (the "Merger"), with the Company to be the
surviving corporation in such Merger, and each outstanding Share (other than
Shares owned by Parent or its direct or indirect subsidiaries, which will be
cancelled, or by shareholders exercising their dissenters' rights in
accordance with Section 473 of the Minnesota Business Corporation Act (the
"MBCA")) will be converted into and represent the right to receive an amount
in cash equal to the Offer Price. Following the consummation of the Merger,
the Company will be a wholly owned subsidiary of Parent. The Merger Agreement
is more fully described in Section 11 below.
In connection with the Merger Agreement, certain shareholders of the Company
have executed and delivered a Tender and Stock Option Agreement (the "Tender
Agreement"), pursuant to which such shareholders have (1) agreed to tender in
the Offer an aggregate of approximately 4.45 million Shares (approximately 71%
of the Shares outstanding on the date hereof), together with additional Shares
under certain circumstances and (2) granted to Purchaser an option to
purchase, under certain circumstances, Shares equal to 19.9% of the
outstanding Shares. See Section 11 below. In addition, the Purchaser has been
advised that certain members of senior management of the Company's operating
subsidiary intend to tender Shares pursuant to the Offer. See Section 9 below.
THE BOARD OF DIRECTORS OF THE COMPANY, AND AN INDEPENDENT COMMITTEE OF THE
BOARD OF DIRECTORS OF THE COMPANY, UNANIMOUSLY HAVE DETERMINED THAT EACH OF
THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
SHAREHOLDERS, UNANIMOUSLY HAVE APPROVED THE OFFER AND THE MERGER AND RECOMMEND
THAT THE COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. SEE
"RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS."
Summit Investment Corporation, the Company's financial advisor, has
delivered to the Board of Directors of the Company its written opinion dated
March 20, 1997 and reaffirmed as of April 7, 1997 to the effect that, as of
April 7, 1997, the cash consideration of $1.67 per Share to be received to the
holders of Shares in the Offer and the Merger is fair to such shareholders
from a financial point of view. Such opinion is set forth in full as an annex
to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which is being mailed to shareholders of the Company
concurrently herewith. Holders of Shares are urged to read such opinion,
including the assumptions contained therein, in its entirety prior to
tendering any Shares in response to the Offer.
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Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, subject to Instruction 6 of the Letter of Transmittal,
transfer taxes on the purchase of Shares by the Purchaser pursuant to the
Offer. The Purchaser will pay all charges and expenses of Harris Trust Company
of New York (the "Depositary"), and MacKenzie Partners, Inc. (the "Information
Agent") in connection with the Offer.
The purpose of the Offer is for Parent, through Purchaser, to acquire any
and all outstanding Shares and to facilitate the Merger. See Section 11.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED PRIOR TO THE EXPIRATION OF THE OFFER AND NOT WITHDRAWN A NUMBER OF
SHARES WHICH WILL CONSTITUTE AT LEAST (1) A MAJORITY OF THE SHARES, AND (2) A
NUMBER OF OUTSTANDING SHARES ENTITLED TO ELECT A MAJORITY OF THE BOARD OF
DIRECTORS OF THE COMPANY, IN EACH CASE ON A FULLY DILUTED BASIS (OR, IF THE
PURCHASER SO ELECTS IN ITS SOLE DISCRETION, ON THE BASIS OF THE NUMBER OF
SHARES THEN OUTSTANDING) AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT
PURSUANT TO THE OFFER (THE "MINIMUM CONDITION"). CERTAIN OTHER CONDITIONS TO
THE OFFER ARE DESCRIBED IN SECTION 13.
According to the Company, as of the date hereof there were 5,045,151 shares
of Common Stock, no par value, outstanding, 1,227,273 shares of Class B Common
Stock, no par value, outstanding and 1,373,500 shares of Common Stock, no par
value, subject to issuance pursuant to the Company's stock option plans and
other agreements. For purposes of this Offer, "fully diluted basis" assumes
that all outstanding stock options and other rights to acquire Shares are
exercised. Based on the foregoing, the Purchaser believes there are
approximately 7,645,924 Shares outstanding on a fully diluted basis.
Accordingly, the Purchaser believes that the Minimum Condition would be
satisfied if at least 3,822,963 Shares are validly tendered prior to the
expiration of the Offer and not withdrawn. Pursuant to the Tender Agreement,
holders of approximately 4.45 million Shares have agreed to tender their
Shares in the Offer. Tender of these Shares would be sufficient to satisfy the
Minimum Condition, and would provide Purchaser sufficient Shares to effect the
Merger. See Section 11.
THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY,
CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO AN ANNUAL MEETING OR ANY
SPECIAL MEETING OF THE COMPANY'S SHAREHOLDERS OR ANY ACTION IN LIEU THEREOF.
ANY SUCH SOLICITATION WILL BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS
IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
* * * * *
Purchaser expressly reserves the right to waive any one or more of the
conditions to the Offer other than the Minimum Condition which may only be
waived with the consent of the Company. See Sections 1 and 13.
Shareholders are urged to read this Offer to Purchase and the related Letter
of Transmittal carefully before deciding whether to tender their Shares.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE COMPANY, AND AN INDEPENDENT COMMITTEE OF THE
BOARD OF DIRECTORS OF THE COMPANY, UNANIMOUSLY HAVE DETERMINED THAT EACH OF
THE OFFER AND THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE
SHAREHOLDERS OF THE COMPANY AND UNANIMOUSLY HAVE APPROVED THE OFFER AND THE
MERGER AND RECOMMEND THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND
TENDER THEIR SHARES. THE OFFER IS BEING EFFECTED TO ACQUIRE ANY AND ALL
OUTSTANDING SHARES AND TO FACILITATE THE MERGER. SEE SECTIONS 10 AND 11.
The Company's financial advisor, Summit Investment Corporation ("Summit")
has delivered to the Board of Directors of the Company its written opinion
dated March 20, 1997 and reaffirmed as of April 7, 1997 to the effect that, as
of April 7, 1997, the consideration to be received by the holders of Shares
pursuant to the Offer and the Merger is fair to such holders from a financial
point of view.
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THE TENDER OFFER
1. 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), the Purchaser will accept for payment, and pay
for, all Shares validly tendered on or prior to the Expiration Date (as herein
defined) and not withdrawn as permitted by Section 4, at a price of $1.67 per
Share, net to the seller in cash. The term "Expiration Date" means 12:00
Midnight, New York City time, on Thursday, May 15, 1997, unless the Purchaser
shall have extended the period for which the Offer is open, in which event the
term "Expiration Date" shall mean the latest time and date on which the Offer,
as so extended, shall expire. If the Purchaser accepts any Shares for payment
pursuant to the terms of the Offer, it will accept for payment all Shares
validly tendered prior to the Expiration Date and not withdrawn, and will
promptly (but in any event within five business days) pay for all Shares so
accepted for payment.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition. The Offer is also subject to certain other conditions set
forth in Section 13 below. Purchaser expressly reserves the right, in its sole
discretion, to waive, in whole or in part, any or all of the conditions of the
Offer (other than the Minimum Condition, which may not be waived without the
prior written consent of the Company).
Subject to the terms of the Merger Agreement and applicable law, including
the applicable rules and regulations of the Securities and Exchange Commission
(the "Commission"), the Purchaser expressly reserves the right, in its sole
discretion, at any time and from time to time, and regardless of whether or
not any of the events set forth in Section 13 hereof shall have occurred or
shall have been determined by the Purchaser to have occurred, (i) to extend
the period of time during which the Offer is open, and thereby delay
acceptance for payment of and the payment for any Shares, by giving oral or
written notice of such extension to the Depositary and (ii) to amend the Offer
in any other respect by giving oral or written notice of such amendment to the
Depositary. There can be no assurance that Purchaser will exercise its right
to extend the Offer.
If by 12:00 Midnight, New York City time, on Thursday May 15, 1997 (or any
other date or time then set as the Expiration Date), any or all conditions to
the Offer have not been satisfied or waived, the Purchaser reserves the right
(but shall not be obligated), subject to the terms and conditions contained in
the Merger Agreement and to the applicable rules and regulations of the
Commission, to (i) terminate the Offer and not accept for payment any Shares
and return all tendered Shares to tendering shareholders, (ii) waive all the
unsatisfied conditions and, subject to complying with the terms of the Merger
Agreement and the applicable rules and regulations of the Commission, accept
for payment and pay for all Shares validly tendered prior to the Expiration
Date and not theretofore withdrawn, (iii) extend the Offer and, subject to the
right of shareholders to withdraw Shares until the Expiration Date, retain the
Shares that have been tendered during the period or periods for which the
Offer is extended or (iv) amend the Offer.
In the Merger Agreement the Purchaser has agreed that, except as otherwise
required by law, it will not without the prior consent of the Company extend
the Offer if all of the Offer conditions referred to in Section 13 are
satisfied, except that the Purchaser may, in its sole discretion, extend the
Offer for a period of not more than 10 business days if the number of Shares
that have been validly tendered and not withdrawn pursuant to the Offer
represent less than 90% of the outstanding Shares. Purchaser may also extend
the Offer at any time and from time to time (a) if at the then scheduled
expiration date of the Offer any of the conditions to the Purchaser's
obligation to accept for payment and pay for Shares shall not have been
satisfied or waived and (b) for any period required by any law. In addition,
the Purchaser has agreed that, unless previously approved by the Company in
writing, the Purchaser will not (i) decrease the price per Share payable in
the Offer, (ii) reduce the number of Shares to be purchased in the Offer,
(iii) change the form of consideration payable in the Offer, (iv) impose
conditions to the Offer in addition to the conditions set forth in Section 13
or (v) make any other change in the terms of the Offer which is materially
adverse to the holders of Shares.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its acceptance for
payment of, or payment for, Shares or is unable to pay for Shares
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pursuant to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Depositary may retain tendered Shares
on behalf of the Purchaser, and such Shares may not be withdrawn except to the
extent tendering shareholders are entitled to withdrawal rights as described
in Section 4. However, the ability of the Purchaser to delay the payment for
Shares that the Purchaser has 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 such bidder's
offer.
Any extension, delay, termination, waiver or amendment of the Offer will be
followed as promptly as practicable by public announcement thereof, and such
announcement in the case of an extension will be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which Purchaser may choose to
make any public announcement, except as provided by applicable law (including
Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any
material change in the information published, sent or given to shareholders in
connection with the Offer be promptly disseminated to shareholders in a manner
reasonably designed to inform shareholders of such change), the Purchaser
shall have no obligation to publish, advertise or otherwise communicate any
such public announcement other than by making a release to the Dow Jones News
Service or as otherwise may be required by law.
If the Purchaser makes a material change in the terms of the Offer or if
Purchaser waives a material condition of the Offer, the Purchaser will extend
the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under
the Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of the offer, other than a change in
price or a change in the percentages of securities sought, will depend of the
facts and circumstances, including the materiality, of the changes. With
respect to a change in price, or, subject to certain limitations, a change in
the percentage of securities sought, a minimum ten business day period from
the day of such change is generally required to allow for adequate
dissemination to shareholders. Accordingly, if prior to the Expiration Date,
Purchaser decreases the number of Shares being sought (which it may only do
with the consent of the Company), or increases or decreases the consideration
offered pursuant to the Offer and if the Offer is scheduled to expire at any
time earlier than the period ending on the tenth business day from the date of
that notice of such increase or decrease is first published, sent or given to
shareholders, the Offer will be extended at least until the expiration of such
ten business day period. For purposes of the Offer, a "business day" means any
day other than a Saturday, Sunday or federal holiday and consists of the time
period from 12:01 a.m. through 12:00 Midnight, New York City time.
The Company has provided the Purchaser, the Depositary and the Information
Agent with the Company's shareholder list and security position listings for
the purpose of disseminating the Offer to holders of Shares. The Offer to
Purchase and the related Letter of Transmittal are being mailed to record
holders of Shares whose names appear on the Company's shareholder list and is
being furnished, for subsequent transmittal to beneficial owners of shares, to
brokers, dealers, banks, trust companies and similar persons whose names, or
the names of whose nominees, appear on the shareholder list or, if applicable,
who are listed as participants in a clearing agency's security position
listing for subsequent transmittal to beneficial owners of Shares.
2. 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 Purchaser will accept for payment, and will pay for, Shares
validly tendered and not withdrawn as promptly as practicable after the later
to occur of (i) the Expiration Date and (ii) the date of satisfaction or
waiver of the conditions set forth in Section 13. Subject to applicable rules
of the Commission, the Purchaser expressly reserves the right to delay
acceptance for payment of or payment for Shares in order to comply, in whole
or in part, with any applicable law. See Section 13. Any determination
regarding the satisfaction of any condition will be made in the sole
discretion of the Purchaser, and such determination shall be final and binding
on all tendering shareholders, provided that the foregoing shall not limit any
claim of the Company for breach of the Merger Agreement.
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For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment and thereby purchased Shares validly tendered and not withdrawn as, if
and when the Purchaser gives oral or written notice to the Depositary of its
acceptance for payment of such Shares pursuant to the Offer. Payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of
the purchase price therefor with the Depositary, which will act as agent for
the tendering shareholders for purpose of receiving payments from the
Purchaser and transmitting such payments to the tendering shareholders whose
Shares have been accepted for payment. Under no circumstances will interest on
the purchase price for Shares be paid, regardless of any delay in making such
payment.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) a
certificate(s) for such Shares or a timely confirmation (a "Book-Entry
Confirmation") of the book-entry transfer of such Shares into the Depositary's
account at The Depository Trust Company or the Philadelphia Depository Trust
Company (each a "Book-Entry Transfer Facility" and, collectively, the "Book-
Entry Transfer Facilities") pursuant to the procedures set forth in Section 3,
(ii) a Letter of Transmittal (or a facsimile thereof), properly completed and
duly executed, with any required signature guarantees, or an Agent's Message
(as defined in Section 3 below) in connection with a book-entry transfer, and
(iii) any other documents required by the Letter of Transmittal. For a
description of the procedure for tendering Shares of the Company pursuant to
the Offer, see Section 3.
In all cases, execution and delivery of the Letter of Transmittal will
constitute a representation and warranty by the tendering shareholder that
such tendering shareholder has full power and authority to tender, sell,
assign and transfer the Shares (and any and all other Shares or other
securities issued or issuable in respect thereof on or after April 11, 1997
and any or all dividends thereon or distributions with respect thereto
(collectively, "Distributions")), and that when the same are accepted for
payment by Purchaser, Purchaser will acquire good and marketable title and
unencumbered ownership thereto, free and clear of all liens, restrictions,
charges, security interests, and encumbrances and not subject to any adverse
claims. The tender by a shareholder in accordance with the procedures
described below constitutes acceptance of the Offer.
If any tendered Shares are not accepted for payment for any reason or if
certificates are submitted for more Shares than are tendered, certificates
evidencing unpurchased or untendered Shares will be returned without expense
to the tendering shareholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at a Book-Entry Transfer Facility
pursuant to the procedures set forth in Section 3, such Shares will be
credited to an account maintained at such Book-Entry Transfer Facility) as
promptly as practicable following the expiration, termination or withdrawal of
the Offer.
If Purchaser increases the consideration offered to shareholders pursuant to
the Offer, such increased consideration will be paid to all shareholders whose
Shares are purchased pursuant to the Offer, whether or not such Shares were
tendered or accepted for payment prior to such increase in consideration.
Purchaser reserves the right to assign, in whole or from time to time in
part, to Parent or a subsidiary of Parent, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer, but any such assignment
will not relieve Purchaser of its obligations under the Offer nor will any
such assignment prejudice in any way the rights of tendering shareholders to
receive payment for Shares validly tendered and accepted for payment pursuant
to the Offer.
3. PROCEDURE FOR TENDERING SHARES.
Valid Tender of Shares. Except as set forth below, in order for Shares to be
validly tendered pursuant to the Offer, the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, together with any
required signature guarantees, or an Agent's Message (as defined below) in
connection with a book-entry delivery of Shares as described below, and any
other documents required by the Letter of Transmittal, must be received by the
Depositary at one of its addresses set forth on the back cover of this Offer
to Purchaser and either (i) certificates evidencing tendered Shares must be
received by the Depositary at any such address or such Shares must be tendered
pursuant to the procedure for book-entry transfer (and a confirmation of
receipt of such
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delivery must be received by the Depositary), in each case, on or prior to the
Expiration Date or (ii) the guaranteed delivery procedures set forth below
must be complied with. The term "Agent's Message" means a message transmitted
by a Book-Entry Transfer Facility to and received by the Depositary and
forming a part of a Book-Entry Confirmation, which states that such Book-Entry
Transfer Facility has received an express acknowledgment from the participant
in such Book-Entry Transfer Facility tendering the Shares which are the
subject of such Book-Entry Confirmation, that such participant has received
and agrees to be bound by the terms of the Letter of Transmittal and that
Purchaser may enforce such agreement against such participant. No conditional,
alternative or contingent tenders will be accepted.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in the system of any Book-Entry
Transfer Facility may make book-entry delivery of Shares by causing a Book-
Entry Transfer Facility to transfer such Shares into the Depository's account
in accordance with that Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of Shares may be effected through book-entry
transfer at a Book-Entry Transfer Facility, the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, together with any
required signature guarantees, or an Agent's Message in connection with a
book-entry transfer, and any other required documents, must, in any case, be
received by the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase on or prior to the Expiration Date, or the
guaranteed delivery procedures described below must be complied with.
DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
Signature Guarantees. Except as otherwise provided below, signatures on
Letters of Transmittal must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of
Securities Dealers, Inc. (the "NASD"), or a commercial bank or trust company
having an office or correspondent in the United States (each of the foregoing
constituting an "Eligible Institution"). Signatures on Letters of Transmittal
need not be guaranteed (i) if the Letter of Transmittal is signed by the
registered holder of Shares tendered and such holder has not completed either
the box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal or (ii) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 1 and 5
of the Letter of Transmittal.
If the certificates representing 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 accepted for payment or not tendered
are to be returned to a person other than the registered holder, then the
tendered certificates 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 the certificates, with the signatures on the
certificates or stock powers guaranteed as described above. See Instructions 1
and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's certificates are not immediately available,
or such shareholder cannot deliver the certificates and all other required
documents to reach the Depositary on or prior to the Expiration Date, or such
shareholder cannot complete the procedure for book-entry transfer on a timely
basis, such Shares may nevertheless be tendered if the following guaranteed
delivery procedures are satisfied:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser, is received by
the Depositary as provided below on or prior to the Expiration Date; and
(iii) the certificates (or a Book-Entry Confirmation) representing all
tendered Shares, in proper form for transfer, in each case together with
the Letter of Transmittal (or a facsimile thereof) properly completed and
duly executed, with any required signature guarantees (or, in the case of a
book-entry transfer, an
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Agent's Message) and any other documents required by the Letter of
Transmittal are received by the Depositary within three Nasdaq Stock Market
("Nasdaq") trading days after the date of execution of such Notice of
Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS,
INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION
AND RISK OF THE TENDERING SHAREHOLDER AND THE DELIVERY WILL BE DEEMED MADE
ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY
DELIVERY.
Backup Federal Income Tax Withholding. To prevent backup federal income tax
withholding on payments made to shareholders with respect to the purchase
price of Shares purchased pursuant to the Offer, each such shareholder must
provide the Depositary with such shareholder's correct taxpayer identification
number and certify that such shareholder is not subject to backup federal
income tax withholding by completing the substitute Form W-9 included in the
Letter of Transmittal. See Instruction 8 of the Letter of Transmittal.
Appointment as Proxy. By executing a Letter of Transmittal, a tendering
shareholder irrevocably appoints designees of Purchaser as such shareholder's
proxies in the manner set forth in the Letter of Transmittal to the full
extent of such shareholder's rights with respect to the Shares tendered by
such shareholder and accepted for payment by Purchaser (and with respect to
any and all other Shares or other securities issued or issuable in respect of
such Shares on or after the date of this Offer to Purchase). All such proxies
shall be irrevocable and coupled with an interest in the tendered Shares. Such
appointment will be effective when, and only to the extent that, Purchaser
accepts such Shares for payment. Upon such acceptance for payment, all prior
proxies and consents granted by such shareholder with respect to such Shares
and other securities will be revoked without further action, and no subsequent
proxies may be given nor subsequent written consents executed (and, if given
or executed, will not be deemed effective). The designees of Purchaser will be
empowered to exercise all voting and other rights of such shareholder as they,
in their sole discretion, may deem proper at any annual, special or adjourned
meeting of the Company's shareholders, by written consent or otherwise.
Purchaser reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon Purchaser's payment for such Shares,
Purchaser must be able to exercise full voting rights with respect to such
Shares, including voting at any meeting of shareholders scheduled or acting by
written consent without a meeting.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding. Purchaser reserves the absolute
right to reject any and all tenders of Shares determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of
Purchaser's counsel, be unlawful. Purchaser reserves the absolute right to
waive any defect or irregularity in any tender of Shares of any particular
shareholder. Purchaser'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 Purchaser, Parent, any of their affiliates or
assigns, 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 incur any liability for failure to give any such notification.
4. WITHDRAWAL RIGHTS.
Tenders of Shares made pursuant to the Offer are irrevocable except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to
the Expiration Date and, unless theretofore accepted for payment by the
Purchaser pursuant to the Offer, may also be withdrawn at any time after June
16, 1997.
For a withdrawal of Shares tendered pursuant to the Offer to be effective, a
written, telegraphic, telex or facsimile transmission notice of withdrawal
must be timely received by the Depositary at one of its addresses set
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forth on the back cover of this Offer to Purchase. Any notice of withdrawal
must specify the name of the person having tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the names in which the
certificate(s) evidencing the Shares to be withdrawn are registered, if
different from that of the person who tendered such Shares. The signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of any Eligible
Institution. If Shares have been tendered pursuant to the procedures for book-
entry transfer as set forth in Section 3, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Shares and otherwise comply with such Book-
Entry Transfer Facility's procedures. If certificates have been delivered or
otherwise identified to the Depositary, the name of the registered holder and
the serial numbers of the particular certificates evidencing the Shares
withdrawn must also be furnished to the Depositary as aforesaid prior to the
physical release of such certificates.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Purchaser and Parent, in their
sole discretion, which determination shall be final and binding. None of the
Purchaser, Parent, the Depositary, the Information Agent, or any other person
will be under any duty to give notification of any defects or irregularities
in any notice of withdrawal or incur any liability for failure to give such
notification.
Notices of withdrawal may not be rescinded, and any Shares properly
withdrawn will be deemed not to have been validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by following one of the
procedures described in Section 3 at any time prior to the Expiration Date.
If the Purchaser extends the Offer, is delayed in its acceptance for payment
of Shares or is unable to accept for payment Shares pursuant to the Offer, for
any reason, then, without prejudice to the Purchaser's rights under this
Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain
tendered Shares, and such Shares may not be withdrawn except to the extent
that tendering shareholders are entitled to withdrawal rights as set forth in
this Section 4. Any such delay will be by an extension of the Offer to the
extent required by law.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER.
The following discussion is a summary of the principal federal income tax
consequences of the Offer and the Merger to holders whose Shares are purchased
pursuant to the Offer or the Merger (including any cash amounts received by
dissenting shareholders pursuant to the exercise of appraisal rights). The
discussion applies only to holders of Shares in whose hands Shares are capital
assets, and may not apply to Shares received pursuant to the exercise of
employee stock options or otherwise as compensation, or to holders of Shares
who are not citizens or residents of the United States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL
INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE INDIVIDUAL
CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF SHARES IS URGED TO CONSULT SUCH
HOLDER'S OWN TAX ADVISOR TO DETERMINE THE APPLICABILITY OF THE RULES DISCUSSED
BELOW TO SUCH SHAREHOLDER AND THE PARTICULAR TAX EFFECTS OF THE OFFER AND THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX
LAWS.
The receipt of cash pursuant to the Offer or the Merger (including any cash
amounts received by dissenting shareholders pursuant to the exercise of
appraisal rights) will be a taxable transaction for Federal income tax
purposes under the Internal Revenue Code of 1986, as amended, and also may be
a taxable transaction under applicable state, local and other income tax laws.
In general, for federal income tax purposes, a tendering shareholder will
recognize gain or loss equal to the difference between the cash received by
the shareholder pursuant to the Offer or the Merger and the shareholder's
adjusted tax basis in the Shares tendered by the shareholder and purchased
pursuant to the Offer or the Merger. Gain or loss must 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 the Merger. Such gain
or loss will be capital gain or loss and will be long-term gain or loss if, on
the date Purchaser accepts the Shares for payment pursuant to the Offer or, if
applicable, the effective date of the Merger, the Shares were held for more
than one year. There are limitations on the deductibility of capital losses.
8
<PAGE>
Payments in connection with the Offer or the Merger may be subject to
"backup withholding" at a 31% rate. Backup withholding generally applies if
the shareholder (i) fails to furnish such shareholder's social security number
or other taxpayer identification number ("TIN"), (ii) furnishes an incorrect
TIN, (iii) fails properly to report interest or dividends or (iv) under
certain circumstances, fails to provide a certified statement, signed under
penalties of perjury, that the TIN provided is such shareholder's correct
number and that such shareholder is not subject to backup withholding. Backup
withholding is not an additional tax but merely an advance payment, which may
be refunded by the Internal Revenue Service to the extent it results in an
overpayment of tax. Certain persons generally are exempt from backup
withholding, including corporations and financial institutions. Certain
penalties apply for failure to furnish correct information and for failure to
include the reportable payments in income. Shareholders should consult with
their own tax advisors as to the qualification for exemption from withholding
and the procedure for obtaining such exemption.
6. PRICE RANGE OF SHARES; DIVIDENDS.
The Company's common stock, no par value ("Common Stock") is listed on the
NASDAQ OTC Bulletin Board ("NASDAQ/OTCBB") under the symbol "PEER." The
following table sets forth, for the calendar quarters indicated, the high and
low sales prices for the Common Stock on the NASDAQ/OTCBB based upon the
Company's Annual Report on Form 10-KSB and other public sources.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE
-------------
CALENDAR YEAR HIGH LOW
------------- ------ ------
<S> <C> <C>
1995:
First Quarter............................................. $0.875 $0.875
Second Quarter............................................ $1.125 $0.875
Third Quarter............................................. $1.75 $1.00
Fourth Quarter............................................ $1.50 $1.25
1996:
First Quarter............................................. $1.875 $1.625
Second Quarter............................................ $2.125 $1.875
Third Quarter............................................. $1.50 $1.25
Fourth Quarter............................................ $1.313 $1.313
1997:
First Quarter............................................. $1.875 $1.25
Second Quarter (through April 14)......................... $1.625 $1.437
</TABLE>
On March 27, 1997, the last full trading day prior to the public
announcement by the Company of its negotiations regarding a possible
acquisition at a price of $1.67 per share, the reported closing price on the
NASDAQ/OTCBB was $1.437 per Share. On April 16, 1997, the last full trading
day prior to commencement of the Offer, the reported closing price on the
NASDAQ/OTCBB was $1.565 per Share. SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT
MARKET QUOTATION FOR THE SHARES.
7. EFFECT OF THE OFFER ON MARKET FOR THE SHARES, NASDAQ/OTCBB QUOTATION, AND
EXCHANGE ACT REGISTRATION.
The purchase of Shares by the Purchaser pursuant to the Offer will reduce
the number of Shares that might otherwise trade publicly and will reduce the
number of holders of Shares, which will adversely affect the liquidity and
market value of the remaining Shares held by the public.
The shares of Common Stock are authorized for quotation on the NASDAQ/OTCBB.
The extent of the public market for the shares of Common Stock and the
availability of such quotations depends upon a number of factors, including
the number of shareholders and/or the aggregate market value of the shares of
Common Stock, the interest in maintaining a market in the shares of Common
Stock on the part of securities firms, the possible termination of
registration of the shares of Common Stock under the Exchange Act and other
factors. As the number of shares of Common Stock and the number of holders of
shares of Common Stock are reduced pursuant
9
<PAGE>
to the purchase of Shares by the Purchaser, there will be less interest in
maintaining a market for the shares of Common Stock by securities firms, which
will adversely affect the liquidity and market value of the remaining Shares.
The shares of Common Stock are currently registered under the Exchange Act.
Such registration may be terminated by the Company upon application to the
Commission if the outstanding shares of Common Stock are not listed on a
national securities exchange and if there are fewer than 300 holders of record
of Shares. Termination of registration of the shares of Common Stock under the
Exchange Act would substantially reduce the information required to be
furnished by the Company to its shareholders and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b) and the requirement of furnishing a proxy
statement in connection with shareholders' meetings pursuant to Section 14(a)
and the related requirement of furnishing an annual report to shareholders, no
longer applicable with respect to the shares of Common Stock. 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
under the Securities Act of 1933, as amended, may be impaired or eliminated.
If registration of the shares of Common Stock under the Exchange Act were
terminated, the shares of Common Stock would no longer be eligible for NASDAQ
reporting. THE PURCHASER INTENDS TO SEEK TO CAUSE THE COMPANY TO APPLY FOR
TERMINATION OF REGISTRATION OF THE SHARES OF COMMON STOCK AS SOON AS POSSIBLE
AFTER CONSUMMATION OF THE OFFER IF THE REQUIREMENTS FOR TERMINATION OF
REGISTRATION ARE MET.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
Except as otherwise set forth herein, the information concerning the Company
contained in this Offer to Purchase has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources and is qualified in its entirety by reference thereto. None of Parent,
Purchaser or any of their affiliates takes any responsibility for the accuracy
or completeness of the information 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.
The Company is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports and
other information with the Commission relating to its business, financial
condition and other matters. Information concerning the Company's directors
and officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities, any material interests of such persons in
transactions with the Company and other matters is required to be disclosed in
proxy statements distributed to the Company's shareholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference room at the Commission's
office, 450 Fifth Street, N.W, Judiciary Plaza, Washington, D.C., and should
also be available for inspection and copying at the following regional offices
of the Commission: Citicorp Center, 600 West Madison Street, Suite 1400,
Chicago, Illinois; and 7 World Trade Center, 13th Floor, New York, New York.
Copies may be obtained, by mail, upon payment of the Commission's customary
charges, by writing to its principal office at 450 Fifth Street, N.W,
Judiciary Plaza, Washington, D.C. 20549.
The Company is a Minnesota corporation with its principal executive offices
located at 2430 Metropolitan Centre, 333 South Seventh Street, Minneapolis,
Minnesota, 55402.
The business of the Company and its subsidiaries is the manufacture and sale
of a varied line of traction products, all types of hardware chain and
industrial chain and wire form products in various lengths, diameters and
shapes, and cordage of various lengths and diameters. The Company's chain
products, consisting primarily of hardware and industrial chain, traction
products (tire chains) and wire form products, are sold to customers
throughout the United States and most of Canada with expanding sales in
England and Mexico. Its major customers include retailers and distributors
engaged in selling automotive, farm, hardware and home center products,
industrial and specialty distributors and original equipment manufacturers.
10
<PAGE>
The Company's traction products primarily include automobile, farm tractor,
truck, snowblower and garden tractor tire chains available in numerous sizes,
weights, and cross link designs. Traction cable products for automobiles and
light trucks are also manufactured and sold.
The Company's hardware and industrial chains include a broad variety of both
welded and unwelded chain available in various link sizes and designs,
finishes and wire diameters up to 5/89. Many of these chains are sold in
straight, continuous lengths of 100 feet or more and are merchandised with
special packaging and displays to facilitate resale by the Company's retail
customers. A substantial portion of the Company's chain sales is comprised of
chain assemblies fabricated by the Company with attachments. Applications for
the Company's lower strength chains and chain assemblies include a broad range
of home, farm, shop and recreational uses, such as for animal restraints,
playground equipment, padlocks, boats, sign hangings, towing, load binding and
comparatively light lifting. The Company's higher strength chain and chain
assemblies have many heavy duty industrial and commercial applications, such
as auto tie downs, tree de-barking, heavy binding, and heavy overhead lifting
and hoisting.
The Company has the wire forming, welding, flattening, punching and plating
capacities to manufacture a wide variety of wire form products calling for a
continuous piece or pieces of wire. Principal examples of its numerous
products include axles for toys, peg board hooks, "S" hooks, soft tie-down
hooks and hitch pin clips. A significant portion of the Company's wire form
products are custom designed to meet specific customer requirements. The
balance of its wire form products are sold to its broad range of retail
customers and to support the Company's traction products.
Set forth below is certain summary consolidated financial information for
the Company's last two fiscal years as contained in the Company's Annual
Reports on Form 10-KSB for the years ended December 31, 1995 and December 31,
1996. More comprehensive financial information is included in such reports
(including management's discussion and analysis of financial condition and
results of operation) and other documents filed by the Company with the
Commission, and the following summary is qualified in its entirety by
reference to such reports and other documents and all of the financial
information and notes contained therein, copies of such reports and other
documents may be examined at or obtained from the Commission.
PEERLESS INDUSTRIAL GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
DECEMBER 31, PRO FORMA
---------------- DECEMBER 31,
1996 1995(1) 1995(2)
------- ------- ------------
<S> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Net sales ................................. $45,002 $1,419 $41,951
Net income (loss).......................... (215) (202) (331)
BALANCE SHEET INFORMATION:
Total assets............................... 38,395 39,497 --
Current portion of long-term debt.......... 9,870 11,300 --
Long-term debt, less current portion....... 6,861 7,767 --
Shareholders' equity....................... 6,278 5,094 --
</TABLE>
- --------
(1) The Company purchased all outstanding shares of Peerless Chain Company
(the "Operating Company"), on December 15, 1995. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the
results of operations of the Operating Company are included in the income
statement information since the date of acquisition. See footnote 2 to the
audited financial statements included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
(2) These unaudited pro forma results of operation are presented as if the
Company's acquisition of the Operating Company had occurred on January 1,
1995. See footnote 2 to the audited financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996.
11
<PAGE>
Certain Company Projections.
To the knowledge of Parent and the Purchaser, the Company does not as a
matter of course make public forecasts as to its future financial performance.
However, in connection with the preliminary discussions concerning the
feasibility of the Offer and the Merger, the Company prepared and furnished
Parent with certain financial projections and has disclosed to Parent the
Company's budget for 1997.
The projections presented in the table below (the "Projections") are derived
or excerpted from the Company's 1997 budget and other information provided by
the Company and are based on numerous assumptions concerning future events.
The Projections have not been adjusted to reflect the effects of the Offer or
the Merger or the incurrence of indebtedness in connection therewith. The
Projections should be read together with the other information contained in
this Section 8.
PEERLESS INDUSTRIAL GROUP, INC.
SELECTED PROJECTIONS OF FUTURE OPERATING RESULTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net Sales......................................... $49,157 $53,124 $57,256
Net Income........................................ 1,379 1,852 2,339
</TABLE>
The Projections were not prepared with a view to public disclosure or
compliance with published guidelines of the Commission or the guidelines
established by the American Institute of Certified Public Accountants
regarding projections or forecasts and are included herein only because such
information was provided to Parent and its prospective lenders. These forward-
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from the Projections. The
Projections reflect numerous assumptions, all made by management of the
Company, with respect to industry performance, general business, economic,
market and financial conditions and other matters, including assumed interest
expense and effective tax rates consistent with historical levels for the
Company, all of which are difficult to predict, many of which are beyond the
Company's control and none of which were subject to approval by Parent or the
Purchaser. Accordingly, there can be no assurance that the assumptions made in
preparing the Projections will prove accurate, and actual results may be
materially greater or less than those contained in the Projections. The
inclusion of the Projections herein should not be regarded as an indication
that any of Parent, the Purchaser, the Company or their respective financial
advisors considered or consider the Projections to be a reliable prediction of
future events, and the Projections should not be relied upon as such. None of
Parent, the Purchaser, the Company and their respective financial advisors
assumes any responsibility for the validity, reasonableness, accuracy or
completeness of the Projections. None of Parent, the Purchaser, the Company
and any of their financial advisors has made, or makes, any representation to
any person regarding the information contained in the Projections and none of
them intends to update or otherwise revise the Projections to reflect
circumstances existing after the date when made or to reflect the occurrence
of future events even in the event that any or all of the assumptions
underlying the Projections are shown to be in error.
9. CERTAIN INFORMATION CONCERNING RIDGE, BLAIR MEZZANINE FUND, THE PURCHASER
AND PARENT.
Ridge Capital Corporation ("RCC") and Ridge Advisors, Inc. ("RAI") are
privately held Illinois corporations engaged, directly and through its
subsidiaries, in leveraged acquisitions, venture capital investments, real
estate investments and the provision of related advisory services. All of the
capital stock of RCC and RAI is owned by J. Bradley Davis.
Pandora Capital Corporation ("PCC") is a private equity investment firm
located in Barrington, Illinois. The sole shareholder of Pandora Capital
Corporation is Harrington Bischof. Mr. Bischof also serves as a Senior Advisor
to RCC and RAI.
12
<PAGE>
RCC, RAI and PCC are jointly referred to herein as "Ridge". For certain
information regarding the shareholders, directors and executive officers of
Ridge. See Schedule I.
Blair Mezzanine Fund, a Delaware limited partnership, is a private
investment partnership. The general partner of Blair Mezzanine Fund is William
Blair Mezzanine Capital Partners II, L.L.C., a Delaware limited liability
company (the "WB General Partner"). The board of managers of WB General
Partner consists of Timothy J. MacKenzie, Terrance M. Shipp, Marc J. Walfish,
E. David Coolidge III and John P. Kayser. The principal business address of
Blair Mezzanine Fund and each member is 222 West Adams Street, Chicago,
Illinois, and the principal occupation and five-year employment history of
each member of the board of managers is set forth on Schedule I hereto.
The Parent is a Delaware corporation and the Purchaser is a Minnesota
corporation, each of which has been newly formed by Ridge and Blair Mezzanine
Fund for the purpose of effecting the Offer and the Merger. It is not
anticipated that, prior to the consummation of the Offer and the Merger, the
Purchaser or the Parent will have any significant assets or liabilities or
will engage in any activities other than those incident to the Offer and the
Merger and the financing thereof. The Purchaser is a wholly owned subsidiary
of Parent. The principal executive offices of the Purchaser and Parent are
located at 257 East Main Street, Barrington, Illinois 60010. After the
completion of the sale of the equity interests in Parent, the outstanding
common stock of Parent will be owned by Ridge and Blair Mezzanine Fund.
Purchaser has held discussions with members of the management of the Company
concerning their possible participation in the equity of Parent following
consummation of the Merger. Ridge and Blair Mezzanine Fund have committed
sufficient funds to enable Parent to consummate the Offer and Merger and pay
all other obligations associated therewith without the participation of any
members of Company management. Parent currently expects that Jan C. van
Osnabrugge, President of the Company and Chief Executive Officer of the
Company's operating subsidiary, Peerless Chain Company (the "Operating
Company") would invest $100,000 in Parent for 2.33% of the outstanding shares
of Parent; and Robert Deter, Chief Financial Officer of the Company and the
Operating Company would invest $63,750 in Parent for 1.49% of the outstanding
shares of Parent. Messrs. van Osnabrugge and Deter are executive officers of
the Company. In addition, Parent expects that Gerald Faurote, Vice-President--
Sales and Marketing of the Operating Company would invest $70,000 in Parent
for 1.63% of Parent's shares and that Dale Schwanke, Vice-President of
Operations of the Operating Company would invest $63,750 in Parent for 1.49%
of Parent's shares. Parent has also held discussions with eight other members
of the non-executive operating management of the Operating Company concerning
their interest in purchasing shares of Parent. Parent has allocated a total of
4.77% of its shares representing $202,500 of proceeds for possible purchase by
such eight individuals; however, neither Parent nor any of such individuals
has made any commitments with respect to the shares of Parent.
Any investments in Parent made by management would reduce the amount to be
invested by Ridge.
For certain information concerning the principals of Ridge and Blair
Mezzanine Fund, and the directors and executive officers of Parent and the
Purchaser, see Schedules I and II, respectively, to this Offer to Purchase.
An affiliate of the Blair Mezzanine Fund holds an equity interest of less
than 10% in, and is a subordinated lender to, Eagle Pacific Industries, Inc.
William Spell, Harry Spell, Bruce Richard and Richard Perkins, who are
directors of the Company, are also directors and shareholders of Eagle Pacific
Industries, Inc.
Except as described in this Offer to Purchase, neither the Purchaser nor
Parent, nor, to the best of their knowledge, any of the persons listed in
Schedules I or II hereto nor any associate or majority-owned subsidiary of any
of the foregoing, beneficially owns or has a right to acquire any equity
securities of the Company. Neither the Purchaser nor Parent, nor, to the best
of their knowledge, any of the persons or entities referred to above, nor any
director, executive officer or subsidiary of any of the foregoing, has
effected any transaction in such equity securities during the past 60 days.
13
<PAGE>
Except as described in this Offer to Purchase (i) none of Ridge, Blair
Mezzanine Fund, the Purchaser or Parent, nor, to the best knowledge of any of
the foregoing, any of the persons listed in Schedules I or II to this Offer to
Purchase or any associate or majority owned subsidiary of any of the
foregoing, had any contract, arrangement, understanding or relationship with
any other 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 such securities, joint ventures,
loan or option arrangements, puts or calls, guaranties of loans, guaranties
against loss or the giving or withholding of proxies, (ii) there have been no
contacts, negotiations or transactions since January 1, 1994 between Parent or
the Purchaser, or, to the best of their knowledge, any of the persons listed
in Schedules I or II hereto, on the one hand, and the Company or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, a tender offer or other acquisition of securities, an election of
directors, or a sale or other transfer of a material amount of assets and
(iii) neither the Purchaser nor Parent, nor, to the best of their knowledge,
any of the persons listed in Schedules I or II hereto, has since January 1,
1994 had any transaction with the Company or any of its executive officers,
directors or affiliates that would require disclosure under the rules and
regulations of the Commission applicable to the Offer.
10. BACKGROUND OF THE MERGER AND THE OFFER; CONTACTS WITH THE COMPANY.
In October 1996, a representative of Coopers & Lybrand Securities L.L.C.
("Coopers"), as representative of the Company, contacted Harrington Bischof, a
Senior Advisor to Ridge Capital Corporation ("RCC") and President of Pandora
Capital Corporation ("PCC"), a corporation wholly-owned by Mr. Bischof, to
inquire as to PCC's potential interest in pursuing a possible transaction with
the Company. Coopers indicated that Coopers was simultaneously making similar
approaches to other potential purchasers of the Company. On October 30, 1996
PCC executed a confidentiality agreement, and in mid-November, 1996 PCC was
furnished an initial offering memorandum concerning the Company prepared by
the Company. In November, 1996, PCC contacted J. Bradley Davis of RCC, and PCC
and RCC (collectively, with other affiliates of RCC, "Ridge") determined to
proceed jointly in evaluating a potential transaction involving the Company.
On December 9, 1996, Ridge delivered to Coopers a non-binding expression of
interest in pursuing a potential transaction with the Company. Shortly
thereafter Ridge was notified by Coopers that Ridge had qualified as one of
the second round participants that would be permitted to conduct additional
due diligence investigations with respect to the Company.
From December 19, 1996 through mid-February, 1997, Ridge requested and
received various information concerning the Company of the type available to
all second round participants, and conducted various investigations and
reviews of the Company and its business. This process included attendance at a
presentation by Coopers and the Company and a plant tour on January 24, 1997,
and a series of telephone conversations and meetings with senior and operating
management of the Company and representatives of Coopers to further
investigate the business, strategies and prospects of the Company and to
discuss a possible acquisition of the Company by Ridge. During this period
Ridge also held various telephone conversations and meetings with certain of
the Company's lenders and lessors in order to obtain preliminary assurance
that the Company's relationships with such lenders and lessors would continue
after a change of control.
In early February, 1997, Ridge selected Blair Mezzanine Fund as its equity
partner and sole source of subordinated debt financing for a potential
acquisition of the Company. On February 4 and 5, 1997 Ridge and Blair
Mezzanine Fund made a visit to the Company, which included another
presentation by Coopers and operating management of the Company, in order to
provide Blair Mezzanine Fund an opportunity to conduct due diligence on the
Company.
On February 21, 1997, Ridge submitted to Coopers a binding bid to acquire
the Company for a price of $1.65 per share, in accordance with the bid
procedures established by the Company and Coopers. From February 21 through
February 28 Ridge held various discussions with Coopers and William H. Spell,
Chief Executive Officer of the Company, to discuss Ridge's bid. On February
28, 1997, Ridge and Blair Mezzanine Fund submitted a revised bid to acquire
the Company at a price of $1.67 per share.
From February 28 through March 4, 1997, Ridge held further discussions and
negotiations with the Company and Coopers regarding the structure of Ridge's
bid, including (i) Ridge's comments on a form of
14
<PAGE>
Agreement and Plan of Merger distributed to bidders by the Company's counsel,
(ii) Ridge's requirement that certain shareholders of the Company execute and
deliver Tender and Stock Option Agreements, by which such shareholders would
agree to tender their shares to Ridge and would grant to Ridge an option,
exercisable under certain circumstances, to purchase up to 19.9% of the
Company's outstanding shares and (iii) Ridge's requirement for a termination
fee of $900,000, plus expenses, payable in certain circumstances. As a result
of these negotiations, Ridge abandoned its request for expense reimbursement,
and defined more specifically the circumstances in which the $900,000
termination fee would be payable.
On March 4, 1997, the Company's Board of Directors approved the execution of
a letter agreement among the Company, Ridge and Blair Mezzanine Fund, whereby
the Company agreed to negotiate exclusively with Ridge and Blair Mezzanine
Fund through April 7, 1997 (later extended through April 11, 1997) for the
acquisition of the Company's common stock including options, warrants and
other rights as if fully exercised, at a price of $1.67 per share, subject to
satisfactory completion of Ridge's due diligence investigation of the Company,
the negotiation of definitive agreements, receipt of necessary regulatory
approvals and the availability of financing.
On March 31, 1997, the Company filed its Annual Report on Form 10-KSB for
the year ended December 31, 1996, which indicated that pre-tax earnings were
$447,000 less than previously reported to the Purchaser as contained in the
Company's materials distributed to potential purchasers. Despite such
deficiency the Purchaser elected to continue with its due diligence and the
negotiation of the Merger Agreement.
From March 4 through April 11, 1997, Ridge and Blair Mezzanine Fund
continued their due diligence investigations of the Company. Ridge and Blair
Mezzanine Fund also met with operating management of the Company to discuss
the terms of their continued employment by the Company and the prospect that
certain members of management might be invited to invest in the Parent, and
continued their discussions with the Company's lenders and lessors regarding
the continuance of the Company's relationships with such lenders and lessors
following the Offer and the Merger. During this period, counsel for Ridge,
Blair Mezzanine Fund and the Company exchanged drafts of and comments on a
form of Agreement and Plan of Merger and related disclosure schedules, a form
of Tender and Stock Option Agreement, and the documents required to be filed
and disseminated in connection with the Offer. Also during this period, Parent
and Purchaser were organized.
On April 7, 1997, the Company's Board of Directors gave final approval to
the Merger and the Offer, and authorized execution and delivery of the Merger
Agreement. On April 11, 1997 the Company, Parent and Purchaser executed and
delivered the Merger Agreement, and Parent, Purchaser and the shareholders
party thereto executed and delivered the Tender Agreement.
In the Merger Agreement, Parent and Purchaser agreed with the Company that
at the Effective Time Parent would cause the Company, as the surviving
corporation in the Merger, and the Operating Company to enter into a
consulting agreement with Mr. William H. Spell for a two-year period,
providing for compensation of (i) $120,000 payable within seven days after the
execution of the Consulting Agreement, (ii) $25,000 per quarter for each of
the first four quarters of the Consulting Agreement, payable quarterly in
arrears, and (iii) $22,500 per quarter for each of the second four quarters of
the Consulting Agreement, payable quarterly in arrears.
11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY; THE MERGER AGREEMENT; THE
TENDER AGREEMENT; DISSENTERS' RIGHTS.
The purpose of the Offer is to acquire for cash as many outstanding Shares
as possible as a first step in acquiring control of, and the entire equity
interest in, the Company.
The acquisition of 90% or more of the outstanding Shares pursuant to the
Offer will permit the Merger to be effected under Minnesota law without the
approval of the Company's shareholders. Therefore, if at least approximately
5,465,182 Shares (or such greater number as may be necessary if options are
exercised), are acquired pursuant to the Offer, the Purchaser will be able to
and intends to effect the Merger without a meeting of holders of Shares. If
the Minimum Condition is met (but less than 90% of the outstanding Shares are
acquired), a special meeting will be called to obtain shareholder approval of
the Merger. Upon consummation of the Offer, Purchaser will have a sufficient
number of votes to approve the Merger at such a meeting.
15
<PAGE>
Following the Offer and the Merger, Parent anticipates that it will operate
the Company as a wholly owned subsidiary of Parent.
If and to the extent that the Purchaser acquires control of the Company,
Parent and the Purchaser intend to conduct a detailed review of the Company
and its assets, corporate structure, capitalization, operations, properties,
policies, management and personnel and consider and determine what, if any,
changes would be desirable in light of the circumstances which then exist.
Such strategies could include, among other things, changes in the Company's
business, corporate structure, Restated Articles of Incorporation, Bylaws,
capitalization, dividend policy or management.
Except as noted in this Offer to Purchase, the Purchaser and Parent have no
present plans nor proposals that would result in an extraordinary corporate
transaction, such as a merger, reorganization, liquidation, or sale or
transfer of a material amount of assets, involving the Company or any
subsidiary of the Company or any other material changes in the Company's
capitalization, dividend policy, corporate structure, business or composition
of its management.
The Merger Agreement
The following is a brief summary of the Merger Agreement, and is qualified
in its entirety by reference to the text of the Merger Agreement, a copy of
which has been filed by Parent as an exhibit to the Schedule 14D-l and may be
obtained in the manner described in Section 8.
THE OFFER
Pursuant to the Merger Agreement, the Purchaser was required to commence the
Offer as promptly as practicable, but in any event within five business days
after the public announcement of the Merger Agreement. Subject to the prior
satisfaction or waiver of the conditions to the Offer described in Section 13
below, the Purchaser is obligated to accept for payment all Shares validly
tendered pursuant to the Offer, and not withdrawn, as soon as legally
permissible and to pay for all such Shares as soon as practicable thereafter;
provided, however, that subject to the terms of the Merger Agreement the Offer
may be extended by the Purchaser, in its sole discretion, for not more than
ten business days beyond the initially scheduled expiration date thereof.
Without the prior written consent of the Company, the Purchaser may not
decrease the price per Share, decrease the number of Shares being sought in
the Offer, change the form of consideration payable in the Offer, add
additional conditions to the Offer, or, subject to the preceding sentence,
make any other change in the terms of the Offer which is materially adverse to
the holders of Shares. The Merger Agreement provides that the Offer will be
subject only to the conditions described in Section 13 below, which are for
the benefit of the Purchaser and may be asserted or waived by the Purchaser in
whole or in part at any time and from time to time, in its sole discretion;
provided, however, that the Purchaser may not waive the Minimum Condition
without the prior written consent of the Company.
The Merger Agreement requires that, as soon as practicable on the date of
commencement of the Offer, (i) Parent and the Purchaser shall file with the
Commission a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer (the "Schedule 14D-1"), which will contain the offer to purchase and
form of the related letter of transmittal and (ii) the Company will file with
the Commission, and mail to its shareholders, the Schedule 14D-9 containing
the recommendation of the Board of Directors of the Company that the Company's
shareholders accept the Offer and tender their Shares.
BOARD OF DIRECTORS
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the
Company's Board of Directors that equals the product of (i) the total number
of directors on the Company's Board of Directors and (ii) the percentage that
the number of Shares owned by Purchaser and its affiliates (including any
Shares purchased pursuant to the Offer) bears to the total number of
outstanding Shares. The Company will either increase the size of its Board of
Directors or use its best efforts to secure the resignation of such number of
directors as is necessary to enable Purchaser's designees to be elected to
such Board of Directors, and shall cause Purchaser's designees to be so
elected.
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<PAGE>
Following the election or appointment of Purchaser's designees, any
amendment of the Merger Agreement or the Restated Articles of Incorporation or
By-Laws of the Company, 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 Parent or Purchaser or any waiver of any
of the Company's rights under the Merger Agreement will require the
concurrence of a majority of the directors of the Company then in office who
are not designees of Purchaser or employees of the Company.
THE MERGER
The Merger Agreement provides that, promptly after the purchase of Shares
pursuant to the Offer and the receipt of any required approval by the
Company's shareholders of the Merger Agreement and the satisfaction or waiver
of certain other conditions, the Purchaser and the Company will be merged.
Upon consummation of the Merger (the "Effective Time"), each then outstanding
Share (other than Shares owned by the Purchaser or Shares held by shareholders
of the Company who have exercised their dissenters' rights in accordance with
Section 473 of the MBCA) will be converted into the right to receive an amount
in cash (the "Merger Consideration") equal to the per Share price paid
pursuant to the Offer.
Following consummation of the Merger, the Company will be the surviving
corporation. The Merger Agreement also provides that the Articles of
Incorporation and the Bylaws of the Purchaser at the Effective Time will be
the Articles of Incorporation and Bylaws of the surviving corporation and that
the directors and officers of the Purchaser at the Effective Time will be the
directors and officers of the surviving corporation.
The Merger Agreement provides that at or prior to the Effective Time, each
option and warrant granted pursuant to the Company's stock option plans and
other agreements (the "Stock Purchase Rights"), whether or not then
exercisable, which was outstanding as of the date of the Merger Agreement and
which has not been exercised prior to the acquisition of Shares pursuant to
the Offer, shall be cancelled and each holder of a cancelled Stock Purchase
Right shall be entitled to receive from the Company, in cancellation and
settlement of the Stock Purchase Right, an amount in cash (less applicable
withholding taxes) equal to the product of (x) the number of Shares previously
subject to the Stock Purchase Right and (y) the excess, if any, of the
purchase price paid pursuant to the Offer over the exercise price per Share
provided for in the Stock Purchase Right.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of the Company, including representations by the Company as to (i)
organization, qualification and similar corporate matters of the Company and
its subsidiaries (ii) the capitalization of the Company and its subsidiaries,
(iii) the authorization, execution, delivery and enforceability of the Merger
Agreement, (iv) the lack of required consents and approvals in connection with
the Merger Agreement, and the non-contravention by the Merger Agreement and
the related transactions of any article provision, by-law, material contract,
order, law or regulation to which the Company or its subsidiaries is a party
or by which it is bound or obligated, (v) the filing of required Commission
reports, the absence of untrue statements of material facts or omissions of
material facts in such reports, and the absence of other undisclosed
liabilities, (vi) the absence of changes or events which have had a material
adverse effect on the Company, and the absence of casualty losses,
declarations of dividends, certain compensation arrangements, material
commitments or transactions and certain other events, (vii) the absence of
payments to any intermediary other than Coopers & Lybrand Securities L.L.C.
and of any finder's or other fee or commission, (viii) the absence of untrue
statements of material facts or omissions of material facts in the Schedule
14D-9 and the proxy statement to be sent to shareholders in connection with
the Merger, (ix) possession of all necessary rights and licenses in
intellectual property, (x) the absence of claims and litigation, (xi) labor
matters, (xii) the filing of tax returns and the payment of taxes, (xiii) the
absence of environmental claims and compliance with all environmental laws and
regulations, (xiv) employee benefits matters, (xv) compliance with laws,
rules, statutes, orders, ordinances or regulations, and material notes, bonds,
mortgages, indentures, contracts, agreements, leases, licenses, permits,
franchise or other instruments or obligations of the Company or any of its
subsidiaries which would result in a material adverse effect, (xvi) real
property ownership and the
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<PAGE>
possession and enforceability of all real property leases, (xvii) the absence
of notices, citations or decisions of governmental or regulatory bodies and
recalls with respect to any product produced, manufactured, marketed or
distributed by the Company, (xviii) applicable voting requirements and (xix)
inapplicability of certain state takeover laws.
The Merger Agreement also contains various customary representations and
warranties of the Parent and the Purchaser, including representations by
Parent and Purchaser as to (i) organization, qualification and similar
corporate matters of Parent and Purchaser, (ii) the authorization, execution,
delivery, and enforceability of the Merger Agreement, (iii) the absence of
untrue statements of material facts or omissions of material facts in any
documents related to the Offer or in the Schedule 14D-1, (iv) the absence of
untrue statements of material facts or omissions of material facts in any
information provided to the Company in connection with the proxy statement,
(v) the lack of required consents and approvals in connection with the Merger
Agreement, and the non-contravention by the Merger Agreement and the related
transactions of any charter provision, by-law, material contract, order, law
or regulation to which Parent or Purchaser is a party or by which it is bound
or obligated and (vi) the possession of all funds necessary to satisfy
Purchaser's obligations under the Merger Agreement.
In general, the representations and warranties in the Merger Agreement do
not survive the payment for shares in the Offer.
COVENANTS
No Solicitation. The Merger Agreement requires the Company to immediately
cease any existing discussions or negotiations with any third parties
conducted prior to the date of the Merger Agreement with respect to any
Acquisition Proposal (as defined below). The Company shall not, directly or
indirectly, through any officer, director, employee, representative or agent,
or any of its subsidiaries, or otherwise (i) solicit, initiate, continue or
encourage any inquiries, proposals or offers that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of
shares of capital stock (including, without limitation, by way of a tender
offer), liquidation, reorganization or similar transactions involving the
Company or any of its subsidiaries or divisions, other than the transactions
contemplated by the Merger Agreement (any of the foregoing inquiries or
proposals being referred to as an "Acquisition Proposal"), (ii) solicit,
initiate, continue or engage in negotiations or discussions concerning, or
provide any information or data to any person or entity relating to, or
otherwise cooperate in any way with, or assist or participate in, or
facilitate or encourage any Acquisition Proposal or (iii) agree to, approve or
recommend any Acquisition Proposal; provided, that the foregoing does not
prevent the Company from, prior to the acceptance for payment by the Purchaser
of Shares pursuant to the Offer, furnishing non-public information to, or
entering into discussions or negotiations with, any person or entity in
connection with an unsolicited Acquisition Proposal by such person or entity
(including a new and unsolicited Acquisition Proposal received by the Company
after the execution of the Merger Agreement from a person or entity whose
initial contact with the Company may have been solicited by the Company prior
to the execution of the Merger Agreement), and may recommend such an
unsolicited bona fide written Acquisition Proposal to the shareholders of the
Company, if and only to the extent that (i) the Board of Directors of the
Company determines in good faith (after consultation with and based upon the
advice of its financial advisor and considering the affect of such Acquisition
Proposal upon the employees, customers and the community) that such
Acquisition Proposal would, if consummated, result in a transaction more
favorable to the shareholders of the Company than the Offer and Merger and
that the person or entity making such Acquisition Proposal has the financial
means, or the ability to obtain the necessary financing, to conclude such
transaction (any such more favorable Acquisition Proposal being referred to as
a "Superior Proposal"), (ii) the Board of Directors of the Company determines
in good faith (after consultation with and based upon the advice of its
outside legal counsel) that the failure to take such action would be
inconsistent with the fiduciary duties of such Board of Directors to its
shareholders under applicable law and (iii) prior to furnishing such non-
public information to, or entering into discussions or negotiations with, such
person or entity, such Board of Directors receives from such person or entity
an executed confidentiality agreement with confidentiality provisions not
materially less favorable to the Company than those contained in
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<PAGE>
the confidentiality agreement between the Company and Ridge. The Company's
exercise of the rights described above may create an obligation to pay a fee
to Parent as described below. See "The Merger Agreement--Termination Fee;
Expenses."
The Company has also agreed not to release any third party from, and to
enforce strictly any confidentiality or standstill agreement to which the
Company and such third party are parties. The Company will promptly notify
Parent in writing if any proposal or offer, or any inquiry or contact with any
person with respect thereto, is made, or if any information is provided to any
person, and any such notice shall include a description of the terms of any
proposal or offer, or the nature of any inquiry or contact, which is made.
Termination of Stock Plans. Prior to the consummation of the Offer, the
Company's Board of Directors (or, if appropriate, any committee thereof) will
adopt resolutions or take other actions necessary to ensure that, following
the Effective Time, no participant in any stock, stock option, stock
appreciation or other benefit plan of the Company or any of its subsidiaries
or any holder of any option will have any right thereunder to acquire any
capital stock of the surviving corporation or any subsidiary thereof.
Conduct of Business of the Company. From the date of the Merger Agreement to
the Effective Time, the Company and its subsidiaries will each conduct its
operations in the ordinary course of business consistent with past practice,
and the Company and its subsidiaries will each use its reasonable best efforts
to preserve intact its business organization, to keep available the services
of its officers and employees and to maintain existing relationships with
licensors, licensees, suppliers, contractors, distributors, customers and
others having business relationships with it.
Accordingly, prior to the Effective Time, neither the Company nor any of its
subsidiaries may, without prior written consent of Purchaser, engage or agree
to engage in an enumerated list of transactions generally characterized as
being outside the ordinary course of business. Transactions requiring
Purchaser's prior approval include actions by the Company or its subsidiaries
to (i) amend its articles of organization or by-laws, (ii) issue, pledge or
sell any capital stock or any other securities, except as required by option
agreements and option plans as in effect as of the date of the Merger
Agreement, or split, combine or reclassify any shares of its capital stock,
(iii) declare, set aside, pay or make any dividend or other distribution or
payment (whether in cash, stock, or property) in respect of its capital stock,
or repurchase or redeem any of its capital stock or any capital stock of its
subsidiaries, (iv) subject to certain exceptions, enter into, adopt, amend or
terminate any bonus, compensation, severance, termination, or employee benefit
arrangement, (v) waive any provision of any confidentiality agreement, (vi)
other than ordinary course borrowings under existing lines of credit, incur
any debt or assume, guarantee or endorse the obligations of any other person,
make any loans, advances or capital contributions to, or investments in, any
other person (other than to wholly owned subsidiaries of the Company), pledge
or otherwise encumber shares of capital stock of the Company or any of its
subsidiaries or mortgage or pledge any of its assets or create any Lien
thereupon, (vi) acquire, sell, lease, license, encumber, transfer or dispose
of any assets of the Company and its subsidiaries, (vii) change any of the
accounting principals or practices used by it, except as may be required as a
result of a change in law or in generally accepted accounting principles, or
make any tax election, (viii) acquire any corporation, partnership or other
business organization or division thereof, authorize any new capital
expenditures exceeding $100,000 in the aggregate or settle any litigation for
amounts in excess of $25,000 individually or $50,000 in the aggregate, (ix)
pay, discharge or satisfy any claims, liabilities or obligations outside the
ordinary course or not in accordance with their terms, except where such
action would not result in a material adverse effect, (x) enter into any
transaction or amend any existing transaction with any affiliate of the
Company or (xi) take or agree to take any action which would make any of the
representations or warranties of the Company contained in the Merger Agreement
untrue or incorrect or would result in any of the conditions to the Offer not
being satisfied.
Access to Information. The Company will give Parent and Purchaser and their
representatives reasonable access to all necessary information, subject to a
confidentiality agreement.
Certain Filings, Etc. Parent, the Purchaser and the Company shall cooperate
with one another (i) in promptly determining whether any filings are required
to be made or consents, approvals, permits or
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<PAGE>
authorizations are required to be obtained under any federal, state or foreign
law or regulation or any consents, approvals or waivers are required to be
obtained from other parties to loan agreements or other contracts material to
the Company's and the Operating Company's business in connection with the
consummation of the Offer or the Merger and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such consents, permits, authorizations, approvals or
waivers.
Proxy Statement. If necessary to consummate the Merger, promptly after the
termination or expiration of the Offer, the Company shall prepare the Proxy
Statement, file it with the Commission and mail it to all holders of Shares.
Parent, the Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement.
State Takeover Statutes. The Company shall (i) take all action, if any,
necessary to exempt the Offer and the Merger from the effects of any state
takeover law and (ii) upon the request and at the expense of the Purchaser,
take all reasonable steps to assist in any challenge by the Purchaser to the
validity, or applicability to the Offer or the Merger, of any such state
takeover law.
Best Efforts. Subject to the terms and conditions of the Merger Agreement,
each of the parties will use its best efforts to take all actions and do all
things necessary to consummate and make effective the transactions
contemplated by the Merger Agreement.
Indemnification. The surviving corporation will assume the indemnification
and expense advancement obligations of the Company and its subsidiaries to
present and former directors, officers, employees and agents (i) pursuant to
certain indemnification agreements between the Company and each of such
individuals (the "Indemnification Agreements") and (ii) as provided in the
Articles of Incorporation and by-laws of the Company and its subsidiaries as
in effect at the time of execution of the Merger Agreement (the
"Indemnification Obligations"). From and after the Effective Time, Parent will
guarantee and cause the surviving corporation to perform all of the
Indemnification Obligations.
Consulting Agreement. At the Effective Time, Parent shall cause the Company,
as the surviving corporation in the Merger, and the Operating Company to enter
into a consulting agreement with Mr. William H. Spell for a two-year period,
providing for compensation of (a) $120,000 payable within seven days after the
execution of the Consulting Agreement, (b) $25,000 per quarter for each of the
first four quarters of the Consulting Agreement, payable quarterly in arrears,
and (c) $22,500 per quarter for each of the second four quarters of the
Consulting Agreement, payable quarterly in arrears.
Notification of Certain Matters. The Company will give prompt notice to
Parent or Purchaser, and Parent or Purchaser will give prompt notice to the
Company, as the case may be, of the occurrence, or non-occurrence of any event
which would cause any representation or warranty contained in this Agreement
to be untrue or inaccurate.
Public Announcements. Parent and Purchaser, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by the Merger Agreement.
CONDITIONS
The obligations of the Company, the Purchaser and Parent to effect the
Merger are subject to the satisfaction of certain conditions set forth in the
Merger Agreement, including (i) the acceptance and purchase by the Purchaser
of Shares pursuant to the Offer, (ii) the receipt of shareholder approval of
the Company, if required, and (iii) there being no order, decree or injunction
of a court of competent jurisdiction which prohibits consummation of the
Merger and there shall not have been any action taken or any statute, rule, or
regulation enacted, promulgated or deemed applicable to the Merger by any
governmental or regulatory authority, agency, commission or other entity,
domestic or foreign, that makes consummation of the Merger illegal.
TERMINATION
According to its terms, the Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether prior
to or after approval by the shareholders of the Company, by the
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mutual written consent of Parent, the Purchaser and the Company. In addition,
the Merger Agreement may be terminated by the Company if (i) the Offer shall
not have been commenced within five business days from the date of public
announcement of the Merger Agreement or the Offer shall have expired and the
Purchaser shall not have accepted for payment Shares pursuant to the Offer
(provided, that the right to terminate the Merger Agreement thereby shall not
be available if the Company's failure to fulfill any obligation under the
Merger Agreement has been the cause of, or results in, the Offer not being so
commenced or consummated) or (ii) there has been a material breach by Parent
or the Purchaser of any representation, warranty, covenant or agreement as set
forth in the Merger Agreement on the part of Parent or the Purchaser and which
Parent or the Purchaser, as the case may be, fails to cure within 10 days
after notice thereof is given by the Company. The Merger Agreement may be
terminated by either Parent or the Company if (i) the Offer terminates or
expires pursuant to its terms on account of the failure of any condition to
the Offer described in Section 13 below to have been satisfied without the
Purchaser having purchased any Shares thereunder (provided, that the right to
so terminate the Merger Agreement shall not be available to any party whose
failure to fulfill any obligation under the Merger Agreement has been the
cause of, or results in, the failure of any such condition), (ii) either
Parent or the Company (or any permitted assignee) is prohibited by an order or
injunction of a court of competent jurisdiction from consummating the Merger
and all means of appeal and all appeals from such order or injunction have
been finally exhausted; (iii) prior to the purchase of Shares pursuant to the
Offer (x) the Company shall have received (other than in violation of the
Company's non-solicitation covenant) a Superior Proposal (as defined in the
Merger Agreement), and (y) Parent does not make, within five business days of
receipt of written notice of the Company's desire to accept such Superior
Proposal, an offer that the Board of Directors believes, in good faith after
consultation with its financial advisors, is at least as favorable, from a
financial point of view, to the shareholders of the Company, as the Superior
Proposal or (iv) the Purchaser has not accepted Shares for payment on or
before July 11, 1997, provided that the right to terminate the Merger
Agreement as described in this clause (iv) 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 such failure to accept Shares for payment or the
failure to satisfy any condition set forth in the Merger Agreement, and shall
not be available to the Company if any shareholder of the Company shall have
breached any provision of the Tender Agreement. The Merger Agreement may be
terminated by Parent if (i) there has been a material breach by the Company of
any representation, warranty, covenant or agreement set forth in the Merger
Agreement on the part of the Company and which the Company fails to cure
within 10 days after notice thereof is given by the Parent, (ii) prior to the
purchase of Shares pursuant to the Offer, any person, corporation, entity or
"group," as defined in Section 13(d)(3) of the Exchange Act (other than Parent
or the Purchaser) shall have acquired beneficial ownership of 25% or more of
the outstanding Shares or (iii) the Board of Directors of the Company shall
have withdrawn or modified, or resolved to withdraw or modify, in any manner
which is materially adverse to Parent or the Purchaser, its recommendation or
approval of the Offer, the Merger or the Merger Agreement.
TERMINATION FEE; EXPENSES
If (i) the Merger Agreement is terminated after the occurrence of a
Triggering Event (as defined below), and (ii) within six months after such
termination the Company either (a) consummates any Alternative Transaction (as
defined below) or (b) becomes a party to any agreement relating to an
Alternative Transaction that is thereafter consummated, then upon the
consummation of such Alternative Transaction the Company shall pay Parent a
non-refundable fee of $900,000 (the "Termination Fee") which amount shall be
payable by wire transfer of same day funds on the date such Alternative
Transaction is consummated. The Company shall reimburse the Parent in
connection with any legal or other fees incurred by the Parent in connection
with the collection of the Termination Fee from the Company.
A "Triggering Event" shall mean any of the following:
(i) the Board of Directors of the Company shall have withdrawn or
modified its recommendation of the Offer or shall have resolved or publicly
announced its intention to do so; or
(ii) an Alternative Transaction shall have taken place or the Board of
Directors of the Company shall have recommended such an Alternative
Transaction to shareholders, or shall have resolved or publicly announced
its intention to recommend or engage in an Alternative Transaction; or
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(iii) a tender offer or exchange offer with respect to shares of the
Company shall have been commenced or a registration statement with respect
thereto shall have been filed (other than by Parent and its affiliates),
and the Board of Directors of the Company shall have (1) recommended (or
shall have resolved or publicly announced its intention to recommend) that
the shareholders of the Company tender their shares in such tender or
exchange offer or (2) resolved or publicly announced its intention to take
no position with respect to such offer; or
(iv) the Offer shall have expired without satisfaction of the Minimum
Condition, and at any time during the Offer an Alternative Transaction
shall have been publicly announced and not absolutely and unconditionally
withdrawn and abandoned; or
(v) a material breach by the Company of the Merger Agreement shall have
occurred, and at the time of such breach or any termination based thereon
an Alternative Transaction shall have been publicly announced and not
absolutely and unconditionally withdrawn and abandoned; or
(vi) the Company shall have negotiated with, furnished information to,
entered into any agreement with, or consummated or recommended any
transaction with, any person other than Parent or its affiliates, based on
a determination regarding a "Superior Proposal"; or
(vii) the Company shall have breached its non-solicitation covenant.
An "Alternative Transaction" shall mean (i) any transaction or series of
transactions by which any person or group (other than Parent and its
affiliates) acquires or would acquire shares (or securities exercisable or
convertible into shares) representing 20% or more of the outstanding shares of
the Company, pursuant to a tender offer, exchange offer or otherwise, (ii) a
merger, consolidation, share exchange, sale of substantial assets or other
business combination involving the Company, (iii) any other transaction or
series of transactions whereby any person acquires or would acquire control of
the board of directors, business or assets of the Company, or (iv) any
agreement with respect to any of the foregoing, which in the case of any
transaction or agreement described in clauses (i) through (iv) above, involves
a greater value (considering the amounts payable to shareholders and all
payments under employment, consulting and other arrangements in connection
therewith) than the value of the Offer and the Merger and the other
arrangements related thereto.
Except as described above and except as described below under "The Tender
Agreement--Excess Expenses", each of the Company, Parent and the Purchaser
shall bear its own expenses in connection with the Merger Agreement and the
transactions contemplated thereby.
AMENDMENT
Subject to the applicable provisions of the MBCA, the Merger Agreement may
be amended by action taken by the Company, Parent and the Purchaser at any
time prior to the Effective Time.
The Tender Agreement
Parent and Purchaser have entered into the Tender Agreement with the
shareholders of the Company named below. The following is a brief summary of
the Tender Agreement, and is qualified in its entirety by reference to the
text of the Tender Agreement, a copy of which has been filed by Parent as an
exhibit to the Schedule 14D-l and may be obtained in the manner described in
Section 8.
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PARTIES AND CONSIDERATION
The Tender Agreement has been executed and delivered by the following
shareholders of the Company, each holding the number of shares and Purchaser
Option Shares (as defined below) shown below opposite the name of such
shareholder:
<TABLE>
<CAPTION>
PURCHASER
OUTSTANDING OPTIONS OPTION
SHAREHOLDER SHARES HELD HELD(1) SHARES
----------- ----------- --------- ---------
<S> <C> <C> <C>
Perkins Capital Management, Inc...... 1,368,500 -- 383,747
Northland Business Capital L.L.P..... 1,227,273 100,000(2) 344,145
Reynold M. Anderson.................. 620,771(3) 102,000 174,073
Michael E. Platt..................... 532,500(4) 50,000 149,321
Richard W. Perkins................... 397,000(5) 144,000 111,325
William H. Spell..................... 103,636 415,000 29,061
Harry W. Spell....................... 117,453(6) 144,000 32,935
Bruce A. Richard..................... 84,181 133,000 23,606
--------- --------- ---------
TOTAL.............................. 4,451,314(7) 1,088,000(7) 1,248,213
========= ========= =========
</TABLE>
- --------
(1) Includes shares subject to an option or warrant exercisable within 60 days
of March 3, 1997.
(2) Includes 50,000 shares purchasable pursuant to a warrant issued to Brian
K. Smith, a General Partner of Northland Business Capital L.L.P.
(3) Includes: (i) 370,000 shares owned by the Z. Albin E. Anderson Irrevocable
Trust, of which Mr. Anderson is a trustee and a beneficiary and (ii) 771
shares owned by Mr. Anderson's spouse.
(4) Includes 14,000 shares owned by Mr. Platt's spouse.
(5) Includes: (i) 72,000 shares owned by the Richard W. Perkins Trust dated
6/14/78, (ii) 25,000 shares owned by the Perkins Capital Management, Inc.
Profit Sharing Plan & Trust dated 12/15/86, (iii) 50,000 shares owned by
Quest Venture Partners and (iv) 250,000 shares owned by Pyramid Partners,
L.P.
(6) Includes 18,181 shares owned by the Spell Family Foundation of which Mr.
Spell is a director.
(7) All of the Existing Shares and options are subject to the Tender
Agreement.
THE SHAREHOLDERS WHO HAVE EXECUTED AND DELIVERED THE TENDER AGREEMENT OWN AN
AGGREGATE OF 4,451,314 SHARES, OR APPROXIMATELY 71% OF THE ISSUED AND
OUTSTANDING SHARES. SUCH SHAREHOLDERS ALSO OWN OPTIONS TO ACQUIRE AN
ADDITIONAL 1,088,000 SHARES, SO THAT, ASSUMING EXERCISE OF ALL OPTIONS TO
ACQUIRE SHARES, SUCH SHAREHOLDERS WOULD HOLD APPROXIMATELY 72.4% OF THE
COMPANY'S SHARES ON A FULLY-DILUTED BASIS. The Tender Agreement was executed
in consideration of Parent's and Purchaser's execution and delivery of the
Merger Agreement, and to induce Parent and Purchaser to execute and deliver
the Merger Agreement and to induce Purchaser to make the Offer. No additional
consideration was paid to the shareholders who executed the Tender Agreement.
AGREEMENT TO TENDER
In the Tender Agreement, the shareholders that are party thereto have each
severally agreed (i) to validly tender (or cause the record owner of any
Shares to tender) pursuant to the Offer all outstanding Shares beneficially
owned by such shareholder and his or its affiliates, not later than the fifth
business day after commencement of the Offer, (ii) to validly tender pursuant
to the Offer all Shares thereafter acquired by such shareholder or his or its
affiliates, within one business day following the acquisition thereof and
(iii) to the maximum extent permitted by law, not to withdraw any Shares so
tendered without the prior written consent of Purchaser.
Such shareholders have further agreed that if Parent or Purchaser shall
notify the shareholders at any time after the commencement of the Offer that
additional Shares are required to be tendered so that at least (x) 50% or (y)
90%, as specified by Parent or Purchaser, of all outstanding Shares shall have
been validly tendered in the
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Offer, then each such shareholder shall (and shall cause his, her or its
affiliates to), exercise such options, warrants and other rights to acquire
additional shares in such amounts as may be specified by Parent or Purchaser
in order to cause at least (x) 50% or (y) 90%, as specified by Parent or
Purchaser, of all outstanding Shares to have been validly tendered in the
Offer, and shall tender or cause to be tendered in the Offer all Shares
acquired by such shareholder (or his, her or its affiliates) upon exercise of
such options, warrants and other rights. Parent and Purchaser have agreed that
(i) they shall not make any such request except to the extent required to
cause at least (x) 50% or (y) 90% of all outstanding Shares to have been
validly tendered in the Offer, and (ii) to the extent practicable, such
request shall be made to all shareholders pro rata, on the basis of the Shares
owned by all such shareholders and their respective affiliates on a fully-
diluted basis.
STOCK OPTIONS
Pursuant to the Tender Agreement, the shareholders that are parties thereto
have granted to Purchaser an irrevocable option (the "Stock Option") to
purchase the number of Shares owned by such shareholder or its affiliates set
forth in the table above opposite the name of such shareholder in the column
entitled "Purchaser Option Shares" (such Shares, as adjusted from time to
time, being referred to as the "Purchaser Option Shares") at a purchase price
equal to $1.67 per share in cash net to the seller; provided, that in no event
shall the aggregate number of Purchaser Option Shares subject to the Stock
Options granted by all shareholders pursuant to the Tender Agreement exceed an
amount equal to 19.9% of the outstanding Shares, and if the aggregate number
of Purchaser Option Shares subject to the Stock Options granted by all such
shareholders would otherwise exceed 19.9% of the outstanding Shares, then the
number of Purchaser Option Shares subject to the Stock Options granted by all
such shareholders shall be reduced, on a pro rata basis, so that the aggregate
number of Purchaser Option Shares subject to the Stock Options granted by all
such shareholders will not exceed an amount equal to 19.9% of the outstanding
Shares of Company Common Stock.
The Tender Agreement further provides that if at any time additional Shares
shall be issued so that the aggregate number of Purchaser Option Shares
subject to the Stock Options granted by all shareholders would otherwise be
less than 19.9% of the outstanding Shares, then each shareholder (pro rata in
accordance with the Purchaser Option Shares initially subjected to the Stock
Options as set forth above) (i) grants to Purchaser a Stock Option on such
further Shares beneficially owned by such shareholder as may be required to
increase the aggregate number of Purchaser Option Shares subject to the Stock
Options granted by all shareholders to an amount equal to 19.9% of the
outstanding Shares and (ii) agrees to exercise such options, warrants or
rights to acquire additional Shares in such amounts as may be requested by
Parent or Purchaser in order to obtain the result described in clause (i) of
this sentence.
Subject to the conditions described below, the Stock Option may be exercised
by Purchaser, in whole and for all shareholders but not in part or for less
than all shareholders, at any time following the occurrence of, or in
connection with, a "Purchase Event." The term "Purchase Event" means the
occurrence of any of the following: (i) the Company shall have entered into
any letter of intent, memorandum of understanding or agreement relating to or
providing for an Alternative Transaction (as defined in the Merger Agreement),
(ii) the Company or the shareholders shall have consummated an Alternative
Transaction or (iii) Purchaser shall have purchased any shares pursuant to the
Offer.
If the Stock Options are exercised in connection with an Alternative
Transaction, then in lieu of purchasing Purchaser Option Shares, Purchaser may
instruct any shareholder that is a party to the Tender Agreement to carry out
the Alternative Transaction (by tender, sale or surrender of the Purchaser
Option Shares or otherwise as instructed) and upon receipt of such
instructions, such shareholder will so carry out the Alternative Transaction;
provided that the Alternative Transaction provides for the shareholder to
receive at least $1.67 per share in cash net to the shareholder within thirty
days after receipt of such instructions. Each shareholder that is a party to
the Tender Agreement has agreed that Purchaser Option Shares will be the first
Shares transferred in an Alternative Transaction. Upon receipt of the
consideration with respect to Purchaser Option Shares payable in the
Alternative Transaction, each such shareholder will pay to Purchaser with
respect to each Purchaser Option Share an amount equal to the per share
consideration so received less $1.67 per Share. Any Purchaser Option Shares
not purchased in the Alternative Transaction shall remain subject to the
Tender Agreement.
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The obligations of the parties to the Tender Agreement to consummate the
purchase and sale of Shares upon the exercise of the Stock Options are subject
to the condition that there shall be no preliminary or permanent injunction or
other order or decree by any court of competent jurisdiction restricting,
preventing or prohibiting the exercise of the Stock Option or the delivery of
the Purchaser Option Shares in respect of such exercise. The obligations of
Purchaser to consummate the purchase of any Option Shares upon the exercise of
the Stock Option is subject to the further condition that all representations
and warranties of the shareholders in the Tender Agreement shall be true and
correct when made, shall be true and correct in all material respects at and
as of the closing of such purchase as though made on and as of such Closing
and Purchaser being satisfied that the Alternative Transaction shall be
consummated.
LIMITATION ON CERTAIN ACTIONS
In order to ensure that the shares subject to the Tender Agreement will be
tendered as provided therein, the Tender Agreement provides that so long as
the Tender Agreement is in effect no shareholder that is a party thereto shall
(i) offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of or enter into any contract, option or other arrangement
or understanding with respect to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, any of the Shares
subject to the Tender Agreement or any interest therein, (ii) grant any
proxies or powers of attorney, deposit any such Shares into a voting trust or
enter into a voting agreement with respect to any such Shares, (iii) take any
action that would make any representation or warranty of any shareholder
contained in the Tender Agreement untrue or incorrect or have the effect of
preventing or disabling any shareholder from performing its obligations under
the Tender Agreement or (iv) take or cause the Company to take any action that
would make any representation or warranty of the Company in the Merger
Agreement untrue or incorrect or have the effect of preventing or disabling
the Company from performing its obligations thereunder. The shareholders who
are party to the Tender Agreement have also agreed to a non-solicitation
covenant corresponding to that contained in the Merger Agreement.
WAIVER OF DISSENTER'S RIGHTS
To the maximum extent permitted by law, each shareholder that is a party to
the Tender Agreement has waived all dissenter's rights, appraisal rights and
other similar rights available by law to such shareholder as a result of the
Offer and the Merger.
REPRESENTATIONS AND WARRANTIES
The Tender Agreement contains various representations and warranties of the
shareholders that are parties thereto, including representations and
warranties as to (i) the ownership of Shares and options, warrants and other
rights, (ii) the authorization, execution and enforceability of the Tender
Agreement, (iii) the lack of required governmental consents and filings in
connection with the Tender Agreement, and the non-contravention by the Tender
Agreement of organizational documents contracts, agreements, orders or laws
applicable to such shareholders or their assets, (iv) the absence of
encumbrances, (v) the absence of obligations with respect to broker's or
finder's fees and (vi) the approval of the Offer, the Merger and the Tender
Agreement by the Company's Board of Directors.
The Tender Agreement also contains various representations and warranties of
the Parent and the Purchaser, including representations and warranties as to
(i) organization and corporate power and (ii) the authorization, execution and
enforceability of the Tender Agreement.
EXCESS EXPENSES
Pursuant to the Tender Agreement, the shareholders who are parties thereto
have agreed, jointly and severally, that if (i) the Offer and the Merger shall
be consummated and (ii) the total transaction expenses (including, without
limitation, legal and accounting expenses and fees and commissions payable to
Coopers & Lybrand Securities, L.L.C. and other investment bankers and
financial advisors to the Company) incurred by the
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Company in connection with the Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby and not reflected on the Company's audited
balance sheet as of December 31, 1996 shall exceed $502,000.00, then such
shareholders, jointly and severally, shall reimburse Parent for all such
transaction expenses in excess of $502,000.00 promptly upon demand made within
60 days after the Effective Time of the Merger.
TERMINATION
If Purchaser has not previously exercised the Stock Option, then the Tender
Agreement shall terminate on the earliest of (i) the termination of the Merger
Agreement in accordance with its terms without the occurrence of a Triggering
Event; (ii) if a Triggering Event occurs prior to the termination of the
Merger Agreement, the 180th day after the termination of the Merger Agreement
without a Purchase Event having occurred and (iii) the first anniversary of
the date of the Tender Agreement.
Dissenters' Rights
No dissenters' rights are available in connection with the Offer. However,
if the Merger is consummated, each shareholder of the Company who has neither
voted in favor of the Merger nor consented thereto in writing will have
certain rights to dissent and demand payment of fair value for his or her
Shares under Section 473 of the MBCA. The value, which would be determined by
appraisal in a court proceeding, could be more or less than the consideration
to be paid in the Offer and the Merger. Any judicial determination of the fair
value could be based upon considerations other than or in addition to the
market value of the Shares, including, among other things, asset values and
earning capacity.
General
There can be no assurance that the Merger will take place because the Merger
is subject to conditions discussed above which are beyond the control of
Parent and the Company. In the event that, for any reason, the Merger does not
occur, depending on the results of the Offer, Parent may consider the
desirability of acquiring either additional Shares or the entire remaining
equity interest in the Company. If Parent determines to do either, any such
future transaction or transactions might be by means of a merger, reverse
stock split, open market or privately negotiated purchases, one or more
additional tender offers, exchange offers or otherwise. Such transactions
might be on terms and at prices more or less favorable than those of the
Offer. Moreover, the decision to enter into such future transactions and the
forms they might take will depend on the circumstances then existing,
including the financial resources of the Company and Parent and Parent's
business, tax and accounting objectives, performance of the Shares in the
market, availability and alternative uses of funds, money market and stock
market conditions, general economic conditions and other factors.
12. SOURCE AND AMOUNT OF FUNDS.
The total amount of funds required by the Purchaser to purchase all of the
Shares and to cancel all of the existing options to acquire the Company's
capital stock pursuant to the Offer and the Merger and to pay related fees and
expenses (including prepayment of approximately $2.5 million of debt) is
expected to be approximately $15.7 million. The Offer is not conditioned on
the obtaining of financing. Parent has represented in the Merger Agreement
that it has, or will have, sufficient funds available to purchase all the
outstanding Shares.
Parent and the Purchaser expect to obtain debt and equity financing in an
aggregate amount of approximately $16.5 million for the purchase of Shares by
the Purchaser in the Offer and the payment of related fees and expenses
(including prepayment of approximately $2.5 million of debt), of which
approximately $4.285 million will be obtained by Parent from the sale by the
Parent of its common stock to Ridge and Blair Mezzanine Fund, and
approximately $12.215 million will be obtained from the sale by the Parent to
Blair Mezzanine Fund
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of Subordinated Notes (the "Subordinated Notes") in an aggregate face amount
of $13.5 million. Parent will, in turn, contribute to Purchaser the funds
required to finance the Offer and the Merger and pay related fees and
expenses.
The Subordinated Notes will be general unsecured senior subordinated
obligations of Parent, the entire principal of which will be due and payable
no later than June 30, 2005.
Interest on the face amount of the Subordinated Notes will accrue at a rate
equal to 13% per annum from and including the date of issuance. Unless the
Merger is consummated after September 30, 1997, no accrued interest on the
Subordinated Notes will be payable prior to the consummation of the Merger.
Parent will have the option, at any time on or after the third anniversary
of the issuance of the Subordinated Notes, to prepay any amounts of principal
of the Subordinated Notes in increments of $500,000, together with all accrued
interest but without any penalty or prepayment premium thereon, provided that
such prepayment is made from excess cash flow. Upon a change in control or a
sale, Blair Mezzanine Fund will have the right to require Parent, and Parent
will have the option, upon the occurrence of those events and upon an initial
public offering of securities to repay the principal of the Subordinated Notes
in full without penalty.
The Subordinated Notes will contain customary representations and
warranties, and affirmative and negative covenants. The covenants will
include, among other things, restrictions which limit dividends, indebtedness,
liens, investments, mergers and consolidations, contingent obligations,
capital expenditures, transactions with affiliates and asset sales, and will
require Parent to maintain its property and insurance, to pay all taxes and
comply with all laws and to provide periodic information (including financial
statements) and conduct periodic audits on behalf of Blair Mezzanine Fund. In
addition, after the consummation of the Merger, Parent will be required to
comply with certain financial covenants.
The Subordinated Notes will also contain customary events of default
including, among other things, those resulting from (i) the nonpayment of any
amount due under the Subordinated Notes, (ii) the material breach of any
representation or warranty, (iii) the default in the performance of any
covenant, (iv) the default under any instrument evidencing indebtedness for
borrowed money or related guaranty obligations in excess of $250,000, (vi) a
bankruptcy or insolvency and (v) the rendering of a material judgment against
Parent. Upon the occurrence of an event of default with respect to
Subordinated Notes, Blair Mezzanine Fund may, subject to its obligations under
subordination agreements to be entered into with the Company's senior lender
and the lessor of its Winona, Minnesota facility, declare the principal of the
Subordinated Notes and the accrued and unpaid interest thereon to be
immediately due and payable.
In connection with the sale of the Subordinated Notes, Parent will pay to
Blair Mezzanine Fund a loan fee of $350,000.
Following the Effective Time of the Merger, Ridge and Blair Mezzanine Fund
intend to cause the Company to pay to Ridge a transaction fee of $150,000.
The Company's current credit facility with CIT Business Credit will be
amended in certain respects and, as amended, will remain outstanding following
the Offer and the Merger.
13. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, the Purchaser shall not be
required to accept for payment or pay for any tendered Shares, and may
terminate or amend the Offer and may postpone the acceptance for payment and
payment for tendered Shares, and may terminate or amend the Offer and not
accept for payment any Shares, if (i) there are not validly tendered prior to
the Expiration Date and not withdrawn a number of Shares which satisfies the
Minimum Condition or (ii) at any time on or after the commencement of the
Offer
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(unless otherwise indicated below) and before the time of payment for such
Shares (whether or not Shares have been accepted for payment or paid for
pursuant to the Offer), any of the following events shall occur:
a. there shall have been instituted or pending any action or proceeding
by or before any court or governmental regulatory or administrative agency,
authority or tribunal, domestic or foreign, which could (i) directly or
indirectly restrain or prohibit the consummation of the Offer or the
Merger, or impose any material fines, penalties or damages in connection
therewith, (ii) make the purchase of or payment for some or all of the
Shares pursuant to the Offer or the Merger illegal, (iii) impose or confirm
material limitations on the ability of Parent or the Purchaser (or any of
their affiliates) effectively to acquire or hold, or requiring Parent, the
Purchaser or the Company or any of their respective affiliates or
subsidiaries to dispose of or hold separate, any material portion of the
assets or the business of Parent or the Purchaser and their affiliates
taken as a whole or the Company and its Subsidiaries taken as a whole or
(iv) impose material limitations on the ability of Parent (or its
affiliates) to acquire, hold or exercise full rights of ownership of the
Shares purchased by it on all matters properly presented to the
shareholders of the Company; or
b. there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any state, federal or
governmental authority or by any court, any statute, rule, regulation,
judgment, decree, order or injunction, that could, directly or indirectly,
result in any of the consequences referred to in clauses (i) through (iv)
of subsection a. above; or
c. the Merger Agreement shall have been terminated in accordance with its
terms; or
d. (i) any of the representations or warranties made by the Company in
the Merger Agreement that is not qualified by reference to materiality
shall not have been true and correct in all material respects when made, or
(other than representations and warranties made as of a specified date)
shall thereafter have ceased to be true and correct in all material
respects on the Expiration Date, or (ii) any of the representations or
warranties made by the Company in the Merger Agreement that is qualified by
reference to materiality shall not have been true and correct when made, or
(other than (x) with respect to the representations and warranties with
regard to the absence of a material adverse change, changes in or
disruptions of the Company's business resulting from the execution of the
Merger Agreement or the announcement of the Offer and the Merger, and (y)
representations and warranties made as of a specified date) shall
thereafter have ceased to be true and correct on the Expiration Date, or
(iii) the Company shall not in all material respects have performed each
obligation and agreement and complied with each covenant to be performed
and complied with by it under the Merger Agreement and the Company shall
not have cured such breach within 10 days after notice thereof is given by
the Purchaser, but in no event later than the Expiration Date; or
e. a tender or exchange offer for at least a majority of the then
outstanding Shares shall have been publicly proposed to be made, or shall
have been made, by any person, corporation, entity or "group," as defined
in Section 13(d)(3) of the Exchange Act (other than Parent or the
Purchaser); which, in any case, and regardless of the circumstances
(including any action or inaction by Parent or the Purchaser or any of
their affiliates) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with acceptance for payment or payment for
Shares; or
f. there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any securities exchange or in the
over-the-counter market in the United States (other than a shortening of
trading hours or any coordinated trading halt triggered solely as a result
of a specified increase or decrease in a market index), (ii) the
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), or (iii)
any limitation (whether or not mandatory), by any United States
governmental authority or agency on the extension of credit by banks or
other financial institutions.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to
any such condition or may be waived by the Purchaser in whole or in part at
any time or from time to time in its sole discretion. The failure by the
Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right, the waiver of any such right with
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respect to particular facts or circumstances shall not be deemed a waiver with
respect to any other facts or circumstances, and each such right shall be
deemed an ongoing right that may be asserted at any time or from time to time.
14. DIVIDENDS AND DISTRIBUTIONS.
Pursuant to the terms of the Merger Agreement, the Company is prohibited
from taking any of the actions described in the two following paragraphs, and
nothing herein shall constitute a waiver by the Purchaser or Parent of any of
its rights under the Merger Agreement or a limitation of remedies available to
the Purchaser or Parent for any breach of the Merger Agreement, including
termination thereof.
If on or after the date of the Merger Agreement the Company should (i)
split, combine or otherwise change the Shares or its capitalization, (ii)
acquire currently outstanding Shares or otherwise cause a reduction in the
number of outstanding Shares or (iii) issue or sell additional Shares, shares
of any other class of capital stock, other voting securities or any securities
convertible into, or rights, warrants or options, conditional or otherwise, to
acquire, any of the foregoing, other than Shares issued pursuant to the
exercise of outstanding employee stock options, then subject to the provisions
of Section 13 above, the Purchaser, in its sole discretion, may make such
adjustments as it deems appropriate in the Offer Price and other terms of the
Offer, including, without limitation, the number or type of securities offered
to be purchased.
If on or after the date of the Merger Agreement the Company should declare
or pay any cash dividend on the Shares or other distribution on the Shares, or
issue with respect to the Shares any additional Shares, shares of any other
class of capital stock, other voting securities or any securities convertible
into, or rights, warrants or options, conditional or otherwise, to acquire,
any of the foregoing, payable or distributable to shareholders of record on a
date prior to the transfer of the Shares purchased pursuant to the Offer to
the Purchaser or its nominee or transferee on the Company's stock transfer
records, then, subject to the provisions of Section 13 above, (a) the Offer
Price may, in the sole discretion of the Purchaser, be reduced by the amount
of any such cash dividend or cash distribution and (b) the whole of any such
noncash dividend, distribution or issuance to be received by the tendering
shareholders will (i) be received and held by the tendering shareholders for
the account of the Purchaser and will be required to be promptly remitted and
transferred by each tendering shareholder to the Depositary for the account of
the Purchaser, accompanied by appropriate documentation of transfer or (ii) at
the direction of the Purchaser, be exercised for the benefit of the Purchaser,
in which case the proceeds of such exercise will promptly be remitted to the
Purchaser. Pending such remittance and subject to applicable law, the
Purchaser will be entitled to all rights and privileges as owner of any such
noncash dividend, distribution, issuance or proceeds and may withhold the
entire Offer Price or deduct from the Offer Price the amount or value thereof,
as determined by the Purchaser in its sole discretion.
15. CERTAIN LEGAL MATTERS.
General
Except as otherwise disclosed herein, based upon an examination of publicly
available filings with respect to the Company, Parent and the Purchaser are
not aware of any licenses or other regulatory permits which appear to be
material to the business of the Company and which might be adversely affected
by the acquisition of Shares by the Purchaser pursuant to the Offer or of any
approval or other action by any governmental, administrative or regulatory
agency or authority which would be required for the acquisition or ownership
of Shares by the Purchaser pursuant to the Offer. Should any such approval or
other action be required, it is currently contemplated that such approval or
action would be sought or taken. There can be no assurance that any such
approval or action, if needed, would be obtained or, if obtained, that it will
be obtained without substantial conditions or that adverse consequences might
not result to the Company's or Parent's business or that certain parts of the
Company's or Parent's business might not have to be disposed of in the event
that such approvals were not obtained or such other actions were not taken,
any of which could cause the Purchaser to elect to
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terminate the Offer without the purchase of the Shares thereunder. The
Purchaser's obligation under the Offer to accept for payment and pay for
Shares is subject to certain conditions. See Section 13.
State Takeover Laws
Section 673 of the MBCA ("MBCA Section 673") prevents an "Interested
Shareholder" (defined generally as a person who beneficially owns or controls
10% or more of a corporation's outstanding voting stock) from engaging in a
"Business Combination" (defined to include a variety of transactions,
including mergers) with a Minnesota corporation for four years following the
date such person became an Interested Shareholder, unless a committee of the
corporation's board formed in accordance with MBCA Section 673 approves the
Business Combination or the transaction whereby a person will become an
Interested Shareholder before such person becomes an Interested Shareholder.
Because the Board of Directors of the Company has formed a committee in
accordance with MBCA Section 673 and because such committee has unanimously
approved the Offer and the Merger, the requirements of MBCA Section 673 have
been satisfied.
Section 671 of the MBCA ("MBCA Section 671") requires a person or
organization acquiring shares of an issuing public corporation in a control
share acquisition in excess of certain threshold levels to deliver to the
corporation being acquired an information statement containing certain
information regarding the acquiring organization's and definitive financing
agreements demonstrating the acquiring organization's financial ability to
acquire the corporation's shares. MBCA Section 671 further requires that any
such acquisition of shares be approved by (i) a majority of all shares
entitled to vote and (ii) a majority of all shares entitled to vote excluding
those shares held by the acquiring organization. Shares acquired in
noncompliance with MBCA Section 671 have no voting rights, may not be
transferred and may be redeemed by the corporation for a period of one year
following acquisition. MBCA Section 671 does not apply to tender offers (i) to
purchase all voting stock of the corporation which has been approved by a
committee of the corporation's board formed in accordance with MBCA 673 before
commencement of the intent to commence the tender offer and (ii) pursuant to
which the acquiring organization will become the owner of over fifty percent
of the corporation's voting stock. Because the tender offer has been extended
to holders of all voting stock of the Company, a committee of the Company's
Board of Directors has been formed in compliance with MBCA Section 673 and has
unanimously approved the Merger and Offer and the Offer will not, by its
terms, be consummated unless Purchaser acquires at least a majority of the
Company's Shares, MBCA Section 671 does not apply to the Offer.
Minnesota Statutes Chapter 80B ("Chapter 80B") requires a person who makes a
takeover offer to file a registration statement with the commissioner of
commerce of the State of Minnesota containing certain information as
proscribed in Section 3 of Chapter 80B. Such person must also deliver a copy
of the registration statement to the target company not later than the filing
of the registration statement and the material terms of the proposed offer and
the information specified in Section 3 of Chapter 80B to all offerees as soon
as practicable after the filing. Chapter 80B does apply to the Offer.
The Purchaser does not believe that any state takeover laws, other than MBCA
Sections 671 and 673 and Chapter 80B, apply to the Offer and it has not
complied with any other state takeover laws. If the Purchaser becomes aware of
any valid state statute prohibiting the making of the Offer or the acceptance
of Shares pursuant thereto, the Purchaser will make a good faith effort to
comply with such statute. If, after such good faith effort, the Purchaser
cannot comply with such state statute, the Offer will not be made to (nor will
tenders be accepted from or on behalf of) the holders of Shares in such state.
See Section 13.
Antitrust
The Federal Trade Commission (the "FTC") and the Antitrust Division of the
United States Department of Justice frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's proposed
acquisition of the Company. The Parent, the Purchaser and the Company have
concluded that the Offer and the Merger are not subject to the filing and
waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements
Act of 1976. However, at any time before or after the Purchaser's purchase of
Shares pursuant to
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the Offer, the Antitrust Division 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
the consummation of the Merger or seeking the divestiture of Shares acquired
by the Purchaser or the divestiture of substantial assets of Parent or its
subsidiaries, or the Company or its subsidiaries. Private parties may also
bring legal action under the antitrust laws under certain circumstances. 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, of the results thereof.
Other Matters.
Parent and Purchaser believe that Rule 13e-3 will not be applicable to the
Merger because of the exemption afforded by Rule 13e-3(g)(1), among other
reasons. However, under certain circumstances, Rule 13e-3 could be applicable
to the Merger or other business combination in which Parent seeks to acquire
the remaining Shares it does not beneficially own following the purchase of
Shares pursuant to the Offer. For example, if the Merger as consummated is not
substantially similar to the Merger as described in this Offer to Purchase and
the Merger Agreement, Rule 13e-3 could apply. However, the terms and
conditions of the Merger are governed by the Merger Agreement, and any
amendment to the Merger Agreement must be approved by each party thereto. If
Parent has exercised its right to appoint directors to the Board of Directors
of the Company following its purchase of Shares pursuant to the Offer, any
such amendment must be approved on behalf of the Company by a majority of the
directors of the Company then in office who have not been designated by Parent
and are not employees of the Company.
16. FEES AND EXPENSES.
Parent has retained MacKenzie Partners, Inc. to act as the Information Agent
in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, telex, telegraph and personal interviews and may
request brokers, dealers and other nominee shareholders to forward materials
relating to the Offer to beneficial owners of Shares. The Information Agent
will receive reasonable and customary fees for such services, plus
reimbursement of out-of-pocket expenses and the Purchaser will indemnify the
Information Agent against certain liabilities and expenses in connection with
the Offer, including liabilities under the federal securities laws.
Parent will pay the Depositary reasonable and customary compensation for its
services in connection with the Offer, plus reimbursement for out-of-pocket
expenses, and will indemnify the Depositary against certain liabilities and
expenses in connection therewith, including liabilities under the federal
securities laws.
No commissions will be paid by the Purchaser or Parent to brokers, dealers,
banks and trust companies, but such persons will be reimbursed by the
Purchaser for customary mailing and handling expenses incurred by them in
forwarding material to their customers.
17. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of
such jurisdiction. However, the Purchaser may, in its sole discretion, take
such action as it may deem necessary to make the Offer comply with the laws of
any such jurisdiction and extend the Offer to holders of Shares in such
jurisdiction. In any jurisdiction where the securities or blue sky laws of a
jurisdiction require the Offer to be made by a licensed broker or dealer, the
Offer will be deemed made on behalf of the Purchaser by one or more registered
brokers or dealers which are licensed under the laws of such jurisdiction.
The Purchaser and Parent have filed with the Commission a Tender Offer
Statement on Schedule 14D-1 pursuant to Rule 14d-3 of the General Rules and
Regulations under the Exchange Act, which furnishes certain additional
information with respect to the Offer, and may file amendments thereto. The
Company has filed with the Commission a Solicitation/Recommendation Statement
on Schedule 14D-9 with respect to the Offer pursuant
31
<PAGE>
to Rule 14d-9 under the Exchange Act, setting forth its recommendation with
respect to the Offer and the reasons for such recommendation and furnishing
certain additional related information. Such Schedules and any amendments
thereto, including exhibits, may be examined and copies may be obtained from
the principal office of the Commission in Washington, D.C. in the manner set
forth in Section 8 (except that they will not be available at the regional
offices of the Commission).
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER 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 BEING ACCURATE OR AS
HAVING BEEN AUTHORIZED.
R-B Acquisition Corporation
April 17, 1997
32
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF RIDGE AND
BOARD OF MANAGERS OF WB GENERAL PARTNER
1. DIRECTORS AND EXECUTIVE OFFICERS OF RIDGE. The following sets forth the
name, age, present principal occupation and the material occupations,
positions and employment within the past five years for each director and
executive officer of RCC, RAI and PCC. Each person listed below is a United
States citizen and, unless otherwise specified, has his principal business
address at the offices of Parent, 257 East Main Street, Barrington, Illinois
60010.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE YEAR EMPLOYMENT HISTORY AGE
---- ------------------------------------------ ---
<S> <C> <C>
J. Bradley Davis............ President, sole director and sole 57
shareholder of Ridge Capital Corporation,
Ridge Advisors, Inc. and affiliated
companies since 1989.
Nancy L. Kendall-Ward....... Senior Vice President, Ridge Capital 49
Corporation, Ridge Advisors, Inc. and
affiliated companies since 1989.
Harrington Bischof.......... President, sole director and sole 62
shareholder of Pandora Capital Corporation
since July 1996 and Senior Advisor to Ridge
since January 1, 1997. Mr. Bischof served
as Senior Advisor to Prudential Securities,
Inc. from 1991 through June 1996.
2. BOARD OF MANAGERS OF WB GENERAL PARTNER. WB General Partner is the general
partner of Blair Mezzanine Fund. Blair Mezzanine Fund was organized in
September, 1996 and commenced operations in March, 1997. The following sets
forth the name, age, present principal occupation and the material occupations,
positions and employment within the past five years for each member of the
Board of Managers of the WB General Partner. Each person listed below is a
United States citizen and, unless otherwise specified, has his principal
business address at the offices of the WB General Partner, 222 West Adams
Street, Chicago, Illinois 60606. Unless otherwise stated the person has held
the indicated position for at least five years.
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE YEAR EMPLOYMENT HISTORY AGE
---- ------------------------------------------ ---
<S> <C> <C>
E. David Coolidge III....... Chief Executive Officer of William Blair & 53
Company, LLC, an investment banking firm,
since January, 1995; previously, head of
Corporate Finance Department of the same
firm since 1977.
John P. Kayser.............. Chief Financial Officer of William Blair & 47
Company, LLC, since 1988.
Timothy MacKenzie........... General Partner of William Blair Mezzanine 38
Capital Partners, L.P., a private
investment firm, since March 1993 and a
managing director of WB General Partner
since its organization in September 1996.
Prior to March, 1993, Mr. MacKenzie was
Senior Vice President of Fiduciary Capital,
an investment advisor.
Terrance M. Shipp........... General Partner of William Blair Mezzanine 38
Capital Partners, L.P., a private
investment firm, and a managing director of
WB General Partner since its organization
in September 1996.
Marc J. Walfish............. General Partner of William Blair Mezzanine 44
Capital Partners, L.P., a private
investment firm, and a managing director of
WB General Partner since its organization
in September 1996.
</TABLE>
33
<PAGE>
SCHEDULE II
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER
1. DIRECTORS OF PARENT AND PURCHASER. The following sets forth the name, age,
present principal occupation and the material occupations, positions and
employment within the past five years for each director (and J. Bradley Davis,
an executive officer) of Parent and Purchaser. Each person listed below is a
United States citizen and, unless otherwise specified, has his principal
business address at the offices of Parent, 257 East Main Street, Barrington,
Illinois 60010.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND FIVE YEAR EMPLOYMENT HISTORY AGE
---- ------------------------------------------ ---
<S> <C> <C>
J. Bradley Davis............ President and sole shareholder of Ridge 57
Capital Corporation and affiliated
companies since 1989.
Clark F. Davis.............. Vice President, Ridge Capital Corporation 30
since 1992. Mr. Davis was Manager of Flint
Creek Farm, Inc., Barrington Illinois from
May 1989.
Harrington Bischof.......... President and sole shareholder of Pandora 62
Capital Corporation since July 1996. Mr.
Bischof served as Senior Advisor to
Prudential Securities, Inc. from 1991
through June 1996.
Terrance M. Shipp........... General Partner of William Blair Mezzanine 38
Capital Partners, L.P., a private
investment firm, and a managing director of
WB General Partner since its organization
in September 1996. Mr. Shipp's principal
business address is c/o William Blair
Mezzanine Capital Partners, L.P., 222 West
Adams, Chicago, Illinois 60606.
Marc J. Walfish............. General Partner of William Blair Mezzanine 44
Capital Partners, L.P., a private
investment firm, and a managing director of
WB General Partner since its organization
in September 1996. Mr. Walfish's principal
business address is c/o William Blair
Mezzanine Capital Partners, L.P., 222 West
Adams, Chicago, Illinois 60606.
</TABLE>
2. EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER. Set forth below are the
names and positions held by each of Parent's and the Purchaser's executive
officers. Each person holds the positions indicated at both Parent and
Purchaser. All information for each such person is set forth in Item 1 above.
All directors and executive officers listed below are citizens of the United
States.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS POSITION WITH PURCHASER
------------------------- -----------------------
<S> <C>
Harrington Bischof................ President
Clark Davis....................... Vice President and Assistant Secretary
J. Bradley Davis.................. Vice President, Treasurer and Secretary
</TABLE>
34
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, certificates for the
Shares and any other required documents should be sent by each shareholder of
the Company or such shareholder's broker, dealer, bank, trust company or other
nominee to the Depositary at on of the following addresses:
The Depositary is:
HARRIS TRUST COMPANY OF NEW YORK
By Hand: By Courier: By Mail:
Receive Window 77 Water Street, 4th Wall Street Station
77 Water Street, 5th Floor P.O. Box 1023
Floor New York, NY 10005 New York, NY 10268-1023
New York, NY 10005
By Facsimile Telephone Numbers
Transmission: For information call
(212) 701-7636 collect
(212) 701-7640 (212) 701-7624
Confirm by telephone
(212) 701-7624
(For Eligible
Institutions Only)
Any questions or requests for assistance or additional copies of the Offer
to Purchase, the Letter of Transmittal and other tender offer materials may be
directed to the Information Agent at its telephone number and location listed
below, and will be furnished promptly at Purchaser's expense. You may also
contact your broker, dealer, bank or trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is
LOGO
156 Fifth Avenue
New York, NY 10010
Call Toll Free (800) 322-2885
35
<PAGE>
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY
AND AMONG
R-B CAPITAL CORPORATION,
R-B ACQUISITION CORPORATION
AND
PEERLESS INDUSTRIAL GROUP, INC.
Dated as of April 11, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................................... 3
- --------
1. THE TENDER OFFER........................................................ 3
1.1. The Offer........................................................ 3
1.2. Company Action................................................... 4
1.3. Shareholder Lists................................................ 5
1.4. Funding of Tender Offer.......................................... 5
1.5. Boards of Directors and Committees; Section 14(f)................ 6
2. THE MERGER.............................................................. 7
2.1. Merger........................................................... 7
2.1.1. Merger................................................... 7
2.1.2. Effect of Merger......................................... 7
2.1.3. Conversion of Shares..................................... 7
2.1.4. Stock Options and Warrants............................... 8
2.2. Merger Without Shareholders' Meeting............................. 8
2.3. Shareholders' Meeting of the Company............................. 8
2.4. Consummation of the Merger....................................... 9
2.5. Dissenters' Rights............................................... 9
2.6. Payment for Shares...............................................10
2.7. Closing of the Company's Transfer Books..........................11
2.8. Further Acts.....................................................11
3. REPRESENTATIONS AND WARRANTIES..........................................11
3.1. Representations and Warranties of Parent and the
Purchaser........................................................11
3.1.1. Corporate Organization...................................11
3.1.2. Authority................................................11
3.1.3. Tender Offer Material....................................12
3.1.4. Proxy Statement..........................................12
3.1.5. Consents; No Violation...................................12
3.1.6. Financing................................................13
3.2. Representations and Warranties of the Company....................13
3.2.1. Corporate Organization...................................13
3.2.2. Capitalization...........................................14
3.2.3. Authority................................................15
3.2.4. Consents; No Violation...................................15
3.2.5. SEC Reports..............................................15
3.2.6. No Material Adverse Change...............................16
3.2.7. Fees.....................................................17
3.2.8. Schedule 14D-9 and Proxy Statement.......................17
3.2.9. Trademarks, Patents and Copyrights.......................18
3.2.10. Litigation...............................................18
3.2.11. Labor Matters............................................18
3.2.12. Taxes....................................................19
3.2.13. Environment..............................................21
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.2.14. Employee Benefit Plans; ERISA........................ 21
3.2.15. Compliance........................................... 23
3.2.16. Properties........................................... 24
3.2.17. Regulatory Matters................................... 24
3.2.18. Voting Requirements.................................. 24
3.2.19. State Takeover Laws.................................. 24
4. COVENANTS............................................................. 25
4.1. No Solicitation............................................... 25
4.2. Stock Options and Warrants.................................... 26
4.3. Interim Operations............................................ 26
4.3.1. Conduct of Business.................................. 27
4.3.2. Charters and Bylaws.................................. 27
4.3.3. Capital Stock........................................ 27
4.3.4. Dividends............................................ 27
4.3.5. Relationships........................................ 27
4.3.6. Employee Plans, Compensation, Promotion,
Demotion, Reassignment, Etc.......................... 27
4.3.7. Certain Agreements................................... 28
4.3.8. Indebtedness......................................... 28
4.3.9. Acquisitions and Dispositions of Assets.............. 28
4.3.10. Accounting and Tax Matters........................... 28
4.3.11. Certain Actions...................................... 29
4.3.12. Payment of Claims.................................... 29
4.3.13. Transactions with Affiliates......................... 29
4.3.14. Representations and Warranties....................... 29
4.4. Access and Information........................................ 29
4.5. Certain Filings, Consents and Arrangements.................... 30
4.6. Proxy Statement............................................... 30
4.7. State Takeover Statutes....................................... 30
4.8. Best Efforts.................................................. 30
4.9. Indemnification............................................... 31
4.10. Certain Agreements............................................ 31
5. CONDITIONS............................................................ 31
5.1. Conditions to the Obligations of Parent, the
Purchaser and the Company..................................... 31
6. MISCELLANEOUS......................................................... 32
6.1. Termination................................................... 32
6.2. Non-Survival of Representations and Warranties................ 33
6.3. Waiver and Amendment.......................................... 33
6.4. Entire Agreement.............................................. 34
6.5. Applicable Law................................................ 34
6.6. Headings...................................................... 34
6.7. Notices....................................................... 34
6.8. Counterparts.................................................. 35
6.9. Severability.................................................. 35
6.10. Parties in Interest; Assignment............................... 36
</TABLE>
-ii-
<PAGE>
Page
<TABLE> ----
<C> <S> <C>
6.11. Expenses........................................................36
6.12. Publicity.......................................................38
6.13. Specific Performance............................................38
6.14. Certain Definitions.............................................38
</TABLE>
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is dated as of April 11, 1997, by and
among R-B Capital Corporation, a Delaware corporation ("Parent"), R-B
Acquisition Corporation, a Minnesota corporation and a wholly owned subsidiary
of Parent (the "Purchaser"), and Peerless Industrial Group, Inc., a Minnesota
corporation (the "Company").
RECITALS
--------
A. The Boards of Directors of Parent, the Purchaser and the Company each
have approved the acquisition of the Company by the Purchaser and, in
furtherance of the acquisition, the Purchaser proposes to make a tender offer
for all outstanding shares of Common Stock, no par value (the "Common Stock")
and all outstanding shares of Class B Common Stock, no par value (the "Class B
Common Stock") of the Company (hereinafter the Common Stock and the Class B
Common Stock shall be referred to collectively as the "Shares"), and the Board
of Directors of the Company has approved the Offer (as defined below), has
determined that the Offer is fair and in the best interests of the shareholders
of the Company, and recommends that the Offer be accepted by the shareholders of
the Company.
B. The Boards of Directors of Parent, the Purchaser and the Company each
have determined that it is advisable to merge the Purchaser with and into the
Company pursuant to this Agreement, with the result that the Company will become
a wholly owned subsidiary of Parent.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, Parent, the Purchaser and the Company hereby agree as follows:
1. THE TENDER OFFER
----------------
1.1. The Offer. (a) Provided that none of the events set forth in
Exhibit A hereto shall have occurred or be existing, the Purchaser, as promptly
as practicable, but in any event within five business days after the public
announcement of this Agreement, shall commence a tender offer (the "Offer") for
all outstanding Shares at a price of $1.67 per Share, net to the seller in cash.
Assuming the prior satisfaction or waiver of the conditions to the Offer set
forth in Exhibit A hereto, the Purchaser will accept for payment all Shares
validly tendered pursuant to the Offer, and not withdrawn, as soon as legally
permissible and shall pay for all
<PAGE>
such Shares as soon as practicable (but in any event within five business days)
thereafter; provided, however, that the Offer may be extended by the Purchaser,
in its sole discretion, (i) as may be required from time to time to satisfy any
condition set forth in Exhibit A, and (ii) following satisfaction or waiver of
all conditions set forth in Exhibit A hereto, for not more than ten business
days beyond the scheduled expiration date as in effect at the time such
conditions are satisfied or waived, if the number of Shares that have been
validly tendered and not withdrawn pursuant to the Offer represent less than 90%
of the outstanding Shares. Without the prior written consent of the Company, the
Purchaser will not decrease the price per Share, decrease the number of Shares
being sought in the Offer, change the form of consideration payable in the
Offer, add additional conditions to the Offer, or, subject to the preceding
sentence, make any other change in the terms of the Offer which is materially
adverse to the holders of Shares. It is agreed that the Offer will be subject
only to the conditions set forth in Exhibit A hereto, which are for the benefit
of the Purchaser and may be asserted or waived by the Purchaser in whole or in
part at any time and from time to time, in its sole discretion; provided,
however, that the Purchaser may not waive the Minimum Condition (as defined in
Exhibit A hereto) without the prior written consent of the Company.
(b) As soon as practicable on the date of commencement of the Offer,
Parent and the Purchaser shall file with the Securities and Exchange Commission
(the "Commission") a Tender Offer Statement on Schedule 14D-1 with respect to
the Offer (the "Schedule 14D-1"), which will contain the offer to purchase and
form of the related letter of transmittal (together with any supplements or
amendments thereto, the "Offer Documents"). Parent and the Purchaser shall give
the Company and its counsel the opportunity to review the Offer Documents prior
to their being filed with the Commission, and shall furnish to the Company and
its counsel copies of any comments that Parent or the Purchaser may receive from
the Commission or its staff with respect to the Offer Documents promptly after
receipt of such comments. Parent, the Purchaser and the Company each agrees
promptly to correct any information provided by it for use in the Offer
Documents if and to the extent that any such information shall have become false
or misleading in any material respect. The Purchaser may, at any time, transfer
or assign to one or more corporations directly or indirectly wholly owned by
Parent the right to purchase all or any portion of the Shares tendered pursuant
to the Offer, but any such transfer or assignment shall not relieve the
Purchaser of its obligations under the Offer or prejudice the rights of
tendering shareholders to receive payment for Shares properly tendered and
accepted for payment.
1.2. Company Action. The Company hereby approves of and consents to the
Offer. As soon as practicable on the date of the commencement of the Offer, the
Company shall file with the
2
<PAGE>
Commission a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), and shall mail the Schedule 14D-9 to the holders of the
Shares as promptly as practicable after the commencement of the Offer. The
Schedule 14D-9 will at all times set forth, and the Company hereby represents,
that the Board of Directors of the Company has unanimously (a) determined that
the Offer and the Merger (as defined in Section 2.1) are fair to and in the best
interests of the Company and its shareholders, (b) approved this Agreement and
the transactions contemplated hereby, including the Offer and the Merger, and
(c) resolved to recommend acceptance of the Offer and approval and adoption of
the Merger and this Agreement by the holders of Shares. The Company shall give
the Parent and its counsel an opportunity to review the Schedule 14D-9 and any
amendments or supplements thereto prior to their being filed with the
Commission, and shall furnish to Parent and its counsel copies of any comments
the Company may receive from the Commission or its staff with respect to the
Schedule 14D-9 promptly after receipt of such comments. Parent, the Purchaser
and the Company each agrees promptly to correct any information provided by it
for use in the Schedule 14D-9 if and to the extent that any such information
shall have become false or misleading in any material respect. The Company
hereby consents to the inclusion in the Offer Documents and any other Tender
Offer Material (as defined in Rule 14d-2(b)(5) adopted pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the
recommendation and determinations referred to in this Section 1.2. The Company
further represents and warrants that Summit Investment Corporation, financial
advisor to the Company (the "Advisor"), has delivered to the Company's Board of
Directors its written opinion to the effect that the consideration to be
received by the holders of Shares pursuant to the Offer and the Merger is fair
to such holders from a financial point of view. The Company has been authorized
by the Advisor to permit the inclusion of such fairness opinion in the Offer
Documents and the Schedule 14D-9, and in the Proxy Statement referred to in
Section 3.2.8(c). The Company hereby consents to the inclusion of such fairness
opinion in the Offer Documents and any other Tender Offer Material.
1.3. Shareholder Lists. The Company shall promptly furnish the Purchaser
with a list of the holders of Shares and mailing labels containing the names and
addresses of all record holders of Shares and lists of securities positions of
Shares held in stock depositories, each as of a recent date, and shall promptly
furnish the Purchaser with such additional information, including updated lists
of shareholders of the Company, mailing labels and lists of securities
positions, and such other assistance, as the Purchaser or its agents may
reasonably request in connection with communicating the Offer to the record and
beneficial holders of the Shares.
3
<PAGE>
1.4. Funding of Tender Offer. Parent shall make available to the
Purchaser on a timely basis funds as necessary to pay for the Shares that
Purchaser becomes obligated to accept for payment and pay for pursuant to the
Offer.
1.5. Boards of Directors and Committees; Section 14(f). (a) Promptly
upon the purchase by Purchaser of Shares pursuant to the Offer and from time to
time thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Company's Board of
Directors that equals the product of (i) the total number of directors on the
Company's Board of Directors (giving effect to the election of any additional
directors pursuant to this Section) and (ii) the percentage that the number of
Shares owned by Purchaser and its affiliates (including any Shares purchased
pursuant to the Offer) bears to the total number of outstanding Shares, and the
Company shall, upon request by Purchaser, subject to the provisions of Section
1.5(b), promptly either increase the size of its Board of Directors (and shall,
if necessary, amend the Company's By-Laws to permit such an increase) or use its
best efforts to secure the resignation of such number of directors as is
necessary to enable Purchaser's designees to be elected to such Board of
Directors, and shall cause Purchaser's designees to be so elected. Promptly
upon request by Purchaser, the Company will, subject to the provisions of
Section 1.5(b), use its best efforts to cause persons designated by Purchaser to
constitute the same percentage as the number of Purchaser's designees to the
Company's Board of Directors bears to the total number of directors on such
Board of Directors on (i) each committee of such Board of Directors, (ii) each
board of directors or similar governing body or bodies of each subsidiary of the
Company designated by Purchaser and (iii) each committee of each such board or
body.
(b) The Company's obligations to appoint designees to its Board of
Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions required
pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations
under this Section 1.5 and shall include in the Schedule 14D-9 or a separate
Rule 14f-1 Statement provided to shareholders such information with respect to
the Company and its officers and directors as is required under Section 14(f)
and Rule 14f-1. Parent or Purchaser will supply to the Company in writing and
be solely responsible for any information with respect to either of them and
their nominees, officers, directors and affiliates required by Section 14(f) and
Rule 14f-1.
(c) Following the election or appointment of Purchaser's designees
pursuant to this Section 1.5 and prior to the Effective Time (as defined below),
any amendment of this Agreement or the Restated Articles of Incorporation or By-
Laws of the
4
<PAGE>
Company, 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 Parent or Purchaser or any waiver of any of the Company's rights hereunder
will require the concurrence of a majority of the directors of the Company then
in office who are not designees of Purchaser or employees of the Company.
2. THE MERGER
----------
2.1. Merger.
------
2.1.1. Merger. At the Effective Time (as defined in Section 2.4),
and upon the terms and subject to the conditions of this Agreement, the
Purchaser will be merged with and into the Company (the "Merger"), in accordance
with Chapter 302A of the Minnesota Business Corporation Act ("MBCA"), whereupon
the separate existence of the Purchaser shall cease and the Company shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue its existence under the laws of the
State of Minnesota. The name of the Surviving Corporation shall be "Peerless
Industrial Group, Inc."
2.1.2. Effect of Merger. The Merger shall have the effects set forth
in the MBCA. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Purchaser
shall become the debts, liabilities and duties of the Surviving Corporation. The
Articles of Incorporation and the Bylaws of the Purchaser in effect upon
consummation of the Merger shall be the Articles of Incorporation and Bylaws of
the Surviving Corporation. The directors of the Purchaser upon consummation of
the Merger shall be the directors of the Surviving Corporation, and the officers
of the Purchaser shall be the officers of the Surviving Corporation, in each
case until their respective successors are duly elected and qualified. The
Merger shall have the other effects set forth in Section 641 of the MBCA.
2.1.3. Conversion of Shares. At the Effective Time (as defined in
Section 2.4), by virtue of the Merger and without any action on the part of any
holder of any Shares, (a) each Share issued and outstanding immediately prior to
the Effective Time (other than Shares to be cancelled pursuant to Section
2.1.3(b) and any Dissenting Shares (as defined in Section 2.5)) shall be
converted into the right to receive in cash an amount per Share equal to the
price paid per Share pursuant to the Offer (the "Merger Consideration"), without
interest, and such Shares shall be
5
<PAGE>
cancelled and extinguished; and (b) each Share owned by Parent, the Purchaser or
any other direct or indirect subsidiary of Parent, immediately prior to the
Effective Time, shall be cancelled and extinguished, and no payment will be made
with respect to those Shares; and (c) each share of common stock, par value $.01
per share of the Purchaser then issued and outstanding shall be converted into
one validly issued, fully paid share of common stock of the Surviving
Corporation, which shares thereafter will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation.
2.1.4. Stock Options and Warrants. At or before the Effective Time,
each option and warrant granted under the plans and agreements set forth in
Schedule 2.1.4, whether or not then exercisable, which is outstanding as of the
date hereof and which has not been exercised prior to the acquisition of Shares
pursuant to the Offer (the "Stock Purchase Rights") shall be cancelled and each
holder of a cancelled Stock Purchase Right shall be entitled to receive from the
Company, in cancellation and settlement of the Stock Purchase Right, an amount
in cash (less applicable withholding taxes) equal to the product of (x) the
number of Shares previously subject to such Stock Purchase Right and (y) the
excess, if any, of the Merger Consideration over the exercise price per Share
provided for in the Stock Purchase Right.
2.2. Merger Without Shareholders' Meeting. If Parent, the Purchaser and
any other corporations directly or indirectly owned by Parent together acquire
at least 90% of the outstanding Shares, the parties agree to take all necessary
and appropriate action to cause the Merger to become effective, as soon as
practicable after consummation of the Offer, without a meeting of shareholders
of the Company, in accordance with Section 621 of the MBCA.
2.3. Shareholders' Meeting of the Company. If the conditions are not met
to permit the Merger to occur without a meeting of shareholders under Section
2.2, the Company will take all action necessary in accordance with applicable
law and its Articles of Incorporation and Bylaws to duly call, give notice of,
convene and hold a special meeting of its shareholders as promptly as
practicable after consummation of the Offer to consider and vote upon the
approval of the Merger and adoption of this Agreement. In connection with any
such meeting, the Company will (a) include in the Proxy Statement the
recommendation of its Board of Directors that shareholders of the Company vote
in favor of the approval and adoption of this Agreement and the Merger and the
other transactions contemplated hereby, and (b) use its best efforts (i) to
obtain and furnish the information required to be included by it in the Proxy
Statement and, after consultation with Parent, respond promptly to any comments
made by the Commission or its staff with respect to the Proxy Statement and any
preliminary version thereof and cause the Proxy Statement to be mailed to its
shareholders at
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the earliest practicable time following the consummation of the Offer and (ii)
to obtain the necessary approvals by its shareholders of this Agreement and the
transactions contemplated hereby. At any such meeting, all of the Shares then
owned by Parent, the Purchaser or any other direct or indirect subsidiary of
Parent will be voted in favor of the approval of the Merger and adoption of this
Agreement.
2.4. Consummation of the Merger. Upon the terms and subject to the
conditions of this Agreement, as soon as practicable after consummation of the
Offer, and, if the vote of the shareholders of the Company is required pursuant
to Section 2.3, after the vote of such shareholders in favor of the Merger and
this Agreement has been obtained, the Company (or the Purchaser, if appropriate)
shall execute in the manner required by the MBCA and file with the Secretary of
State of the State of Minnesota a certificate of merger, as required by the
MBCA, and the parties shall take all such other and further actions as may be
required by law to make the Merger effective. Prior to the filing referred to in
this Section 2.4, a closing will be held at the offices of Mayer, Brown & Platt,
190 South LaSalle Street, Chicago, Illinois 60603 (or such other place as the
parties may agree) for the purpose of confirming all of the foregoing. The time
the Merger becomes effective in accordance with applicable law is referred to as
the "Effective Time".
2.5. Dissenters' Rights. Notwithstanding any provision of this Agreement
to the contrary, any Shares outstanding immediately prior to the Effective Time
held by a holder who has demanded and perfected the right, if any, to receive
fair value for such Shares ("Dissenting Shares") in accordance with the
provisions of Section 473 of the MBCA and as of the Effective Time has not
withdrawn or lost such dissenter's rights shall not be converted into or
represent a right to receive a cash payment pursuant to Section 2.1.3(a), but
the holder shall only be entitled to such rights as are granted by the MBCA. If
a holder of Shares who asserts dissenter's rights under the MBCA withdraws or
loses such rights (through failure to perfect or otherwise), then, as of the
Effective Time or the occurrence of such event, whichever last occurs, those
Shares shall be converted into and represent only the right to receive the
Merger Consideration as provided in Section 2.1.3(a), without interest, upon the
surrender of the certificate or certificates representing those Shares. The
Company shall give Parent (i) prompt notice of any written notice of intent to
demand fair value for any Shares, attempted withdrawals of such demands, the
deposit of any Shares for which payment is demanded, and any other instruments
served pursuant to the MBCA received by the Company relating to dissenters'
rights and (ii) the opportunity to participate in all negotiations and
proceedings with respect to the assertion of dissenters' rights under the MBCA.
The Company shall not, except with the prior written consent of Parent,
voluntarily
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make any payment with respect to any such demands for payment of fair value,
offer to settle or settle any such demands or approve any withdrawal of any such
demands.
2.6. Payment for Shares. Prior to the Effective Time, the Purchaser shall
designate a commercial bank or trust company organized under the laws of the
United States or any state of the United States with capital, surplus and
undivided profits of at least $100,000,000 to act as Paying Agent with respect
to the Merger (the "Paying Agent"). Each holder (other than Parent, the
Purchaser or any subsidiary of Parent) of a certificate or certificates (the
"Certificates") which immediately prior to the Effective Time represented
outstanding Shares will be entitled to receive, upon surrender to the Paying
Agent of the Certificates for cancellation, cash in an amount equal to the
product of the number of Shares previously represented by the Certificates
multiplied by the Merger Consideration, subject to any required withholding of
taxes. When and as needed, the Purchaser shall make available to the Paying
Agent sufficient funds to make all payments pursuant to the preceding sentence.
No interest shall accrue or be paid on the cash payable upon the surrender of
the Certificates. If payment is to be made to a person other than the person in
whose name the Certificates surrendered are registered, it shall be a condition
of payment that the Certificates so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting the payment
shall pay any transfer or other taxes required by reason of the payment to a
person other than the registered holder of the Certificates surrendered or
establish to the satisfaction of the Surviving Corporation that the tax has been
paid or is not applicable. Following the Effective Time, until surrendered to
the Paying Agent in accordance with the provisions of this Section 2.6, each
Certificate (other than Certificates representing Dissenting Shares and Shares
owned by Parent or any subsidiary of Parent) shall represent for all purposes
only the right to receive upon surrender the Merger Consideration multiplied by
the number of Shares evidenced by the Certificate, without any interest, subject
to any required withholding of taxes. Any funds delivered or made available to
the Paying Agent pursuant to this Section 2.6 and not exchanged for Certificates
within 12 months after the Effective Time will be returned by the Paying Agent
to the Surviving Corporation, which thereafter will act as Paying Agent, subject
to the rights of holders of unsurrendered Certificates under this Article 2, and
any former shareholders of the Company who have not previously exchanged their
Certificates will thereafter be entitled to look only to the Surviving
Corporation for payment of their claims for the consideration set forth in
Section 2.1.3(a), without any interest, but will have no greater rights against
the Surviving Corporation than may be accorded to general creditors thereof
under applicable law. As soon as practicable after the Effective Time, the
Surviving Corporation will cause the Paying Agent to mail to each record
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holder of Certificates a form of letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title of the Certificates will
pass, only upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates for payment.
2.7. Closing of the Company's Transfer Books. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of Shares
shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for cash as provided in Section 2.6, subject to applicable law in the case of
Dissenting Shares.
2.8 Further Acts. If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of the Company or the Purchaser acquired or to be acquired
by the Surviving Corporation as a result of or in connection with the Merger, or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of the Company or the Purchaser, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
of such corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm of record or otherwise any
and all right, title and interest in, to and under such rights, properties or
assets of the Surviving Corporation or otherwise to carry out this Agreement.
3. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1. Representations and Warranties of Parent and the Purchaser. Parent
and the Purchaser hereby jointly and severally represent and warrant to the
Company that:
3.1.1. Corporate Organization. Parent and the Purchaser are
corporations duly organized, validly existing and, where applicable, in good
standing, under the laws of their respective jurisdictions of incorporation, and
have the requisite corporate power to carry on their respective businesses as
they are now being conducted. Parent directly owns all of the issued and
outstanding capital stock of the Purchaser.
3.1.2. Authority. Each of Parent and the Purchaser has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions
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contemplated by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and the
Purchaser. This Agreement has been duly executed and delivered by each of Parent
and the Purchaser and constitutes a valid and binding obligation of each of
them, enforceable against each of them in accordance with its terms, except as
such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) is subject to general principles of equity.
3.1.3. Tender Offer Material. The Tender Offer Material relating to
the Offer and the related Schedule 14D-1 will comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder. None of the information contained in the Tender Offer Material or
the Schedule 14D-1, or in any amendment or supplement, will contain, on the date
of filing with the Commission, 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 made therein, in light of the circumstances under which they
are made, not misleading; provided, however, that the foregoing representation
and warranty shall not include or relate to any information obtained or derived
from any SEC Report (as defined in Section 3.2.5) and included in the Tender
Offer Material following review by the Company or its counsel or any other
information furnished by the Company and/or its representatives to Parent or the
Purchaser specifically for inclusion in the Tender Offer Material.
3.1.4. Proxy Statement. None of the information supplied by Parent
or the Purchaser specifically for inclusion in any Proxy Statement of the
Company required to be mailed to the Company's shareholders in connection with
the Merger, or in any amendments or supplements thereto, at the time of the
first mailing and at the time of the meeting of shareholders of the Company to
be held in connection with the Merger, will contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.1.5. Consents; No Violation. Neither the execution and delivery of
this Agreement by Parent and Purchaser nor the consummation of the transactions
contemplated by this Agreement will (a) conflict with, or result in any breach
or violation of, any provision of the Articles of Incorporation or Bylaws of the
Purchaser or Parent; (b) assuming that all consents, authorizations, approvals
contemplated by subsection (c) below have been obtained and all filings
described therein have been made, constitute, with or without the passage of
time, a breach, violation or default, create a lien, or give rise to any right
of
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termination, modification, cancellation, prepayment or acceleration, under any
order, writ, injunction, decree, law, statute, rule or regulation, governmental
permit or license, or any mortgage, indenture, lease, agreement or other
instrument of Parent, the Purchaser or any of their respective subsidiaries, or
to which Parent, the Purchaser or any of their respective subsidiaries or any of
their respective properties is subject (except for breaches, violations,
defaults, liens, or rights of termination, modification, cancellation,
prepayment or acceleration which would not, singly or in the aggregate, have a
material adverse effect on the business, financial condition, assets,
liabilities, results of operations or prospects (the "Business Condition") of
Parent and its subsidiaries taken as a whole) or adversely affect the ability of
Parent or the Purchaser to consummate the transactions contemplated hereby; or
(c) require any consent, approval or authorization of, notification to, or
filing with, any court, governmental agency or regulatory or administrative
authority, (each, a "Governmental Entity"), on the part of Parent or the
Purchaser, other than (i) the filing of a certificate of merger with respect to
the Merger in accordance with the MBCA and the laws of such other states as may
be applicable, (ii) filings with the Commission under the Exchange Act, (iii)
any applicable filings under state securities, "Blue Sky" or state anti-takeover
laws, and (iv) consents, approvals, authorizations, notifications or filings the
failure of which to obtain or make would not, singly or in the aggregate, have a
material adverse effect on the Business Condition of Parent or its subsidiaries
taken as a whole or the ability of Parent or the Purchaser to consummate the
transactions contemplated hereby.
3.1.6. Financing. Parent has or will have available to it sufficient
funds to purchase all outstanding Shares pursuant to the Offer and the Merger
and to pay all related fees and expenses of Parent and Purchaser.
3.2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent and the Purchaser that:
3.2.1. Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. The Company's sole subsidiary (the "Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota. The Subsidiary's sole subsidiary (the "Iowa Subsidiary" and
along with the Subsidiary, the "Subsidiaries") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Iowa. The
Company and its Subsidiaries are each in good standing as a foreign corporation
in each jurisdiction where the character of its properties owned or leased or
the nature of its activities makes qualification
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necessary, except to the extent that lack of qualification or good standing
would not have a material adverse effect on the Business Condition of the
Company and its Subsidiaries taken as a whole or materially adversely affect the
ability of the Company to consummate the transactions contemplated hereby (a
"Material Adverse Effect"). The Company and its Subsidiaries each has the
requisite corporate power to own, lease and operate its properties and assets
and to carry on its businesses as they are now being conducted. The Company has
delivered to Parent copies of the Articles of Incorporation and Bylaws of the
Company and each Subsidiary, as amended to this date, which Articles and Bylaws
are in full force and effect. Neither the Company nor any of its Subsidiaries is
in violation of any of the provisions of its respective Articles of
Incorporation or By-Laws. Neither the Company nor any Subsidiary owns, directly
or indirectly, any equity or voting interest in any Person that is not a
Subsidiary, and neither the Company, nor any of its Subsidiaries has made any
commitment to purchase any additional equity interests, make any capital
contributions to or invest any funds in any business or entity other than any
wholly-owned subsidiary of the Company.
3.2.2. Capitalization. The authorized capital stock of the Company
consists of 30,000,000 shares, of which 1,227,273 are designated as Class B
Common Stock and the remainder are designated as Common Stock. As of the date
hereof, (a) 5,045,151 shares of Common Stock and 1,227,273 shares of Class B
Common Stock were issued and outstanding, all of which are validly issued, fully
paid and nonassessable and not subject to preemptive rights, and (b) under the
plans and agreements set forth in Schedule 2.1.4 (copies of which have been
delivered to Parent) there are outstanding Stock Purchase Rights to purchase an
aggregate of 1,373,500 Shares of Common Stock. No Stock Purchase Rights have
been issued or have otherwise arisen since such date. All the outstanding shares
of capital stock of the Subsidiaries are validly issued, fully paid and
nonassessable, and, except as set forth in Schedule 3.2.2, are owned by the
Company, free and clear of all liens, claims or encumbrances. Except for the
Stock Purchase Rights, there are no outstanding subscriptions, options,
warrants, rights, convertible or exchangeable securities or other agreements or
commitments of any character relating to or based upon the issued or unissued
capital stock or other securities of the Company or securities of its
Subsidiaries obligating the Company or its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, or to make any payments based
upon the value of, any securities. Except as set forth in Schedule 3.2.2, there
are no voting trusts or other agreements or understandings to which the Company
or its Subsidiaries is a party with respect to the voting of capital stock of
the Company or its Subsidiaries. No person has any stock purchase or other
contractual rights to acquire any shares of capital stock of the Subsidiaries
and no person has any
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preemptive rights to acquire any shares of capital stock of the Company or its
Subsidiaries.
3.2.3. Authority. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject only, to the extent required, to approval, if necessary, by the
shareholders of the Company as provided in Section 2.3. Without limiting the
generality of the foregoing, the Board of Directors of the Company has approved
this Agreement, the Offer and the Tender and Stock Option Agreement executed and
delivered by the Purchaser, Parent and certain shareholders of the Company. This
Agreement has been duly executed and delivered by, and is a valid and binding
obligation of, the Company, enforceable in accordance with its terms, except as
such enforceability (i) may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to enforcement of creditors' rights
generally and (ii) is subject to general principles of equity.
3.2.4. Consents; No Violation. Neither the execution, delivery and
performance of this Agreement by the Company nor the consummation of the
transactions contemplated hereby will (a) conflict with, or result in a breach
or a violation of, any provision of the Articles of Incorporation or Bylaws of
the Company; (b) except as otherwise provided on Schedule 3.2.4 constitute, with
or without the passage of time, a breach, violation or default, create a lien,
or give rise to any right of termination, modification, cancellation, prepayment
or acceleration, under any order, writ, injunction, decree, statute, rule or
regulation, governmental permit or license, or any mortgage, indenture, lease,
agreement or other instrument of the Company or its Subsidiaries, or to which
the Company or its Subsidiaries or any of their respective properties is
subject, except for breaches, violations, defaults, liens or rights of
termination, modification, cancellation, prepayment or acceleration which would
not, singly or in the aggregate, have a Material Adverse Effect or materially
adversely affect the ability of the Company to consummate the transactions
contemplated hereby; or (c) require any consent, approval or authorization of,
notification to, or filing with, any Governmental Entity on the part of the
Company or its Subsidiaries, other than (i) the filing of the certificate of
merger with respect to the Merger in accordance with the MBCA, (ii) filings with
the Commission under the Exchange Act, and (iii) consents, approvals,
authorizations, notifications or filings the failure of which to obtain or make
would not, in the aggregate, have a Material Adverse Effect.
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3.2.5. SEC Reports. (a) Except as set forth in Schedule 3.2.5, the
Company has filed all forms, reports, statements (including proxy statements)
and schedules with the Commission required to be filed pursuant to the Exchange
Act or other federal securities laws (the "SEC Reports"). The SEC Reports
complied in all material respects with all applicable requirements of the
Exchange Act and did not (as of their respective filing dates) 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 made therein, in
light of the circumstances under which they were made, not misleading. The
audited and unaudited consolidated financial statements of the Company included
(or incorporated by reference) in the SEC Reports have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and fairly present the financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the results of their
operations and changes in financial position for the periods then ended,
subject, in the case of the unaudited financial statements, to normal year-end
audit adjustments which shall not have a Material Adverse Effect.
(b) Except as reflected or reserved against in the audited consolidated
balance sheet of the Company and its Subsidiaries at December 31, 1996, the
Company and its Subsidiaries have no liabilities of any nature (whether accrued,
absolute, contingent or otherwise), except for liabilities incurred in the
ordinary course of business since December 31, 1996 or liabilities which would
not, individually or in the aggregate, have a Material Adverse Effect. Except as
set forth in Schedule 3.2.5, neither the Company nor any of its subsidiaries is
liable as an indemnitor, guarantor, surety or endorser, and no person has the
power to confess judgment against the Company or any of its subsidiaries,
assets, properties or business except as would not, individually or in the
aggregate, result in or reasonably be likely to result in a Material Adverse
Effect.
3.2.6. No Material Adverse Change. Except as set forth in Schedule
3.2.6, since September 30, 1996, the Company and its Subsidiaries have operated
their respective businesses in the ordinary course and there has not been (i)
any material adverse change in the Business Condition of the Company and its
Subsidiaries taken as a whole; (ii) any damage, destruction or loss, whether
covered by insurance or not, materially and adversely affecting the assets or
businesses of the Company and its Subsidiaries taken as a whole; (iii) any
declaration, setting aside or payment of any dividend (whether in cash, stock or
property) with respect to the capital stock of the Company; (iv) any entry into
an employment, consulting or other agreement or any increase in the compensation
payable or to become payable by the Company or its Subsidiaries to any of their
respective directors or officers
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or any increase in any bonus, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such directors or officers; (v)
any entry into any commitment or transaction material to the Company and its
Subsidiaries taken as a whole (including, without limitation, any borrowing,
capital expenditure or sale of assets), other than new customer agreements,
supplier agreements, equipment purchase agreements or other vendor agreements in
the ordinary course of business; (vi) any change by the Company in accounting
principles or methods, or (vii) any other transaction or event set forth in
Section 4.3.2 through 4.3.13. As of March 30, 1997, the aggregate amount of all
capital expenditures made or committed by the Company since December 31, 1996
does not exceed $420,000.
3.2.7. Fees. Except for the fees payable to Coopers & Lybrand
Securities, L.L.C. and the Advisor, neither the Company nor its Subsidiaries has
paid or become obligated to pay any fee or commission to any broker, finder,
intermediary or financial advisor in connection with the transactions
contemplated hereby. Copies of the agreements evidencing such fees payable to
Coopers & Lybrand Securities, L.L.C., and the Advisor have been provided to the
Parent.
3.2.8. Schedule 14D-9 and Proxy Statement.
(a) The Schedule 14D-9 (copies of the proposed form of which
shall be delivered to Parent prior to the filing of the Schedule 14D-9), and all
amendments thereto, and, if a Proxy Statement is required for the consummation
of the Merger under applicable law, the Proxy Statement, will each comply in all
material respects with the Exchange Act, and the rules and regulations
thereunder, and will not, at the date of filing with the Commission, and at the
date first published or mailed and at the time of the meeting of shareholders of
the Company to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by the Company with respect to written information
supplied by Parent or any affiliate of Parent specifically for inclusion in the
Schedule 14D-9 or the Proxy Statement.
(b) None of the written information relating to the Company or
its Subsidiaries supplied by the Company for inclusion in the Tender Offer
Material (including any amendments or supplements) or any schedules required to
be filed with the Commission in connection therewith will, at the respective
times the Tender Offer Material or any amendments or supplements or any such
schedules are filed with the Commission, contain any untrue statement of a
material fact or omit to state any material fact
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required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) The letter to stockholders, notice of meeting, Proxy
Statement and form of proxy, or the information statement, as the case may be,
that may be distributed to shareholders in connection with the Merger (including
any supplements and amendments), and any schedules required to be filed with the
Commission in connection therewith, are collectively referred to as the "Proxy
Statement."
3.2.9. Trademarks, Patents and Copyrights. Except as set forth in
Schedule 3.2.9, the Company or its Subsidiaries own or possess adequate licenses
or other valid rights to use all copyrights, patents, patent rights, trademarks,
trademark rights and proprietary information used or held for use in connection
with its business as currently being conducted and are unaware of any assertions
or claims challenging the validity of any of the foregoing which are reasonably
likely to have a Material Adverse Effect, and the conduct of the Company's
business as now conducted or proposed to be conducted does not and will not
conflict with any patents, patent rights, licenses, trademarks, trademark
rights, trade names, trade name rights or copyrights of others known to the
Company or its Subsidiaries in any way reasonably likely to have a Material
Adverse Effect. No material infringement of any proprietary right owned by or
licensed by or to the Company or the Subsidiaries is known to the Company or the
Subsidiaries which is reasonably likely to have a Material Adverse Effect.
3.2.10. Litigation. Except as disclosed in the SEC Reports filed
prior to the date hereof or as disclosed on Schedule 3.2.10, there are no
claims, actions, suits, proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or its Subsidiaries, or
any properties or rights of the Company or its Subsidiaries, before any court,
administrative, governmental or regulatory authority or body, domestic or
foreign, which if determined adversely to the Company are reasonably likely, in
the aggregate, to have a Material Adverse Effect or which challenge or seek to
prevent or delay the performance of this Agreement or any of the transactions
contemplated hereby. As of the date hereof, neither the Company nor its
Subsidiaries nor any of their property is subject to any order, judgment,
injunction or decree having a Material Adverse Effect.
3.2.11. Labor Matters.
(a) Except as set forth in Schedule 3.2.11: (i) neither the
Company nor the Subsidiaries is a party to any agreement, policy or practice
that requires it to pay termination
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or severance pay to salaried, non-exempt or hourly employees (other than is
required by law); (ii) neither the Company nor the Subsidiaries is a party to
any collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or its Subsidiaries, nor does the Company or its
Subsidiaries know of any activities or proceedings of any labor union to
organize any such employees.
(b) Except as would not, either individually or in the aggregate,
have a Material Adverse Effect: (i) the Company and its Subsidiaries are in
compliance with all applicable laws relating to employment and employment
practices, wages, hours, and terms and conditions of employment; (ii) there is
no unfair labor practice charge or complaint pending before the National Labor
Relations Board ("NLRB"); (iii) there is no labor strike, material slowdown or
material work stoppage or lockout actually pending or, to the knowledge of the
Company, threatened against or affecting the Company or its Subsidiaries, and
neither the Company nor its Subsidiaries has experienced any strike, material
slowdown or material work stoppage or lockout; (iv) there is no representation
claim or petition pending before the NLRB or any labor organizing drive; (v)
there are no charges with respect to or relating to the Company or its
Subsidiaries pending before the Equal Employment Opportunity Commission or any
state, local or foreign agency responsible for the prevention of unlawful
employment practices; and (vi) neither the Company nor its Subsidiaries has
formal notice from any federal, state, local or foreign agency responsible for
the enforcement of labor or employment laws of an intention to conduct an
investigation of the Company or a Subsidiary and no such investigation is in
progress.
3.2.12. Taxes.
(a) Except as would not, either individually or in the aggregate, have a
Material Adverse Effect: (i) the Company and its Subsidiaries have duly and
timely filed (and until the Effective Time will duly and timely file all Tax and
information reports, returns and related documents required to be filed or sent
by them as of the Effective Time (including any consolidated Tax returns that
include the income or loss of the Company or any of its Subsidiaries) ("Tax
Returns") with respect to Federal, state, local, foreign and other taxes,
assessments, fees and other governmental charges, including without limitation
income, franchise, gross receipts, sales, use, occupation, employment,
withholding, excise, transfer, real and personal property and other taxes,
charges and levies, including without limitation interest, penalties,
assessments, deficiencies and other charges due or claimed to be due from it by
any governmental authority ("Taxes"), and have duly paid, or made adequate
provision for the due and timely payment of, all such Taxes; (ii) all Tax
Returns were (or will be) true, correct and complete in all material respects
when
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filed for all periods ending on or before the Effective Time; and (iii) the most
recent financial statements contained in the SEC Reports reflect an adequate tax
reserve in accordance with generally accepted accounting principles.
(b) Except as set forth on Schedule 3.2.12(b): (i) there are no material
Tax claims pending against the Company or any of its Subsidiaries and no
deficiencies for any Taxes for which the Company or its Subsidiaries may be
liable have been asserted in writing or assessed against the Company or its
Subsidiaries or any former subsidiary for which the Company or its Subsidiaries
may be liable which remain unpaid and neither the Company nor any of its
Subsidiaries knows of any threatened claim for Tax deficiencies or any basis for
such claims; (ii) no Tax Returns for the Company or any of its Subsidiaries have
been or are currently being examined by any taxing authority; (iii) no material
issues have been raised in any examination by any taxing authority with respect
to the Company or any of its Subsidiaries which, by application of similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so examined; (iv) there are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any Tax, nor
has any such waiver or agreement been requested by the Internal Revenue Service
or any other taxing authority; and (v) the statute of limitations with respect
to any year or period to and including the fiscal year ended 1991 has expired.
(c) The Company and its Subsidiaries have paid or are withholding and will
pay when due to the proper taxing authorities all material withholding amounts
required to be withheld with respect to all Taxes, including without limitation
sales and use Taxes on income or benefits and Taxes for unemployment, social
security or other similar programs with respect to salary and other compensation
of directors, officers and employees of the Company and its Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries has any liability for
any material federal, state, local, foreign or other Taxes of any corporation or
entity other than the Company and its Subsidiaries, including without limitation
any liability arising from the application of U.S. Treasury Regulation (S)
1.1502-6 or an analogous provision of state, local or foreign law.
(e) Neither the Company nor any of its Subsidiaries is or has been a party
to any material Tax sharing agreement with any corporation other than the
Company and its Subsidiaries.
(f) To the best of the Company's knowledge and as of the date hereof, no
person who holds 5 percent or more of the stock of the Company is a "foreign
person" as defined in Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
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(g) There is no contract, agreement, plan or arrangement covering any
employee or former employee of the Company or any of its Subsidiaries that
individually or collectively provides for the payment of any amount that is not
deductible under Section 162(a)(1) or 404 of the Code or that is an "excess
parachute payment" pursuant to Section 280G of the Code.
3.2.13. Environment. Except as set forth in Schedule 3.2.13, neither
the Company nor the Subsidiaries or any former subsidiary nor any prior or
current other owner or lessee has generated, handled, manufactured, treated,
stored, used, released, transported or disposed of any Environmentally Regulated
Materials (as defined below) on, beneath, to, from or about any of the leased
real property or any other properties formerly owned, leased or operated by the
Company or the Subsidiaries or any former subsidiary, except for the generation,
handling, manufacture, treatment, storage, use, release, transportation and
disposal, in compliance with all applicable laws, of such substances used in the
ordinary course of the Company's business. Except as set forth in Schedule
3.2.13, no Environmentally Regulated Material has been disposed of or allowed to
be disposed of on or off any of such properties which may give rise to a clean-
up responsibility, personal injury liability or property damage claim against
the Company or the Subsidiaries, or give rise to the Company or the Subsidiaries
being named a potentially responsible party for any such clean-up costs,
personal injuries or property damage, or create any cause of action by any third
party against the Company or the Subsidiaries under any Environmental Laws (as
defined below). Except as set forth in Schedule 3.2.13, neither the Company nor
the Subsidiaries has received any notices or claims of violations or liabilities
relating to pollution control or protection of the environment. The term
"Environmentally Regulated Materials" means any element, compound, pollutant,
contaminant, substance, material or waste, or any mixture thereof, designated,
listed, referenced, regulated or identified pursuant to any Environmental Law,
and includes without limitation petroleum and all fractions thereof, and
asbestos and asbestos-containing materials, and lead and lead paint. The term
"Environmental Law" means the National Environmental Policy Act, 42 U.S.C.
(S)(S) et seq., the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. (S)(S) 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. (S)(S) 6901 et seq., the Federal Water Pollution Control
Act, 33 U.S.C. (S)(S) 1251 et seq., the Federal Clean Air Act, 42 U.S.C. (S)(S)
7401 et seq., the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et seq.,
the Emergency Planning and Community Right to Know Act, 42 U.S.C. (P) 11001, the
Hazard Communication Act (S)(S) 651 et seq., and the Federal Insecticide,
Fungicide and Rodenticide Act, 7 U.S.C. (S) 136, each as amended, and the
related rules and regulations, and applicable state and local laws, rules and
regulations that address environmental issues.
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3.2.14. Employee Benefit Plans; ERISA.
(a) Schedule 3.2.14 sets forth a true and complete list of each
"employee benefit plan" (as that term is defined under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) and any
other plan, program, arrangement or agreement that is maintained by the Company
or a Subsidiary or with respect to which the Company, any of its Subsidiaries or
any ERISA Affiliate (as defined below) could have any liability related to the
employment or benefits of any present or former director, officer or employee of
the Company or a Subsidiary under which the Company or a Subsidiary has any
present or future obligation or liability including, but not limited to, the
Employee Arrangements (as defined in Section 4.3.6) as in effect on the date of
this Agreement (collectively the "Employee Benefit Plans").
(b) Each of the Employee Benefit Plans complies and has been
operated in all material respects in accordance with applicable law (including,
without limitation, ERISA and the Code); each of the Employee Benefit 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;
each trust maintained in connection with each such qualified plan has been
determined by the Internal Revenue Service to be tax-exempt under Code Section
501(a); nothing has occurred to cause the loss of the qualified status of any
such qualified plan; no Employee Benefit Plan has an accumulated or waived
funding deficiency within the meaning of Code Section 412; neither the Company
nor the Subsidiaries nor any trade or business which together with the Company
or a Subsidiary would be deemed a "single employer" within the meaning of ERISA
Section 4001 ("ERISA Affiliate") has incurred, directly or indirectly, any
material liability (including any material contingent liability) to or on
account of an Employee Benefit Plan pursuant to Title IV of ERISA; no
proceedings have been instituted to terminate any Employee Benefit Plan that is
subject to Title IV of ERISA; no "reportable event," as such term is defined in
ERISA Section 4043(b), has occurred with respect to any Employee Benefit Plan;
and no condition exists that presents a material risk to the Company or an ERISA
Affiliate of incurring a liability to or on account of a Employee Benefit Plan
pursuant to Title IV of ERISA.
(c) No Employee Benefit Plan is a multiemployer plan (within the
meaning of ERISA Section 4001(a)(3)) and no Employee Benefit Plan is a multiple
employer plan as defined in Code Section 413; all material contributions or
other amounts that are required to be paid by the Company or the Subsidiaries as
of the Effective Time with respect to each Employee Benefit Plan have been
either paid or accrued; and there are no material, pending, threatened or
anticipated claims (other than routine claims for
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benefits) by, or on behalf of or against any of the Employee Benefit Plans or
any trusts related thereto.
(d) Neither the Company nor the Subsidiaries, nor any ERISA
Affiliate, nor any Employee Benefit Plan, nor any trust created thereunder, nor
any trustee or administrator thereof has engaged in a transaction in connection
with which the Company, the Subsidiaries, any ERISA Affiliate, any Employee
Benefit Plan, any such trust, or any trustee or administrator thereof, or any
party dealing with any Employee Benefit Plan or any such trust could be subject
to either a material civil penalty assessed pursuant to ERISA, including without
limitation, Section 409, 502 or 4071 or a material tax or penalty imposed
pursuant to the Code, including without limitation, Section 4975, 4976 or 6652.
(e) With respect to each Employee Benefit Plan that is a "group
health plan" within the meaning of ERISA Section 601(a) and that is subject to
Code Section 4980B, the Company and the Subsidiaries have operated such plans in
material compliance with the continuation coverage requirements of those
provisions and Part 6 of Title I of ERISA.
(f) To the extent available to the Company, the Company has
supplied Parent with true and correct copies of each of the Employee Benefit
Plans, all contracts relating thereto, or to the funding thereof, including,
without limitation, all trust agreements, insurance contracts, administration
contracts, investment management agreements, subscription and participation
agreements, and recordkeeping agreements and, to the extent applicable, true and
correct copies of the most recent annual report, actuarial report, accountant's
opinion of the plan's financial statements, summary plan description and
Internal Revenue Service determination letter with respect to each Employee
Benefit Plan, in each case as in effect on the date hereof.
3.2.15. Compliance. Neither the Company nor any of its subsidiaries
is in violation of, or has violated, any applicable provisions of (i) any laws,
rules, statutes, orders, ordinances or regulations or (ii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise, or
other instrument or obligation to which the Company or its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties are bound or affected, which, in the case of either
subsection (i) or (ii), individually or in the aggregate, would result or
reasonably be likely to result in a Material Adverse Effect. Without limiting
the generality of the foregoing, neither the Company nor any of its subsidiaries
is in violation of, or has violated any applicable provisions of the Foreign
Corrupt Practices Act, the Trading with the Enemy Act, the Anti-Economic
Discrimination Act or any law or regulation relating to Medicare or Medicaid
anti-kickback fraud and
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abuse, except for such violations that would not, individually or in the
aggregate, result in or reasonably be likely to result in a Material Adverse
Effect.
3.2.16. Properties. The Company and its subsidiaries have good and
marketable title to all real property owned or leased by them, subject only to
Liens and imperfections of title that in the aggregate would not have a Material
Adverse Effect. True and complete copies of all material leases to which the
Company or any Subsidiary is a party have heretofore been furnished to Parent.
Such leases are valid and binding, and there does not exist any event which,
with notice or lapse of time or both, would constitute a material default under
such leases by the Company.
3.2.17. Regulatory Matters. (a) Except as disclosed in Schedule
3.2.17 and except as would not, individually or in the aggregate, have a
Material Adverse Effect, since September 30, 1996 there have been no written
notices, citations or decisions by any governmental or regulatory body that any
product produced, manufactured, marketed or distributed at any time by the
Company or any Company subsidiary (the "Company Products") is defective or fails
to meet any applicable standards promulgated by any such governmental or
regulatory body, or any other governmental or regulatory body, agency or office
of any other jurisdiction to which the Company or any of its subsidiaries is
subject.
3.2.18. Voting Requirements. The affirmative vote of a majority of
the outstanding shares of Common Stock and Class B Common Stock (voting as a
single class) approving this Agreement is the only vote of the holders of any
class or series of Company Securities necessary to approve this Agreement and
the transactions contemplated by this Agreement.
3.2.19. State Takeover Laws. A committee of the Company's Board of
Directors formed in accordance with Section 302A.673 of the MBCA has approved
the transactions contemplated hereby so as to render inapplicable to such
transactions, including, without limitation, the Offer and the Merger
(including, without limitation, the Tender and Stock Option Agreements executed
and delivered by certain shareholders of the Company), the restrictions on
business combinations contained in Section 302A.673 of the MBCA and the
provisions regarding control share acquisitions contained in Section 302A.671 of
the MBCA. Neither the Offer, the Merger, the Tender and Stock Option Agreement,
nor the acquisition of shares pursuant to any thereof will constitute a Control
Share Acquisition as defined in the MBCA. Other than the filing of a
registration statement as required by Section 80B.03, Minnesota Statutes, no
filing with or approval by any governmental agency of the State of Minnesota is
required in connection with the Offer, the Merger, the Tender and Stock Option
Agreements and the transactions contemplated thereby. The Company has taken all
steps
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necessary irrevocably to exempt the transactions contemplated by this Agreement
from any applicable provisions of the Company's Articles of Incorporation and
By-Laws which would have the effect of delaying, preventing or materially
reducing the expected benefits to Parent or Purchaser of the transactions
contemplated by this Agreement.
4. COVENANTS
---------
4.1. No Solicitation. (a) The Company will immediately cease any
existing discussions or negotiations with any third parties conducted prior to
the date hereof with respect to any Acquisition Proposal (as defined below).
The Company shall not, directly or indirectly, through any officer, director,
employee, representative or agent, or any of its subsidiaries, or otherwise (i)
solicit, initiate, continue or encourage any inquiries, proposals or offers that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, business combination, sale of substantial assets, sale
of shares of capital stock (including, without limitation, by way of a tender
offer), liquidation, reorganization or similar transactions involving the
Company or any of its subsidiaries or divisions, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"), (ii) solicit,
initiate, continue or engage in negotiations or discussions concerning, or
provide any information or data to any person or entity relating to, or
otherwise cooperate in any way with, or assist or participate in, or facilitate
or encourage any Acquisition Proposal, or (iii) agree to, approve or recommend
any Acquisition Proposal; provided, that nothing contained in this Section 4.1
shall prevent the Company from, prior to the acceptance for payment by the
Purchaser of Shares pursuant to the Offer, furnishing non-public information to,
or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited Acquisition Proposal by such person or entity
(including a new and unsolicited Acquisition Proposal received by the Company
after the execution of this Agreement from a person or entity whose initial
contact with the Company may have been solicited by the Company prior to the
execution of this Agreement), and may recommend such an unsolicited bona fide
written Acquisition Proposal to the shareholders of the Company, if and only to
the extent that (i) the Board of Directors of the Company determines in good
faith (after consultation with and based upon the advice of its financial
advisor and considering the affect of such Acquisition Proposal upon the
employees, customers and the community) that such Acquisition Proposal would, if
consummated, result in a transaction more favorable to the shareholders of the
Company than the Offer and Merger and that the person or entity making such
Acquisition Proposal has the financial means, or the ability to obtain the
necessary financing, to conclude such
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transaction (any such more favorable Acquisition Proposal being referred to in
this Agreement as a "Superior Proposal"), (ii) the Board of Directors of the
Company determines in good faith (after consultation with and based upon the
advice of its outside legal counsel) that the failure to take such action would
be inconsistent with the fiduciary duties of such Board of Directors to its
shareholders under applicable law, and (iii) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, such Board of Directors receives from such person or entity an
executed confidentiality agreement with confidentiality provisions not
materially less favorable to the Company than those contained in the
Confidentiality Agreement.
(b) The Company agrees not to release any third party from, and to enforce
strictly any confidentiality or standstill agreement to which the Company and
such third party are parties. The Company shall notify Parent immediately (and
in no event later than 24 hours) after receipt by the Company of any Acquisition
Proposal or amendment or supplement thereto or any request for non-public
information in connection with an Acquisition Proposal or for access to the
properties, books or records of the Company by any person or entity that informs
the Company that it is considering making, or has made, an Acquisition Proposal.
Such notice shall be made orally and in writing and shall indicate in reasonable
detail the identity of the offeror and shall be accompanied by a copy of any
written documentation received by the Company in connection with such
Acquisition Proposal and financing related thereto.
4.2. Stock Options and Warrants. Prior to the acquisition of Shares
pursuant to the Offer, the Company shall (a) make all necessary and appropriate
adjustments to and shall obtain all necessary consents with respect to, all of
the Stock Purchase Rights to ensure that, in full cancellation and settlement
thereof, the Company shall make a cash payment to the holder of each cancelled
Stock Purchase Right as described in Section 2.1.4 hereof, and following the
Effective Time, no participant in any stock, stock option, stock appreciation or
other benefit plan of the Company or any of its subsidiaries or any holder of
any Stock Purchase Right shall have any right thereunder to acquire any capital
stock of the Surviving Corporation or any subsidiary thereof, and (b) enter into
amendments to the employment and other arrangements of William H. Spell to
eliminate any provision for severance or termination payments, or for
accelerated vesting or payment of compensation or other benefits, upon a change
in control of the Company or upon termination of employment.
4.3. Interim Operations. During the period from the date of this
Agreement to the Effective Time, except as specifically contemplated by this
Agreement or as otherwise approved in writing by the Purchaser:
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4.3.1. Conduct of Business. The Company shall, and shall cause each
Subsidiary to, conduct its business only in, and not to take any action except
in, the ordinary and usual course of business and consistent with past practice.
4.3.2. Charters and Bylaws. The Company shall not, and shall not
permit its Subsidiaries to, make or propose any change or amendment in their
respective charters or bylaws.
4.3.3. Capital Stock. Except for common stock issued upon exercise
of Stock Purchase Rights, the Company shall not, and shall not permit its
Subsidiaries to, issue, pledge or sell any shares of capital stock or any other
securities of any of them or issue any securities convertible into, exchangeable
for or representing a right to purchase or receive, or enter into any contract,
understanding or arrangement with respect to the issuance of, any shares of
capital stock or stock related or based awards or any other securities of any of
them, or enter into any arrangement or contract with respect to the purchase or
voting of shares of their capital stock, or adjust, split, combine or reclassify
any of their securities, or make any other changes in their capital structures.
4.3.4. Dividends. The Company shall not, and shall not permit its
Subsidiaries to, declare, set aside, pay or make any dividend or other
distribution or payment (whether in cash, stock or property) with respect to, or
purchase or redeem, any shares of the capital stock of any of them.
4.3.5. Relationships. The Company shall, and shall cause each of its
Subsidiaries to, use its reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain existing relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with it.
4.3.6. Employee Plans, Compensation, Promotion, Demotion,
Reassignment, Etc. Except (i) as required by law, (ii) as provided in Sections
4.2 and 4.10, and (iii) except for the hiring, promotion, demotion,
reassignment, and termination of employees (other than officers) in the ordinary
course of business, the Company shall not, and shall not permit its Subsidiaries
to, adopt, enter into, amend or terminate any profit sharing, retirement,
pension, severance, salary continuation, stock option, bonus, compensation,
incentive, deferred compensation, retirement, employment, consulting or other
employee benefit plan, agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any former or present director, former or present officer
or former or present employee ("Employee Arrangements"), or increase in any
manner the compensation, severance or fringe benefits of any
25
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former or present director, former or present officer or, except in the ordinary
course and consistent with past practice, former or present employee or pay any
benefit not required by any existing plan or arrangement, or grant any awards
under any bonus, incentive, performance or other compensation plan or
arrangement (including, without limitation, the granting of stock options, stock
appreciation rights, stock related or based awards, or restricted stock, or the
removal of existing restrictions in any benefit plans or agreements or awards
made thereunder) or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing. Except as may be required under the
terms of any Employee Arrangements or applicable law as in effect on the date of
this Agreement, the Company shall not, and shall not permit its Subsidiaries to,
terminate, contribute to or otherwise fund or secure the benefits or
compensation provided under, any of the Employee Arrangements.
4.3.7. Certain Agreements. Neither the Company nor its Subsidiaries
will knowingly waive any provision of any confidentiality agreement to which it
is a party.
4.3.8. Indebtedness. Neither the Company nor any of its Subsidiaries
shall (i) other than borrowings under the existing CIT line of credit in the
ordinary course of business consistent with past practice and consistent with
any projections previously provided by the Company to the Parent, incur any
indebtedness for borrowed money or issue any debt securities or, assume,
guarantee or endorse the obligations of any other person; (ii) make any loans,
advances or capital contributions to, or investments in, any other person (other
than to wholly owned subsidiaries of the Company); (iii) pledge or otherwise
encumber shares of capital stock of the Company or any of its subsidiaries; or
(iv) mortgage or pledge any of its assets, tangible or intangible, or create or
suffer to exist any Lien thereupon.
4.3.9. Acquisitions and Dispositions of Assets. Neither the Company
nor any of its Subsidiaries shall acquire, sell, lease, license, encumber,
transfer or dispose of any assets outside the ordinary course of business
consistent with past practice or any assets which in the aggregate are material
to the Company and its subsidiaries, taken as a whole, or enter into any
contract, agreement, commitment or transaction outside the ordinary course of
business consistent with past practice.
4.3.10. Accounting and Tax Matters. Neither the Company nor any of
its Subsidiaries shall (a) change any of the accounting principles or practices
used by it, except as may be required as a result of a change in law or in
generally accepted accounting principles, or (b) make any tax election or settle
or compromise any material Tax liability.
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4.3.11. Certain Actions. Neither the Company nor any of its
Subsidiaries shall (i) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof; (ii) without the approval of Parent, which will not be
unreasonably withheld, authorize any new capital expenditure or expenditures
exceeding $100,000 in the aggregate; (iii) without the approval of Parent, which
will not be unreasonably withheld, settle any litigation for amounts in excess
of $25,000 individually or $50,000 in the aggregate; or (iv) enter into or amend
any contract, agreement, commitment or arrangement with respect to any of the
foregoing.
4.3.12. Payment of Claims. Neither the Company nor any of its
Subsidiaries shall pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in the consolidated
financial statements (or the notes thereto) of the Company and its consolidated
subsidiaries or incurred in the ordinary course of business consistent with past
practice, except where such action would not result in a Material Adverse
Effect.
4.3.13. Transactions with Affiliates. Neither the Company nor any of
its Subsidiaries shall enter into any transaction nor amend any existing
relationship with any affiliate of the Company.
4.3.14. Representations and Warranties. Neither the Company nor any
of its Subsidiaries shall take, or agree in writing or otherwise to take, any
action which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect or would result in any of the
conditions to the Offer not being satisfied.
4.4. Access and Information. Throughout the period prior to the
Effective Time, the Company shall afford to Parent and its representatives such
access, during normal business hours, to the Company's and its Subsidiaries'
books and records as Parent shall reasonably request, shall permit each of
Parent and Purchaser and their respective counsel, financial advisors, auditors
and other authorized representatives to make such inspections as Parent or
Purchaser may reasonably require and will cause the Company's officers or
representatives and those of its subsidiaries to furnish promptly to Parent or
Purchaser or their representatives such financial and operating data and other
information with respect to the business and properties of the Company and any
of its subsidiaries as Parent or Purchaser may from time to time request.
Parent and the Purchaser will treat, and will cause their respective
accountants, counsel and other representatives to, treat
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confidentially all non-public information concerning or related to the Company
or its business furnished or made available to Parent or the Purchaser in
connection with the transactions contemplated by this Agreement, in accordance
with that certain confidentiality and non-disclosure agreement dated October 29,
1996 between Pandora Capital Corporation and the Company (the "Confidentiality
Agreement"). No investigation pursuant to this Section 4.4 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereunder.
4.5. Certain Filings, Consents and Arrangements. Parent, the
Purchaser and the Company shall cooperate with one another (i) in promptly
determining whether any filings are required to be made or consents, approvals,
permits or authorizations are required to be obtained under any federal, state
or foreign law or regulation or any consents, approvals or waivers are required
to be obtained from other parties to loan agreements or other contracts material
to the Company's and the Subsidiaries' business in connection with the
consummation of the Offer or the Merger and (ii) in promptly making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such consents, permits, authorizations, approvals or
waivers.
4.6. Proxy Statement. If necessary to consummate the Merger, promptly
after the termination or expiration of the Offer, the Company shall prepare the
Proxy Statement, file it with the Commission and mail it to all holders of
Shares. Parent, the Purchaser and the Company shall cooperate with each other
in the preparation of the Proxy Statement.
4.7. State Takeover Statutes. The Company shall (a) take all action, if
any, necessary to exempt the Offer and the Merger from the effects of any state
takeover law and (b) upon the request and at the expense of the Purchaser, take
all reasonable steps to assist in any challenge by the Purchaser to the
validity, or applicability to the Offer or the Merger, of any such state
takeover law.
4.8. Best Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto agrees to use its best efforts to take
promptly, or cause to be taken, all actions and to do promptly, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including without limitation using its best efforts to obtain
all necessary waivers, consents and approvals and effecting all necessary
registrations and filings (including, but not limited to, in the preparation and
filing of the Offer Documents, the Schedule 14D-9, and the Proxy Statement). In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement,
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the proper officers of Parent, the Purchaser and the Company shall take the
necessary action.
4.9. Indemnification.
(a) From and after the Effective Time, the Surviving Corporation shall
assume the indemnification and expense advancement obligations of the Company
and its Subsidiaries to present and former directors, officers, employees and
agents (i) pursuant to the Indemnification Agreements identified in Schedule 4.9
and (ii) as provided in the Articles of Incorporation and By-Laws of the Company
and its subsidiaries as in effect at the date hereof (the "Indemnification
Obligations").
(b) Parent hereby guarantees the Indemnification Obligations of the
Surviving Corporation.
4.10. Certain Agreements. At the Effective Time, the Parent shall cause
the Company, as the surviving corporation in the Merger, and Peerless Chain
Company, the Company's operating subsidiary, to enter into a consulting
agreement with William H. Spell for a two-year term following the Effective
Time, and providing for payments to Mr. Spell of (a) within seven days after the
execution of such agreement, the sum of $120,000, and thereafter, (b) the sum of
$25,000 per quarter for the first four quarters of such agreement, payable
quarterly in arrears, and (c) $22,500 per quarter for the second four quarters
of such agreement, payable quarterly in arrears.
4.11 Repayment of Certain Debt. At or before the Effective Time, Parent
and Purchaser shall cause to be prepaid all amounts outstanding under that
certain Redemption Note dated December 13, 1995, made by Peerless Chain Company
in favor of Bridgewater Resources Corp. in the principal amount of $2,500,000.
5. CONDITIONS
----------
5.1. Conditions to the Obligations of Parent, the Purchaser and the
Company. The obligations of Parent, the Purchaser and the Company to consummate
the Merger are also subject to the satisfaction, at or before the Effective
Time, of each of the following conditions:
5.1.1. The shareholders of the Company shall have duly approved the
Merger, if required by applicable law or pursuant to Section 2.3.
5.1.2. The consummation of the Merger shall not be prohibited by any
order, decree or injunction of a court of competent jurisdiction (each party
agreeing to use its best efforts to have any such order reversed or injunction
lifted), and there
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shall not have been any action taken or any statute, rule or regulation enacted,
promulgated or deemed applicable to the Merger by any Governmental Entity that
makes consummation of the Merger illegal.
5.1.3. The Purchaser shall have accepted for payment and paid for
Shares tendered pursuant to the Offer.
6. MISCELLANEOUS
-------------
6.1. Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether prior to or after approval by the shareholders of the Company:
(a) by the mutual written consent of Parent, the Purchaser and the
Company;
(b) by the Company if (i) the Offer shall not have been commenced
within five business days from the date of public announcement of this Agreement
or (ii) the Offer shall have expired and the Purchaser shall not have accepted
for payment Shares pursuant to the Offer (provided, that the right to terminate
this Agreement under this Section 6.1(b) shall not be available if the Company's
failure to fulfill any obligation under this Agreement has been the cause of, or
results in, the Offer not being so commenced or consummated);
(c) by either Parent or the Company if the Offer terminates or expires
pursuant to its terms on account of the failure of any condition specified in
Exhibit A to have been satisfied without the Purchaser having purchased any
Shares thereunder (provided, that the right to terminate this Agreement under
this Section 6.1(c) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or results in, the
failure of any such condition);
(d) by either Parent or the Company if either (or any permitted
assignee) is prohibited by an order or injunction of a court of competent
jurisdiction from consummating the Offer or the Merger and such order or
injunction shall have become final and non-appealable;
(e) by Parent if the Board of Directors of the Company shall have
withdrawn or modified, or resolved to withdraw or modify, in any manner which is
materially adverse to Parent or the Purchaser, its recommendation or approval of
the Offer, the Merger or this Agreement;
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(f) by Parent if there has been a material breach by the Company of
any representation, warranty, covenant or agreement set forth in this Agreement
on the part of the Company and which the Company fails to cure within 10 days
after notice thereof is given by the Parent;
(g) by the Company if there has been a material breach by Parent or
the Purchaser of any representation, warranty, covenant or agreements as set
forth in this Agreement on the part of Parent or the Purchaser and which Parent
or the Purchaser, as the case may be, fails to cure with 10 days after notice
thereof is given by the Company;
(h) by either Parent or the Company if, prior to the acceptance for
payment of Shares pursuant to the Offer (i) the Company shall have received a
Superior Proposal (as defined in Section 4.1), provided that such proposal has
not been obtained in violation of Section 4.1, and (ii) Parent does not make,
within five business days of receipt of written notice of the Company's desire
to accept such Superior Proposal, an offer that the Company's Board of Directors
believes, in good faith after consultation with its financial advisors, is at
least as favorable, from a financial point of view, to the shareholders of the
Company, as the Superior Proposal;
(i) by Parent if, prior to the purchase of Shares pursuant to the
Offer, if any person, corporation, entity or "group," as defined in Section
13(d)(3) of the Exchange Act (other than Parent or the Purchaser), shall have
acquired after the date of this Agreement beneficial ownership of twenty-five
percent of the outstanding Shares; or
(j) by either Parent or the Company, if the Purchaser has not accepted
Shares for payment on or before July 11, 1997; provided, that the right to
terminate this Agreement under this Section 6.1(j) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in such failure to accept Shares for payment or the failure
to satisfy any condition set forth in Exhibit A, and shall not be available to
the Company if any shareholder of the Company shall have breached any provision
of the Tender and Stock Option Agreement among the Purchaser, Parent and certain
shareholders of the Company (the "Tender Agreement").
In the event of a termination and abandonment, no party hereto (or any of
its directors or officers) shall have any liability or further obligation to any
other party to this Agreement except as provided in Section 6.2 and Section 6.11
and except that nothing herein will relieve any party from liability for any
breach of this Agreement. No termination shall limit the liability of the
Company (if any) under Section 6.11.
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6.2. Non-Survival of Representations and Warranties. The representations
and warranties in this Agreement (other than the representation and warranty set
forth in Section 3.2.2) shall not survive the payment for Shares in the Offer.
The representation and warranty set forth in Section 3.2.2 and the agreements in
this Agreement shall terminate at the Effective Time or the termination of this
Agreement pursuant to Section 6.1, as the case may be, except that the
agreements set forth in Sections 2.1.4, 2.5, 2.6, 4.9, 4.10 and 6.10, and the
last sentence of Section 4.8, shall survive the Effective Time indefinitely, and
the agreements set forth in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.9, 6.11, and
6.13 and the last paragraph of Section 6.1, shall survive termination of this
Agreement indefinitely.
6.3. Waiver and Amendment. Any provision of this Agreement may be waived
at any time by the party which is, or whose shareholders are, entitled to the
benefits thereof and this Agreement may be amended or supplemented at any time
before or after adoption of this Agreement by the shareholders of the Company
but, after any such approval, no amendment shall be made which decreases the
cash price per Share or which adversely affects the rights of the holders of
Shares hereunder without the approval of such holders. No waiver, amendment or
supplement shall be effective unless in writing and signed by the party or
parties sought to be bound thereby.
6.4. Entire Agreement. This Agreement, the Confidentiality Agreement and
the Offer Documents contain the entire agreement among Parent, the Purchaser and
the Company with respect to the Offer, the Merger and the other transactions
contemplated hereby and thereby, and such agreements supersede all prior
agreements among the parties (including, without limitation, the letter
agreement dated February 28, 1997, as amended) with respect to these matters.
6.5. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota without giving effect to
the conflicts of law principles thereof.
6.6. Headings. The descriptive headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.7. Notices. Each party shall promptly give written notice to the other
party upon becoming aware of the occurrence or, to its knowledge, impending or
threatened occurrence, of any event which would cause or constitute a breach of
any of its representations, warranties or covenants contained or referenced in
this Agreement and will use its best efforts to prevent or promptly remedy the
same. All notices or other communications under this Agreement shall be in
writing and shall be mailed by first class, registered
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or certified mail return receipt requested, postage prepaid; hand delivered; or
sent by facsimile transmission or by nationally recognized overnight delivery
service for next business day delivery, addressed as set forth below, or at such
other address as the intended recipient shall have previously designated by
written notice to the parties. Notice by registered or certified mail shall be
deemed to have been delivered to and received by the addressee, and shall be
effective, five days following the date deposited in the United States mail.
Notices delivered by hand or sent by facsimile shall be deemed to have been
delivered to and received by the addressee, and shall be effective, on the date
sent or delivered. Notices sent by nationally recognized overnight delivery
service for next business day delivery shall be deemed to have been delivered to
and received by the addressee, and shall be effective, on the next business day.
If to the Company:
Peerless Industrial Group, Inc.
2430 Metropolitan Center
333 South Seventh Street
Minneapolis, MN 55402
Attention: William Spell
With a copy to:
Briggs and Morgan, Professional Association
2400 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Attention: Brian D. Wenger, Esq.
If to Parent or the Purchaser:
Ridge Capital Corporation
257 East Main Street, Suite 302
Barrington, IL 60010
Attention: J. Bradley Davis
With copies to:
William Blair Mezzanine
Capital Partners
222 West Adams Street
Chicago, IL 60606
Attention: Terrance M. Shipp
and
33
<PAGE>
Mayer, Brown & Platt
190 S. LaSalle Street
Chicago, IL 60603
Attention: Richard S. Millard
6.8. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one agreement.
6.9. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
6.10. Parties in Interest; Assignment. Except as otherwise specifically
set forth in this Agreement, this Agreement is binding upon and solely for the
benefit of the parties hereto and their respective successors, legal
representatives and assigns, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement. The
Purchaser shall have the right to assign to Parent or any direct or indirect
wholly owned subsidiary of Parent any and all rights and obligations of the
Purchaser under this Agreement, including, without limitation, the right to
substitute in its place such a subsidiary as one of the constituent corporations
in the Merger (such subsidiary assuming all of the obligations of the Purchaser
in connection with the Merger) and may require the Subsidiaries of the Company
to merge with subsidiaries of the Purchaser (or its assignees) in connection
with the Merger, and to transfer to Parent or to any direct or indirect wholly
owned subsidiary of Parent the right to purchase Shares tendered pursuant to the
Offer. If the Purchaser exercises its right to so restructure the transaction,
the Company shall promptly enter into appropriate agreements to reflect such
restructuring.
6.11. Expenses. (a) Except as set forth in paragraphs (b) and (f) below,
and except as provided in the Tender Agreement, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Offer, this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
(b) Notwithstanding the foregoing, if (i) this Agreement is terminated
after the occurrence of a Triggering Event (as defined
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below), and (ii) within six months after such termination the Company either (A)
consummates any Alternative Transaction (as defined below) or (B) becomes a
party to any agreement relating to an Alternative Transaction that is thereafter
consummated, then upon the consummation of such Alternative Transaction the
Company shall pay Parent a non-refundable fee of $900,000 (the "Fee") which
amount shall be payable by wire transfer of same day funds on the date such
Alternative Transaction is consummated.
(c) The Company shall reimburse the Parent in connection with any legal or
other fees incurred by the Parent in connection with the collection of the Fee
from the Company.
(d) As used herein, a "Triggering Event" shall mean any of the following:
(i) the Board of Directors of the Company shall have withdrawn or modified
its recommendation of the Offer or shall have resolved or publicly announced its
intention to do so; or
(ii) an Alternative Transaction shall have taken place or the Board of
Directors of the Company shall have recommended such an Alternative Transaction
to shareholders, or shall have resolved or publicly announced its intention to
recommend or engage in an Alternative Transaction; or
(iii) a tender offer or exchange offer with respect to shares of the
Company shall have been commenced or a registration statement with respect
thereto shall have been filed (other than by Parent and its affiliates), and the
Board of Directors of the Company shall have (A) recommended (or shall have
resolved or publicly announced its intention to recommend) that the shareholders
of the Company tender their shares in such tender or exchange offer or (B)
resolved or publicly announced its intention to take no position with respect to
such offer; or
(iv) the Offer shall have expired without satisfaction of the majority
Minimum Condition described therein, and at any time during the Offer an
Alternative Transaction shall have been publicly announced and not absolutely
and unconditionally withdrawn and abandoned; or
(v) a material breach by the Company of this Agreement shall have
occurred, and at the time of such breach or any termination based thereon an
Alternative Transaction shall have been publicly announced and not absolutely
and unconditionally withdrawn and abandoned; or
(vi) The Company shall have negotiated with, furnished information to,
entered into any agreement with, or consummated or recommended any transaction
with, any person other than Parent or
35
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its affiliates, based on a determination regarding a "Superior Proposal" made as
described in Section 4.1 hereof; or
(vii) The Company shall breach or fail to perform its obligations under
Section 4.1 hereof.
(e) As used herein, an "Alternative Transaction" shall mean (a) any
transaction or series of transactions by which any person or group (other than
Parent and its affiliates) acquires or would acquire shares (or securities
exercisable or convertible into shares) representing 20% or more of the
outstanding shares of the Company, pursuant to a tender offer, exchange offer or
otherwise, (b) a merger, consolidation, share exchange, sale of substantial
assets or other business combination involving the Company, (c) any other
transaction or series of transactions whereby any person acquires or would
acquire control of the board of directors, business or assets of the Company, or
(d) any agreement with respect to any of the foregoing, which in the case of any
transaction or agreement described in clauses (a) through (d) above, involves a
greater value (considering the amounts payable to shareholders and all payments
under employment, consulting and other arrangements in connection therewith)
than the value of the Offer and the Merger and the other arrangements related
thereto.
(f) The parties agree that the Company shall bear a total of $502,000 in
expenses incurred in connection with this Agreement and the Offer and the
transactions contemplated hereby and thereby and not reflected on the Company's
audited balance sheet as at December 31, 1996, and that any such expenses in
excess of such amount shall be borne by certain shareholders of the Company as
provided in the Tender Agreement. To the extent that the Company has not
expended the full $502,000 for payment of such expenses prior to the Effective
Time, Parent shall cause the Company to pay the balance of such $502,000 in
expenses at the Effective Time, and if required shall contribute cash to the
capital of the Company to fund such payment.
6.12. Publicity. So long as this Agreement is in effect, Parent, the
Purchaser and the Company agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement, and none of them shall issue any
press release or make any such public statement prior to such consultation,
except as may be required by law or the National Association of Securities
Dealers, Inc.
6.13. Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or
36
<PAGE>
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
6.14. Certain Definitions. For purposes of this Agreement, the term:
6.14.1. "affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the first mentioned person;
6.14.2. "business day" shall mean any day other than a Saturday,
Sunday or federal holiday.
6.14.3. "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
6.14.4. "generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
may be approved by a significant segment of the accounting profession in the
United States, in each case applied on a basis consistent with the manner in
which the audited financial statements for the fiscal year of the Company ended
December 31, 1996 were prepared;
6.14.5. "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
6.14.6. "subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holder of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation, partnership, joint
venture or other legal entity.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
R-B CAPITAL CORPORATION
By /s/ Harrington Bischof
----------------------------
Its President
---------------------------
R-B ACQUISITION CORPORATION
By /s/ Harrington Bischof
------------------------------
Its President
----------------------------
PEERLESS INDUSTRIAL GROUP, INC.
By /s/ William H. Spell
-----------------------------
Its CEO
---------------------------
38
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EXHIBIT A
Conditions of the Offer
-----------------------
Notwithstanding any other provision of the Offer, the Purchaser shall not
be required to accept for payment or pay for any tendered Shares, and may
terminate or amend the Offer and may postpone the acceptance for payment and
payment for tendered Shares, and may terminate or amend the Offer and not accept
for payment any Shares, if (i) there are not validly tendered prior to the
expiration of the Offer (the "Expiration Date") and not withdrawn prior to the
expiration date of the Offer a number of Shares which constitutes on the date of
purchase at least (A) a majority of the Shares and (B) a number of outstanding
Shares entitled to elect a majority of the board of directors, in each case on a
fully diluted basis (or, if the Purchaser so elects in its sole discretion, on
the basis of the number of Shares outstanding at the expiration date of the
Offer) (the "Minimum Condition") or (ii) at any time on or after the
commencement of the Offer (unless otherwise indicated below) and before the time
of payment for such Shares (whether or not Shares have been accepted for payment
or paid for pursuant to the Offer), any of the following events (each, an
"Event") shall occur:
(a) there shall have been instituted or pending any action or
proceeding by or before any court or governmental regulatory or
administrative agency, authority or tribunal, domestic or foreign, which
could (i) directly or indirectly restrain or prohibit the consummation of
the Offer or the Merger, or impose any material fines, penalties or damages
in connection therewith, (ii) make the purchase of or payment for some or
all of the Shares pursuant to the Offer or the Merger illegal, (iii) impose
or confirm material limitations on the ability of Parent or the Purchaser
(or any of their affiliates) effectively to acquire or hold, or requiring
Parent, the Purchaser or the Company or any of their respective affiliates
or subsidiaries to dispose of or hold separate, any material portion of the
assets or the business of Parent or the Purchaser and their affiliates
taken as a whole or the Company and its Subsidiaries taken as a whole or
(iv) impose material limitations on the ability of Parent (or its
affiliates) to acquire, hold or exercise full rights of ownership of the
Shares purchased by it on all matters properly presented to the
shareholders of the Company; or
(b) there shall have been promulgated, enacted, entered, enforced or
deemed applicable to the Offer or the Merger, by any state, federal or
governmental authority or by any court, any statute, rule, regulation,
judgment, decree,
A-1
<PAGE>
order or injunction, that could, directly or indirectly, result in any of
the consequences referred to in clauses (i) through (iv) of subsection (a)
above; or
(c) the Agreement shall have been terminated in accordance with its
terms; or
(d) (i) any of the representations or warranties made by the Company
in the Merger Agreement that is not qualified by reference to materiality
shall not have been true and correct in all material respects when made, or
(other than representations and warranties made as of a specified date)
shall thereafter have ceased to be true and correct in all material
respects on the Expiration Date, or (ii) any of the representations or
warranties made by the Company in the Merger Agreement that is qualified by
reference to materiality shall not have been true and correct when made, or
(other than (x) with respect to the representations and warranties set
forth in Section 3.2.6(i), changes in or disruptions of the Company's
business resulting from the execution of the Agreement or the announcement
of the Offer and the Merger, and (y) representations and warranties made as
of a specified date) shall thereafter have ceased to be true and correct on
the Expiration Date, or (iii) the Company shall not in all material
respects have performed each obligation and agreement and complied with
each covenant to be performed and complied with by it under the Agreement
and the Company shall not have cured such breach within 10 days after
notice thereof is given by the Purchaser, but in no event later than the
Expiration Date; or
(e) a tender or exchange offer for at least a majority of the then
outstanding Shares shall have been publicly proposed to be made, or shall
have been made, by any person, corporation, entity or "group," as defined
in Section 13(d)(3) of the Exchange Act (other than Parent or the
Purchaser); which, in any case, and regardless of the circumstances
(including any action or inaction by Parent or the Purchaser or any of
their affiliates) giving rise to any such condition, makes it inadvisable
to proceed with the Offer or with acceptance for payment or payment for
Shares; or
(f) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any securities exchange or
in the over-the-counter market in the United States (other than a
shortening of trading hours or any coordinated trading halt triggered
solely as a result of a specified increase or decrease in a market index),
(ii) the declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States (whether or not mandatory), or
(iii) any limitation
A-2
<PAGE>
(whether or not mandatory), by any United States governmental authority or
agency on the extension of credit by banks or other financial institutions.
The foregoing conditions are for the sole benefit of the Purchaser and
may be asserted by the Purchaser regardless of the circumstances giving rise to
any such condition or may be waived by the Purchaser in whole or in part at any
time or from time to time in its sole discretion. The failure by the Purchaser
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, the waiver of any such right with respect to particular facts
or circumstances shall not be deemed a waiver with respect to any other facts or
circumstances, and each such right shall be deemed an ongoing right that may be
asserted at any time or from time to time.
A-3
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EXHIBIT 5
INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into on April 7, 1997, by
and between Peerless Industrial Group, Inc., a Minnesota corporation (the
"Corporation"), and , an officer and/or member of the
Board of Directors of the Corporation ("Indemnitee").
Whereas, the Corporation desires that Indemnitee oppose and defend against
what Indemnitee may consider to be unjustified investigations, claims,
actions, suits and proceedings which have arisen or may arise in the future as
a result of Indemnitee's service to the Corporation; and
Whereas, the parties believe it appropriate to memorialize and reaffirm the
Corporation's indemnification obligation to Indemnitee and, in addition, set
forth the indemnification agreements contained herein;
Now, Therefore, in consideration of the mutual agreements herein contained,
the parties agree as follows:
1. Indemnification.
(a) Indemnitee shall be indemnified and held harmless by the Corporation
to the fullest extent permitted by its Articles of Incorporation, Bylaws
and the Minnesota Business Corporation Act, as the same exists or may
hereafter be amended, against all reasonable expenses, liability and loss
(including attorneys' fees, judgments, penalties, fines and amounts paid or
to be paid in any settlement approved in advance by the Corporation, such
approval not to be unreasonably withheld) (collectively, "Indemnifiable
Liabilities") actually incurred or suffered by Indemnitee in connection
with any threatened, pending or completed investigation, claim, action,
suit, or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (collectively, "Indemnifiable
Litigation"), (i) to which Indemnitee is or was a party or is threatened to
be made a party by reason of any action or inaction in Indemnitee's
capacity as a director or officer of the Corporation, or (ii) with respect
to which Indemnitee is otherwise involved by reason of the fact that
Indemnitee is or was serving as a director, officer, employee or agent of
the Corporation, or of any subsidiary or division, or, while a director of
a corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise.
(b) No change in the Corporation's Articles of Incorporation or Bylaws or
the Minnesota Business Corporation Act subsequent to the date first above
written shall have the effect of limiting or eliminating the
indemnification available under this Agreement as to any act, omission or
capacity for which this Agreement provides indemnification at the time of
act, omission or capacity. If any change after the date of this Agreement
in any applicable law, statute or rule expands the power of the Corporation
to indemnify the Indemnitee, such change shall be within the purview of the
Indemnitee's rights and the Corporation's obligations under this Agreement.
If any change in any applicable law, statute or rule narrows the right of
the Corporation to indemnify the Indemnitee, such change, except to the
extent otherwise required by law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights
and obligations hereunder.
(c) In the event of payment under this Agreement, the Corporation shall
be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all papers required and shall
do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively
to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to make any
payment for any liability incurred in a proceeding in which the Indemnitee
is adjudged liable to the Corporation or is subjected to injunctive relief
in favor of the Corporation:
(i) for any appropriation, in violation of his or her duties, of any
business opportunity of the Corporation;
(ii) for acts or omissions which involve intentional misconduct or a
knowing violation of law;
<PAGE>
(iii) for the types of liability set forth in the Minnesota Business
Corporation Act, as the same exists or may hereafter be amended; or
(iv) for any transaction from which he or she received any improper
personal benefit.
(e) The Corporation shall not be liable under this Agreement to make any
payment in connection with any claim made against the Indemnitee:
(i) for which payment is actually made to the Indemnitee under a
valid and collectible insurance policy, except in respect of any excess
beyond the amount of payment under such insurance;
(ii) for which payment is actually made to the Indemnitee by the
Corporation otherwise than pursuant to this Agreement, except in
respect of any excess beyond the amount of such payment; or
(iii) for an accounting of profits made from the purchase or sale by
the Indemnitee of securities of the Corporation within the meaning of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or
similar provisions of any state statutory law.
2. Interim Expenses. The Corporation agrees to pay for or reimburse all
reasonable expenses (including attorneys' fees and expenses) incurred by
Indemnitee in connection with any Indemnifiable Litigation in advance of the
final disposition thereof ("Indemnifiable Expenses"), provided that the
Corporation has received (a) a written undertaking, executed personally or on
behalf of Indemnitee, substantially in the form attached hereto as Annex I, to
repay the amount so advanced to the extent that it is ultimately determined
that Indemnitee is not entitled to be indemnified by the Corporation under
this Agreement or otherwise and (b) a written affirmation of the Indemnitee's
good faith belief that he or she has met the standard of conduct required
under the Minnesota Business Corporation Act to enable the Corporation to
indemnify the Indemnitee.
3. Procedure for Making Demand.
(a) Indemnifiable Liabilities. Payments of Indemnifiable Liabilities to
which an Indemnitee is entitled pursuant to Section 1 hereof shall be made
promptly but in no event later than thirty (30) days after Indemnitee is
determined, in the manner set forth below, to have met the standard of
conduct required by Section 1 hereof and the Minnesota Business Corporation
Act. Upon receipt of a written demand for payment of Indemnifiable
Liabilities from Indemnitee, the Board of Directors shall promptly initiate
action to ensure that a determination regarding Indemnitee's standard of
conduct is made in the following manner: (i) by the Board of Directors by
majority vote of a quorum consisting of directors not at the time parties
to the proceeding; (ii) if a quorum of the Board of Directors cannot be
obtained, by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding; (iii) by special legal counsel selected by the Board of
Directors or its committee in the manner prescribed in subparagraph (i) or
(ii), or if a quorum of the Board of Directors cannot be obtained under
subparagraph (i), and a committee cannot be designated under subparagraph
(ii), selected by majority vote of the full Board of Directors (in which
selection directors who are parties may participate); or (iv) by the
shareholders, but shares owned by or voted under the control of directors
who are at the time parties to the proceeding may not be voted on the
determination. Authorization of indemnification or an obligation to
indemnify and evaluation as to reasonableness of expenses shall be made in
the same manner as the determination that indemnification is permissible,
except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of
expenses shall be made by those entitled to select counsel under
subparagraph (iii). Indemnitee may contest the determination that
Indemnitee has not met the relevant standard of indemnification by
petitioning a court to make an independent determination with respect to
rights of indemnification.
(b) Indemnifiable Expenses. Payments of Indemnifiable Expenses to which
the Indemnitee is entitled pursuant to Section 2 hereof shall be made no
later than ten (10) days after receipt by the Corporation of the written
undertaking and affirmation of Indemnitee referred to in Section 2 hereof.
2
<PAGE>
4. Failure to Indemnify. If a court of competent jurisdiction orders
indemnification or advances for expenses to be made by the Corporation,
Indemnitee shall also be entitled to be paid for expenses (including
attorneys' fees) incurred in connection with the application for the court-
ordered payments.
5. Successors. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns,
heirs and legal representatives of the parties hereto.
6. Contract Rights Not Exclusive. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any other right which
Indemnitee may have or may hereafter acquire under any statute, provision of
the Corporation's Articles of Incorporation or Bylaws, agreement, vote of
stockholders or disinterested directors, or otherwise.
7. Indemnitee's Obligations. The Indemnitee shall promptly advise the
Corporation in writing of the institution of any investigation, claim, action,
suit or proceeding which is or may be subject to this Agreement and keep the
Corporation generally informed of, and consult with the Corporation with
respect to, the status of any such investigation, claim, action, suit or
proceeding. Notices to the Corporation shall be directed to Peerless
Industrial Group, Inc., Attn: Corporate Secretary (or such other address as
the Corporation shall designate in writing to Indemnitee). Notice shall be
deemed received three days after the date postmarked if sent by certified or
registered mail, properly addressed. In addition, Indemnitee shall give the
Corporation such information and cooperation as it may reasonably require and
as shall be within Indemnitee's power.
8. Severability. Should any provision of this Agreement, or any clause
thereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clause of this Agreement shall remain fully
enforceable and binding on the parties.
9. Modification and Waiver. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
10. Choice of Law. The validity, interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of Minnesota.
In Witness Whereof, the parties have executed this Agreement as of the day
and year first written above.
Indemnitee
Peerless Industrial Group, Inc.
________________________________ By: _________________________________
William H. Spell
Its: Chief Executive Officer
3
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ANNEX 1
AGREEMENT
This Agreement is made and entered into on , 199 , by and
between Peerless Industrial Group, Inc., a Minnesota corporation (the
"Corporation"), and , an officer and/or a member of the
Board of Directors of the Corporation ("Indemnitee").
Whereas, Indemnitee has become involved in investigations, claims, actions,
suits or proceedings which have arisen as a result of Indemnitee's service to
the Corporation; and
Whereas, Indemnitee desires that the Corporation pay or reimburse Indemnitee
for any and all reasonable expenses (including, but not limited to, attorneys'
fees and court costs) actually and reasonably incurred by Indemnitee or on
Indemnitee's behalf in defending or investigating any such suits or claims and
that such payment be made in advance of the final disposition of such
investigations, claims, actions, suits or proceedings to the extent that
Indemnitee has not been previously reimbursed by insurance; and
Whereas, the Corporation is willing to make such payments if it receives an
undertaking from Indemnitee to repay such payments under certain
circumstances; and
Whereas, Indemnitee is willing to give such an undertaking.
Now, Therefore, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. In regard to any payments made by the Corporation to Indemnitee
pursuant to the terms of the Indemnification Agreement dated ,
1997, between the Corporation and Indemnitee, Indemnitee hereby undertakes
and agrees to repay to the Corporation, promptly and in any event within
thirty (30) days after the disposition, including any appeals, of any
litigation or threatened litigation on account of which payments were made,
amounts received if it is determined that he or she is not entitled to
indemnification by the Corporation under the Indemnification Agreement and
the Minnesota Business Corporation Act.
2. This Agreement shall not affect in any manner the rights which
Indemnitee may have against the Corporation, any insurer or any other
person to seek indemnification for or reimbursement of any expenses
referred to herein or any judgment which may be rendered in any litigation
or proceeding.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed on the date first above written.
Peerless Industrial Group, Inc.
By: ________________________________
Name: ______________________________
Title: _____________________________
Indemnitee
_____________________________________
Name: ______________________________
Position(s) Held: ___________________
_____________________________________
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EXHIBIT 7
TENDER AND STOCK OPTION AGREEMENT
THIS TENDER AND STOCK OPTION AGREEMENT (this "Agreement") is made as of the
11th day of April, 1997 by and among R-B Capital Corporation, a Delaware
corporation ("Parent"), R-B Acquisition Corporation, a Delaware corporation
("Acquisition"), and the other signatories hereto (each a "Stockholder," and
collectively, the "Stockholders").
RECITALS
A. Parent, Acquisition and Peerless Industrial Group, Inc., a Minnesota
corporation (the "Company"), propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement"), providing for the merger of Acquisition with
and into the Company (the "Merger") with the Company surviving the Merger, with
all of the issued and outstanding stock of the Company immediately following the
Merger to be owned by Parent.
B. In furtherance of the Merger, Parent desires that as soon as
practicable (and not later than five business days) after the execution and
delivery of the Merger Agreement, Acquisition shall commence a cash tender offer
(the "Offer") to purchase all outstanding shares of Company Common Stock (as
defined below) not owned by Acquisition.
C. Each Stockholder, together with its Affiliates, Beneficially Owns (as
defined below) (i) the number of outstanding shares of Company Common Stock set
forth opposite its name in the column headed "Existing Shares" in Schedule I
hereto (the "Existing Shares" , and (ii) holds options, warrants or other rights
to acquire the additional number of Shares of Company Common Stock set forth
opposite its name in the column headed "Additional Shares" in Schedule I hereto
(the "Additional Shares"). The Existing Shares and the Additional Shares,
together with any After-Acquired Shares (as defined below), are referred to
herein as the "Shares".
D. As a condition to the willingness of Parent to enter into the Merger
Agreement, Parent has required that each of the Stockholders agrees, and each
such Stockholder has agreed, (i) to tender and sell in the Offer all of the
outstanding Shares (and, if required pursuant to Section 2 hereof, to acquire
and tender and sell in the Offer all or a portion of the Additional Shares, as
specified pursuant to Section 2) Beneficially Owned by such Stockholder and its
Affiliates, and (ii) to grant Acquisition an option to purchase a portion of the
Shares Beneficially Owned by such Stockholder and its Affiliates in certain
circumstances, in
<PAGE>
each case, pursuant to and in accordance with the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) "Affiliate" of a Person means a Person that directly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned Person. With respect to a natural person, the term
"Affiliate" also includes any such person's spouse and any person who is a
descendant or ancestor of such person or such person's spouse, and their
respective Affiliates. Notwithstanding the foregoing, the children and
grandchildren of Richard Perkins, and trusts of which Mr. Perkins is trustee,
shall not be considered Affiliates of Mr. Perkins.
(b) "After-Acquired Shares" shall mean any shares of Company Common Stock
acquired directly or indirectly, or otherwise Beneficially Owned, by any of the
Stockholders or their respective Affiliates in any capacity after the date
hereof and prior to the termination hereof, whether upon the exercise of
options, warrants or rights, the conversion or exchange of convertible or
exchangeable securities or by means of purchase, dividend, distribution, gift,
bequest, inheritance or as a successor in interest in any capacity (including a
fiduciary capacity) or otherwise.
(c) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing. Without duplicative counting of
the same securities by the same holder, securities Beneficially Owned by a
Person shall include securities Beneficially Owned by all other Persons with
whom such Person would constitute a "group" as within the meanings of Section
13(d)(3) of the Exchange Act.
(d) "Company Common Stock" shall mean at any time the common stock, no par
value per share, and the Class B common stock, no par value per share, of the
Company.
(e) "Control" (including the terms "controlled by" and "under common
control with") shall mean the possession, directly or indirectly or as trustee
or executor, of the power to direct
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or cause the direction of the management policies of a Person, whether through
the ownership of stock, as trustee or executor, by contract or credit agreement
or otherwise.
(f) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(g) "Triggering Event" shall mean a Triggering Event as defined in the
Merger Agreement
2. Tender of Shares. (a) Each Stockholder, severally (and not jointly)
agrees (i) to validly tender (or cause the record owner of any Shares to tender)
pursuant to the Offer all Existing Shares Beneficially Owned by such Stockholder
and its Affiliates, not later than the fifth business day after commencement of
the Offer or, with respect to After-Acquired Shares at any time Beneficially
Owned by such Stockholder or its Affiliates, within one business day following
the acquisition thereof and (ii) to the maximum extent permitted by law, not to
withdraw any Shares so tendered without the prior written consent of
Acquisition. The Stockholders hereby acknowledge and agree that Acquisition's
obligation to accept for payment and pay for the Shares in the Offer is subject
to the terms of the Offer.
(b) If Parent or Acquisition shall notify the Stockholders at any time
after the commencement of the Offer that additional Shares are required to be
tendered so that at least (x) 50% or (y) 90%, as specified by Parent or
Acquisition, of all outstanding shares of Company Common Stock shall have been
validly tendered in the Offer, then each Stockholder shall (and shall cause his,
her or its Affiliates to), exercise such options, warrants and other rights to
acquire Additional Shares in such amounts as may be specified by Parent or
Acquisition in order to cause at least (x) 50% or (y) 90%, as specified by
Parent or Acquisition, of all outstanding shares of Company Common Stock to have
been validly tendered in the Offer, and shall tender or cause to be tendered in
the Offer as described in this Agreement all After-Acquired Shares acquired by
such Stockholder (or his, her or its Affiliates) upon exercise of such options,
warrants and other rights. Parent and Acquisition agree that (i) they shall not
make any such request except to the extent required to cause at least (x) 50% or
(y) 90% of all outstanding shares of Company Common Stock to have been validly
tendered in the Offer, and (ii) to the extent practicable, such request shall be
made to all Stockholders pro rata, on the basis of the Company Common Stock
owned by all Stockholders and their respective Affiliates on a fully-diluted
basis.
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3. Stock Option.
(a) Subject to Section 3(b) below, each Stockholder hereby grants to
Acquisition an irrevocable option (the "Stock Option") to purchase a number of
Existing Shares owned by such Stockholder or its Affiliates as set forth on
Schedule I hereto opposite the name of such Stockholder (such Shares, as
adjusted from time to time pursuant to this Section 3(a), being referred to as
the "Option Shares") at a purchase price equal to $1.67 (the "Exercise Price")
per share in cash net to the seller; provided, that in no event shall the
aggregate number of Option Shares subject to the Stock Options granted by all
Stockholders exceed an amount equal to 19.9% of the outstanding shares of
Company Common Stock, and if the aggregate number of Option Shares subject to
the Stock Options granted by all Stockholders would otherwise exceed 19.9% of
the outstanding shares of Company Common Stock, then the number of Option Shares
subject to the Stock Options granted by all Stockholders shall be reduced, on a
pro rata basis, so that the aggregate number of Option Shares subject to the
Stock Options granted by all Stockholders will not exceed an amount equal to
19.9% of the outstanding shares of Company Common Stock. If at any time
additional shares of Company Common Stock shall be issued so that the aggregate
number of Option Shares subject to the Stock Options granted by all Stockholders
would otherwise be less than 19.9% of the outstanding shares of Company Common
Stock, then each Stockholder (pro rata in accordance with the Option Shares
initially subjected to the Stock Options as set forth in Schedule I) hereby (i)
grants to Acquisition a Stock Option on such further Existing Shares
Beneficially Owned by such Stockholder as may be required to increase the
aggregate number of Option Shares subject to the Stock Options granted by all
Stockholders to an amount equal to 19.9% of the outstanding shares of Company
Common Stock, and (ii) agrees to exercise such options, warrants or rights to
acquire Additional Shares in such amounts as may be requested by Parent or
Acquisition in order to obtain the result described in clause (i) of this
sentence.
(b) Subject to Section 4 hereof, the Stock Option may be exercised by
Acquisition, in whole and for all Stockholders but not in part or for less than
all Stockholders, at any time following the occurrence of, or in connection
with, a "Purchase Event". The term "Purchase Event" means the occurrence of any
of the following: (i) the Company shall have entered into any letter of intent,
memorandum of understanding or agreement relating to or providing for an
Alternative Transaction (as defined in the Merger Agreement), (ii) the Company
or the Stockholders shall have consummated an Alternative Transaction or (iii)
Acquisition shall have purchased any Shares pursuant to the Offer.
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<PAGE>
(c) In the event Acquisition wishes to exercise the Stock Option,
Acquisition shall send a written notice (an ("Exercise Notice") to each
Stockholder specifying that Acquisition shall purchase the total number of
Option Shares held by such Stockholder and a date, which shall be a business
day, and a place, which shall be in Minneapolis, Minnesota or Chicago, Illinois,
for the closing of such purchase (the "Stock Option Closing").
(d) Upon receipt of the Exercise Notice, each Stockholder shall be
obligated to deliver to Acquisition a certificate or certificates representing
the number of Option Shares held by such Stockholder and its respective
Affiliates (or to direct the depository for the Offer to so deliver such
certificate or certificates), in accordance with the terms of this Agreement, on
the later of the date specified in such Exercise Notice and the first business
day on which the conditions specified in Section 4 shall be satisfied. The date
specified in such Exercise Notice may be as early as one business day after the
date of such Exercise Notice but shall not be later than the later of (i) thirty
days after the date the Exercise Notice is given, and (ii) the date upon which
any Alternative Transaction is consummated.
(e) At the Stock Option Closing, each Stockholder will deliver to
Acquisition a certificate or certificates evidencing the number of Option Shares
owned by such Stockholder and its respective Affiliates, each such certificate
being duly endorsed in blank and accompanied by such stock powers and such other
documents as may be necessary in Acquisition's judgement to transfer record
ownership of the Option Shares into Acquisition's name on the stock transfer
books of the Company, and Acquisition will purchase the delivered Option Shares
at the Exercise Price. All payments made by Acquisition to the Stockholders
pursuant to the Section 3(e) shall be made by wire transfer of immediately
available funds or by certified bank check payable to the Stockholders, in an
amount for each Stockholder equal to the product of (i) the Exercise Price and
(ii) the number of Option Shares delivered by such Stockholder and its
respective Affiliates in respect of the Stock Option Closing.
(f) In lieu of purchasing Option Shares following the giving of an
Exercise Notice, Acquisition may instruct Stockholder to carry out the
Alternative Transaction (by tender, sale or surrender of the Option Shares or
otherwise as instructed) and upon receipt of such instructions, Stockholder will
so carry out the Alternative Transaction; provided that the Alternative
Transaction provides for the Stockholder to receive at least $1.67 per share in
cash net to the Stockholder within thirty days after receipt of such
instructions. Each Stockholder agrees that Option Shares will be the first
Shares transferred in an Alternative Transaction. Upon receipt of the
consideration
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<PAGE>
with respect to Option Shares payable in the Alternative Transaction, each
Stockholder will pay to Acquisition with respect to each Option Share an amount
equal to the per share consideration so received less $1.67 per Share. Any
Option Shares not purchased in the Alternative Transaction shall remain subject
to this Agreement.
(g) In the event of any change in the number of issued and outstanding
shares of Company Common Stock by reason of any stock dividend, subdivision,
merger, recapitalization, combination, conversion or exchange of shares, or any
other change in the corporate or capital structure of the Company (including,
without limitation, the declaration or payment of an extraordinary dividend of
cash or securities) which would have the effect of diluting or otherwise
adversely affecting Acquisition's rights and privileges under this Agreement,
the number and kind of the Option Shares and the consideration payable in
respect of the Option Shares shall be appropriately and equitably adjusted to
restore to Acquisition its rights and privileges under this Agreement. Without
limiting the scope of the foregoing, in any such event, at the option of
Acquisition, the Stock Option shall represent the right to purchase, in addition
to the number and kind of Option Shares which Acquisition would be entitled to
purchase pursuant to the immediately preceding sentence, whatever securities,
cash or other property the Option Shares subject to the Stock Option shall have
been converted into or otherwise exchanged for, together with any securities,
cash or other property which shall have been distributed with respect to such
Option Shares.
4. Conditions to the Delivery of the Option Shares.
(a) The obligations of the parties hereto to consummate the transactions
contemplated by Section 3 hereof are subject to the condition that there shall
be no preliminary or permanent injunction or other order or decree by any court
of competent jurisdiction restricting, preventing or prohibiting the exercise of
the Stock Option or the delivery of the Option Shares in respect of such
exercise.
(b) The obligations of Acquisition to consummate the purchase of any
Option Shares upon the exercise of the Stock Option is subject to the further
conditions that (i) all representations and warranties of the Stockholders shall
be true and correct when made and shall be true and correct in all material
respects at and as of the Closing as though made on and as of the Closing, and
(ii) Acquisition shall be satisfied in its sole discretion that the Alternative
Transaction shall be consummated.
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<PAGE>
5. No Purchase. Each Stockholder understands and acknowledges that
Acquisition may allow the Offer to expire without accepting for payment or
paying for any Shares, under the circumstances described in the Offer to
Purchase, and Parent and Acquisition may allow the Stock Option to terminate
without purchasing all or any Shares pursuant to the exercise thereof. If any
Shares are not accepted for payment in accordance with the terms of the Offer or
purchased pursuant to the Offer, they shall be returned to the respective
Stockholder or their respective Affiliates, whereupon they shall continue to be
held by such Stockholder or Affiliate subject to the terms and conditions of
this Agreement.
6. Restriction on Transfer, Proxies and Non-interference; Stop Transfer
Order.
(a) Each Stockholder hereby agrees, while this Agreement is in effect, and
except as specifically contemplated hereby, not to (i) offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of or enter into
any contract, option or other arrangement or understanding with respect to the
offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any of the Shares or any interest therein, (ii) grant any
proxies or powers of attorney, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares, (iii) take any action that
would make any representation or warranty of any Stockholders contained herein
untrue or incorrect or have the effect of preventing or disabling any
Stockholder from performing its obligations under this Agreement; or (iv) take
or cause the Company to take any action that would make any representation or
warranty of the Company in the Merger Agreement untrue or incorrect or have the
effect of preventing or disabling the Company from performing its obligations
thereunder.
(b) In furtherance of the provisions of Section 6(a) hereof, concurrently
herewith the Stockholders shall and hereby do authorize the Company's counsel to
notify the Company's transfer agent that there is a stop transfer order with
respect to all of the Existing Shares and any other Shares acquired by any
Stockholder after the date hereof (and that this Agreement places limits on the
voting and transfer of such Shares).
7. Notice of Additional Shares. Each Stockholder hereby agrees to
promptly notify Parent in writing of the number of After-Acquired Shares that
may be acquired by such Stockholder, if any, after the date hereof.
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<PAGE>
8. Other Covenants, Representations and Warranties. Each Stockholder
hereby represents and warrants to Parent and Acquisition as follows:
(a) Ownership of Shares. Each Stockholder and its respective Affiliates
are either (i) the record and Beneficial Owner of, or (ii) the Beneficial Owner
but not the record holder of, the number of outstanding shares of Company Common
Stock set forth in the column headed "Existing Shares" opposite such
Stockholder's name on Schedule I hereto. Each Stockholder and its respective
Affiliates holds options, warrants or other rights to acquire the number of
shares of Company Common Stock set forth in the column headed "Additional
Shares" opposite such Stockholder's name on Schedule I hereto, which options,
warrants or other rights are presently exercisable on the date hereof except as
indicated in a footnote to Schedule I hereto. On the date hereof, the number of
shares of Company Common Stock set forth in the columns headed "Existing Shares"
and "Additional Shares" opposite such Stockholder's name on Schedule I hereto
constitute all of the shares of Company Common Stock owned of record or
Beneficially Owned by such Stockholder or its Affiliates, or which such
Stockholder or any of its Affiliates has any option, warrant or other right to
acquire. Such Stockholder has sole power to agree to all of the matters set
forth in this Agreement, in each case with respect to all of the shares of
Company Common Stock set forth in the columns headed "Existing Shares" and
"Additional Shares" opposite such Stockholder's name on Schedule I hereto, with
no limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) Power; Binding Agreement. Such Stockholder has the legal capacity,
power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to which
such Stockholder is a party including, without limitation, any voting agreement,
stockholders agreement or voting trust. This Agreement has been duly and
validly executed and delivered by such Stockholder and constitutes a valid and
binding agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms. There is no beneficiary or holder of a voting trust
certificate or other interest of any trust of which such Stockholder is trustee
whose consent is required for the execution and delivery of this Agreement or
the consummation by the stockholder of the transactions contemplated hereby.
(c) No Conflicts. (i) No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this
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<PAGE>
Agreement by such Stockholder and the consummation by such Stockholder of the
transactions contemplated hereby and (ii) none of the execution and delivery of
this Agreement by such Stockholder, the consummation by such Stockholder of the
transactions contemplated hereby or compliance by such Stockholder with any of
the provisions hereof shall (A) conflict with or result in any breach of any
applicable organizational documents applicable to such Stockholder, (B) result
in a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which such Stockholder is a party or by which such
Stockholder or any of such Stockholder's properties or assets may be bound, or
(C) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to such Stockholder or any of such Stockholder's
properties or assets.
(d) No Encumbrances. Except as applicable in connection with the
transactions contemplated hereby, the Stockholder's Shares and the certificates
representing the Stockholders's Shares are now, and at all times during the term
hereof will be, held by such Stockholder, or by a nominee or custodian for the
benefit of such Stockholder, free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or arrangements
or any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder. There are no options or rights to acquire, or any
agreement to which any Seller is a party relating to, any Stockholder's Shares,
other than this Agreement. Upon registration of such Stockholder's Shares in
Acquisition's name in the stock records of the Company, Acquisition will,
assuming it has purchased such Shares for value in good faith and without notice
of any adverse claim, have acquired all the rights of such Stockholder in such
Shares free of any adverse claim, any lien in favor of the Company, and any
restrictions on transfer imposed by the Company.
(e) No Finder's Fees. No broker, investment banker, financial adviser or
other Person is entitled to any broker's, finder's, financial adviser's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of such Stockholder.
(f) No Solicitation. Such Stockholder will immediately cease any existing
discussions or negotiations with any third parties conducted prior to the date
hereof with respect to any Acquisition Proposal (as defined below). Such
Stockholder shall
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<PAGE>
not, in such Stockholder's capacity as such, directly or indirectly, through any
officer, director, employee, representative or agent, (i) solicit, initiate,
continue or encourage any inquiries, proposals or offers that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of shares
of capital stock (including, without limitation, by way of a tender offer),
liquidation, reorganization or similar transactions involving the Company or any
of its subsidiaries or divisions, other than the transactions contemplated by
the Merger Agreement (any of the foregoing inquiries or proposals being referred
to herein as an "Acquisition Proposal"), (ii) solicit, initiate, continue or
engage in negotiations or discussions concerning, or provide any information or
data to any person or entity relating to, or otherwise cooperate in any way
with, or assist or participate in, or facilitate or encourage any Acquisition
Proposal, or (iii) agree to, approve or recommend any Acquisition Proposal. If
such Stockholder receives any such inquiry or proposal, then such Stockholder
shall promptly inform Parent and Acquisition of the existence thereof, and
furnish Parent and Acquisition with a copy of all written material relating
thereto. Nothing herein shall be construed to limit any Stockholder who is
serving as a director of the Company from taking any action permitted by Section
4.1(a) of the Merger Agreement in his or her capacity as such director.
(g) Further Assurances. From time to time, at the other party's request
and without further consideration, each party hereto shall execute and deliver
such additional documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
(h) Dissenter's Rights. To the maximum extent permitted by law, each
Stockholder hereby waives all dissenter's rights, appraisal rights and other
similar rights available by law to such Stockholder as a result of the Offer and
the Merger.
9. Representations and Warranties of Parent and Acquisition. Parent and
Acquisition, jointly and severally, represent and warrant as follows:
(a) Each of Parent and Acquisition is a corporation validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the power to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby.
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<PAGE>
(b) Parent and Acquisition have all right, power and authority to enter
into this Agreement and the Merger Agreement. The execution and delivery of this
Agreement by Parent and Acquisition and the consummation by Parent and
Acquisition of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on behalf of Parent and
Acquisition.
(c) This Agreement has been duly executed and delivered by Parent and
Acquisition and constitutes a valid and binding agreement of each of Parent and
Acquisition enforceable in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights,
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.
10. Board Approval. The Stockholders, jointly and severally, represent
and warrant to Parent and Acquisition that this Agreement, the Merger Agreement
and the transactions contemplated hereby and thereby, including the Offer and
the Merger, have been approved by the Board of Directors of the Company.
11. Termination. This Agreement, to the extent an Exercise Notice has not
previously been given, shall terminate on the earliest of: (a) the termination
of the Merger Agreement in accordance with its terms without the occurrence of a
Triggering Event; (b) if a Triggering Event occurs prior to the termination of
the Merger Agreement, the 180th day after the termination of the Merger
Agreement without a Purchase Event having occurred; and (c) the first
anniversary of the date hereof. No such termination shall relieve any party
from liability for any breach of this Agreement.
12. Confidentiality. The Stockholders recognize that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, such Stockholder hereby agrees
not to disclose or discuss the matters with anyone not a party to this Agreement
(other than such Stockholder's counsel and advisors, if any) without the prior
written consent of Parent, except for filings required pursuant to the Exchange
Act and the rules and regulations thereunder or disclosures such Stockholder's
counsel advises are necessary in order to fulfill such Stockholder's obligations
imposed by law, in which event such Stockholder shall give notice of such
disclosure to Parent as promptly as
-11-
<PAGE>
practicable so as to enable Parent to seek a protective order from a court of
competent jurisdiction with respect thereto.
13. Public Disclosure. Notwithstanding Section 12 hereof, the
Stockholders agree that Parent and Acquisition may publish and disclose their
identity and ownership of the Company Common Stock and the nature of their
commitments, arrangements and understandings under this Agreement in (i) the
Offer Documents, (ii) the Company's proxy or information statement (if approval
of the Company's shareholders is required under applicable law), including all
documents and schedules filed with the Securities and Exchange Commission, (iii)
filings under the Exchange Act and the rules and regulations thereunder, (iv)
connection with the financing of the Offer and (v) disclosures Parent's counsel
advises are necessary in order to fulfill Parent's or Acquisition's obligations
imposed by law.
14. Excess Expenses. The Stockholders jointly and severally agree that if
(a) the Offer and the Merger shall be consummated, and (b) the total transaction
expenses (including, without limitation, legal and accounting expenses and fees
and commissions payable to Coopers & Lybrand Securities, L.L.C. and other
investment bankers and financial advisors to the Company) incurred by the
Company in connection with the Offer, the Merger, the Merger Agreement and the
transactions contemplated thereby and not reflected on the Company's audited
balance sheet as at December 31, 1996 shall exceed $502,000.00, then the
Stockholders, jointly and severally, shall reimburse Parent for all such
transaction expenses in excess of $502,000.00 promptly upon demand; provided,
that Parent may not make any such demand more than sixty (60) days after the
Effective Time (as defined in the Merger Agreement) of the Merger. If the
Stockholders fail to so reimburse Parent, and in order to obtain payment Parent
commences enforcement action, the Stockholders, jointly and severally, will
reimburse Parent for its costs of such enforcement, including reasonable
attorneys fees.
15. Miscellaneous.
(a) Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement between the parties with respect to the subject matter
hereof and supersede all other prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
(b) Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any Person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, such Stockholder's successors.
-12-
<PAGE>
Notwithstanding any transfer of Shares, the transferor shall remain liable for
the performance of all obligations under this Agreement of the transferor.
(c) Assignment. This Agreement shall not be assigned by operation of law
or otherwise without the prior written consent of the other party, provided that
Acquisition may assign, in its sole discretion, its rights and obligations
hereunder to Parent or any Affiliate of Parent, but no such assignment shall
relieve Parent of its obligations hereunder if such assignee does not perform
such obligations.
(d) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated, with respect to any
one or more Stockholders, except upon the execution and delivery of a written
agreement executed by the relevant parties hereto; provided that Schedule I
hereto may be supplemented by Parent by including any After Acquired Shares or
by adding the name and other relevant information concerning any stockholder of
the Company who agrees to be bound by the terms of this Agreement without the
agreement of any other party hereto, and thereafter such added stockholder shall
be treated as a "Stockholder" for all purposes of this Agreement.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Stockholders: William Spell
Chief Executive Officer
Peerless Industrial Group
333 South Seventh Street
Minneapolis, MN 55402
(612) 371-9650
(612) 371-9651
copy to: Briggs and Morgan
2400 IDS Center
Minneapolis, MN 55402
Attention: Brian Wenger, Esq.
Telephone: (612) 334-8573
Facsimile: (612) 334-8650
-13-
<PAGE>
If to Parent: c/o Ridge Capital Corporation
257 East Main Street
Barrington, IL 60010
Attention: J. Bradley Davis
Telephone: (847) 381-2510
Facsimile: (847) 381-2599
copy to: Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Richard S. Millard
Telephone: (312) 701-7161
Facsimile: (312) 701-7711
or to such other address as the Person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(f) Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(g) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(h) Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise of any thereof by any
party shall not preclude the simultaneous or later exercise of any other such
right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or
-14-
<PAGE>
otherwise available in respect hereof at law or in equity, or to insist upon
compliance by any other party hereto with its obligations hereunder, and any
custom or practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
(j) No Third Party Beneficiaries. This Agreement is not intended to be for
the benefit of, and shall not be enforceable by, any Person or entity who or
which is not a party hereto.
(k) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Minnesota, without giving effect to the
principles of conflicts of law thereof.
(l) Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(m) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same Agreement.
-15-
<PAGE>
IN WITNESS WHEREOF, Parent, Acquisition and each Stockholder have caused
this Agreement to be duly executed as of the day and year first above written.
R-B CAPITAL CORPORATION
By /s/ Harrington Bischof
---------------------------------
Name: Harrington Bischof
Title: President
R-B ACQUISITION CORPORATION
By /s/ Harrington Bischof
---------------------------------
Name: Harrington Bischof
Title: President
NORTHLAND BUSINESS CAPITAL L.L.P.
By: /s/ Brian K. Smith
--------------------------------
its general partner
Name: Brian K. Smith
------------------------------
Title: Partner
-----------------------------
PERKINS CAPITAL MANAGEMENT, INC.
By: /s/ R. W. Perkins
--------------------------------
Name: R. W. Perkins
------------------------------
Title: President
-----------------------------
/s/ Harry W. Spell
-----------------------------------
Harry W. Spell
/s/ William H. Spell
-----------------------------------
William H. Spell
-16-
<PAGE>
/s/ Bruce A. Richard
----------------------------
Bruce A. Richard
/s/ R. W. Perkins
----------------------------
Richard W. Perkins
/s/ Reynold M. Anderson
----------------------------
Reynold M. Anderson
/s/ Michael E. Platt
----------------------------
Michael E. Platt
-17-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Additional
Name of Stockholder Existing Shares Shares (1) Option Shares
- ------------------- --------------- ---------- -------------
<S> <C> <C> <C>
Perkins Capital Management, Inc. 1,368,500 ----- 383,747
Northland Business Capital L.L.P. 1,227,273 100,000(2) 344,145
Reynold M. Anderson 620,771(3) 102,000 174,073
Michael E. Plan 532,500(4) 50,000 149,321
Richard W. Perkins 397,000(5) 144,000 111,325
William H. Spell 103,636 415,000 29,061
Harry W. Spell 117,453(6) 144,000 32,935
Bruce A. Richard 84,181 133,000 23,606
--------- --------- ---------
TOTAL 4,451,314(7) 1,088,000 1,248,213
</TABLE>
(1) Includes shares subject to an option or warrant exercisable within 60 days
of March 3, 1997.
(2) Includes 50,000 shares purchasable pursuant to a warrant issued to Brian K.
Smith, a General Partner of Northland Business Capital L.L.P.
(3) Includes: (i) 370,000 shares owned by the Z. Albin E. Anderson Irrevocable
Trust, of which Mr. Anderson is a trustee and a beneficiary and (ii) 771
shares owned by Mr. Anderson's spouse.
(4) Includes 14,000 shares owned by Mr. Platt's spouse.
(5) Includes: (i) 72,000 shares owned by the Richard W. Perkins Trust dated
6/14/78, (ii) 25,000 owned by the Perkins Capital Management, Inc. Profit
Sharing Plan & Trust dated 12/15/86, (iii) 50,000 shares owned by Quest
Venture Partners and (iv) 250,000 shares owned by Pyramid Partners, LP.
(6) Includes 18,181 shares owned by the Spell Family Foundation of which Mr.
Spell is a director.
(7) All of the Existing Shares and Additional Shares are subject to the
Agreement.
<PAGE>
EXHIBIT 8
NEWS RELEASE
------------
For Immediate Release
- ---------------------
Contact: William H. Spell or J. Bradley Davis
- ------- Peerless Industrial Group, Inc. Ridge Capital Corporation
Telephone: (612)371-9650 (847)381-2510
PEERLESS BOARD APPROVES TAKEOVER OFFER
--------------------------------------
MINNEAPOLIS - April 14, 1997 Peerless Industrial Group, Inc. (Nasdaq
Bulletin Board: "PEER") and Ridge Capital Corporation (Ridge) announced today
that Peerless' board of directors has unanimously approved a definitive merger
agreement with R-B Capital Corporation and R-B Acquisition Corporation,
corporations formed by Ridge Capital Corporation and William Blair Mezzanine
Capital Fund II, L.P.
The agreement calls for the acquisition of all the stock of Peerless for
$1.67 per share in cash, or a total of approximately $11.3 million.
Under the terms of the merger agreement, R-B Acquisition will commence a
cash tender offer at $1.67 per share for all outstanding shares within five
business days. Following the tender offer, R-B Acquisition will be merged into
Peerless and each outstanding share of Peerless stock not purchased in the
tender offer will be converted into a right to receive $1.67 in cash. Peerless
will then be a subsidiary of R-B Capital. The Offer will be described in an
Offer to Purchase and related materials to be mailed to Peerless shareholders.
In connection with the merger agreement, certain shareholders of Peerless
have agreed to tender an aggregate of approximately 4.45 million shares
(approximately 71 percent of the outstanding shares) in the Offer, and have
granted the buyer an option to purchase, under certain circumstances, shares
equal to 19.9 percent of the outstanding shares.
The merger agreement also requires Peerless, under certain conditions, to
pay to
<PAGE>
Ridge a termination fee of $900,000 if Peerless participates in another
transaction.
The acquisition is fully financed. Ridge will provide $1.5 million in
equity, and William Blair Mezzanine Capital Fund II will provide approximately
$2.7 million in equity and $12.3 million in senior subordinated debt. Peerless'
existing loan from the CIT Group/Business Credit, Inc. will be modified as a
result of the acquisition, but will remain in place.
Peerless Chief Executive Officer William H. Spell said, "Peerless Chain is
an outstanding company and we are delighted that its future as an independent
company will be under the stewardship of such high quality investors as William
Blair Mezzanine and Ridge Capital."
Harrington Bischof, Senior Advisor to Ridge, said, "We look forward to a
long relationship with the Peerless Chain Company and have provided for
substantial ongoing investment in the Company to further its growth and market
position."
Ridge Capital Corporation is a private investment management and merchant
banking firm located in Barrington, Illinois. Ridge teams with operating
managements to acquire and grow industry platforms.
William Blair Mezzanine Capital Fund II, L.P. is a $190 million
institutionally sponsored limited partnership based in Chicago. William Blair
Mezzanine specializes in providing subordinated debt and equity financing for
buyouts and recapitalization of middle market companies.
Peerless Industrial Group, Inc. is a holding company which owns Peerless
Chain Company, which was founded in Winona, Minnesota in 1917. Peerless is a
leading manufacturer and marketer of chain used in industrial, consumer and
traction applications, as well as related hardware items, wire form products and
cordage.
<PAGE>
EXHIBIT 9
PEERLESS INDUSTRIAL GROUP, INC.
2430 METROPOLITAN CENTRE
333 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402
April 17, 1997
Dear Stockholder:
We are pleased to report that, on April 11, 1997, Peerless Industrial Group,
Inc. (the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with R-B Acquisition Corporation ("R-B Acquisition") and R-B
Capital Corporation ("R-B Capital") pursuant to which R-B Acquisition is
offering to purchase all of the outstanding shares of the Company at a price
of $1.67 per share in cash. Under the terms of the proposed transaction, R-B
Acquisition is today commencing a cash tender offer for all outstanding shares
of the Company's Common Stock and Class B common stock at $1.67 per share (the
"Tender Offer"). R-B Acquisition and R-B Capital are corporations formed by
Ridge Capital Corporation, Pandora Capital Corporation and their affiliates
and William Blair Mezzanine Capital Fund II, L.P. Following the successful
completion of the Tender Offer, R-B Acquisition will be merged into the
Company (the "Merger") and all shares not purchased in the Tender Offer will
be converted into the right to receive $1.67 per share in cash in the merger.
YOUR BOARD OF DIRECTORS AND AN INDEPENDENT COMMITTEE OF THE BOARD OF
DIRECTORS, HAVE UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE TENDER OFFER
AND THE MERGER AND UNANIMOUSLY DETERMINED THAT THE TENDER OFFER AND THE MERGER
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY.
YOUR BOARD OF DIRECTORS AND THE INDEPENDENT COMMITTEE OF THE BOARD OF
DIRECTORS RECOMMEND THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE TENDER
OFFER AND TENDER THEIR SHARES PURSUANT TO THE TENDER OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including,
among other things, the opinion of Summit Investment Corporation, the
Company's financial advisor, that the cash consideration of $1.67 per share to
be received by the Company's shareholders pursuant to the Tender Offer and
Merger is fair, from a financial point of view, to the Company's shareholders.
Shareholders are urged to read the opinion of Summit Investment Corporation,
which is attached to the Schedule 14D-9 as Annex A.
In connection with the Merger Agreement, certain shareholders of the Company
have executed and delivered a Tender and Stock Option Agreement, pursuant to
which such shareholders have (1) agreed to tender in the Tender Offer an
aggregate of approximately 4.45 million shares (approximately 71% of the
shares outstanding on the date hereof), together with additional shares under
certain circumstances and (2) granted to R-B Acquisition an option to
purchase, under certain circumstances, shares equal to 19.9% of the
outstanding shares. In addition, the Company understands that certain members
of senior management of the Company's operating subsidiary intend to tender
shares pursuant to the Tender Offer.
<PAGE>
In addition to the attached Schedule 14D-9, enclosed is the Offer to
Purchase dated April 17, 1997, together with related materials, including a
Letter of Transmittal to be used for tendering your shares pursuant to the
Tender Offer. These documents state the terms and conditions of the Tender
Offer and Merger, provide detailed information about the transactions and
include instructions as to how to tender your shares. We urge you to read
these documents carefully in making your decision with respect to tendering
your shares pursuant to the Tender Offer.
Very truly yours,
/s/ Harry W. Spell
Harry W. Spell
Chairman of the Board
/s/ William H. Spell
William H. Spell
Chief Executive Officer
