<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT PURSUANT TO SECTION
14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
AND
SCHEDULE 13D
UNDER
THE SECURITIES ACT OF 1934
----------------
PEERLESS INDUSTRIAL GROUP, INC.
(NAME OF SUBJECT COMPANY)
R-B ACQUISITION CORPORATION
R-B CAPITAL CORPORATION
RIDGE CAPITAL CORPORATION
WILLIAM BLAIR MEZZANINE CAPITAL FUND II, L.P.
(BIDDERS)
COMMON STOCK, NO PAR VALUE PER SHARE AND CLASS B COMMON STOCK, NO PAR VALUE
PER SHARE
(TITLE OF CLASS OF SECURITIES)
254680-10-1
(CUSIP NUMBER OF CLASS OF SECURITIES)
HARRINGTON BISCHOF
R-B ACQUISITION CORPORATION
257 EAST MAIN STREET
BARRINGTON, ILLINOIS 60010
(847) 381-2510
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
----------------
COPY TO:
RICHARD S. MILLARD, ESQ.
MAYER, BROWN & PLATT
190 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
(312) 782-0600
CALCULATION OF FILING FEE
- -------------------------------------------------------------------------------
<TABLE>
- -------------------------------------------------
<CAPTION>
TRANSACTION
VALUATION* AMOUNT OF FILING FEE**
- -------------------------------------------------
<S> <C>
$10,474,948 $2,095
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* For purposes of calculating the amount of the filing fee only. The amount
assumes the purchase of 5,045,151 shares of Common Stock, no par value per
share, and 1,227,273 shares of Class B Common Stock, no par value per
share, of Peerless Industrial Group, Inc. at $1.67 per share. Such number
of Shares includes all outstanding Shares as of April 15, 1997.
** 1/50th of 1% of Transaction valuation.
[_]CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULES 0-11(A)(2)
AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID.
IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM
OR SCHEDULE AND THE DATE OF ITS FILING.
<TABLE>
<S> <C>
Amount previously paid: Not Applicable
Form or registration no.: Not Applicable
</TABLE>
<TABLE>
<S> <C>
Filing party: Not Applicable
Date filed: Not Applicable
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE 14D-1 AND 13D
CUSIP NO. 254680-10-1
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS: R-B ACQUISITION CORPORATION
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):
(A) [X]
(B) [_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS):
AF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(E) OR 2(F):
[_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION:
MINNESOTA
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
[ ]*
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (SEE
INSTRUCTIONS):
[_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (7):
[ ]*
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
CO, GM
- -------------------------------------------------------------------------------
- --------
* On April 11, 1997, R-B Acquisition Corporation, a Minnesota corporation (the
"Purchaser"), R-B Capital Corporation, a Delaware corporation (the
"Parent") and certain shareholders of Peerless Industrial Group, Inc., a
Minnesota corporation (the "Company") entered into a Tender and Stock
Option Agreement (the "Tender Agreement") pursuant to which such
shareholders agreed (i) to tender to Purchaser in the Offer described
herein all shares of the Company's common stock, no par value per share and
Class B Common Stock no par value per share (collectively, the "Shares")
owned or hereafter acquired by them, at a price of $1.67 per share, and
(ii) granted to Purchaser an option (the "Stock Option") to purchase, under
certain circumstances, at a price of $1.67 per share, Shares in an
aggregate amount equal to 19.9% of the Company's aggregate outstanding
Shares. The Tender Agreement is more fully described in Section 11 of the
Offer to Purchase, which is attached hereto as Exhibit (a)(1). Prior to
April 11, 1997, neither the Purchaser nor any of its affiliates
beneficially owned any Shares. After the consummation of the Offer, the
Purchaser will beneficially own at least a majority of the outstanding
Shares.
1
<PAGE>
SCHEDULE 14D-1 AND 13D
CUSIP NO. 254680-10-1
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS: R-B CAPITAL CORPORATION
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):
(A) [X]
(B) [_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS):
AF
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(E) OR 2(F):
[_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION:
DELAWARE
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
[ ]*
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (SEE
INSTRUCTIONS):
[_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (7):
[ ]%*
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
CO, GM, HC
- -------------------------------------------------------------------------------
- --------
* On April 11, 1997, R-B Acquisition Corporation, a Minnesota corporation (the
"Purchaser"), R-B Capital Corporation, a Delaware corporation (the
"Parent") and certain shareholders of Peerless Industrial Group, Inc., a
Minnesota corporation (the "Company") entered into a Tender and Stock
Option Agreement (the "Tender Agreement") pursuant to which such
shareholders agreed (i) to tender to Purchaser in the Offer described
herein all shares of the Company's common stock, no par value per share and
Class B Common Stock no par value per share (collectively, the "Shares")
owned or hereafter acquired by them, at a price of $1.67 per share, and
(ii) granted to Purchaser an option (the "Stock Option") to purchase, under
certain circumstances, at a price of $1.67 per share, Shares in an
aggregate amount equal to 19.9% of the Company's aggregate outstanding
Shares. The Tender Agreement is more fully described in Section 11 of the
Offer to Purchase, which is attached hereto as Exhibit (a)(1). Prior to
April 11, 1997, neither the Purchaser nor any of its affiliates
beneficially owned any Shares. After the consummation of the Offer, the
Purchaser will beneficially own at least a majority of the outstanding
Shares.
2
<PAGE>
SCHEDULE 14D-1 AND 13D
CUSIP NO. 254680-10-1
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS: RIDGE CAPITAL CORPORATION
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):
(A) [X]
(B) [_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS):
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(E) OR 2(F):
[_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION:
DELAWARE
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
[ ]*
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (SEE
INSTRUCTIONS):
[_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (7):
[ ]%*
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
CO, GM
- -------------------------------------------------------------------------------
- --------
* On April 11, 1997, R-B Acquisition Corporation, a Minnesota corporation (the
"Purchaser"), R-B Capital Corporation, a Delaware corporation (the
"Parent") and certain shareholders of Peerless Industrial Group, Inc., a
Minnesota corporation (the "Company") entered into a Tender and Stock
Option Agreement (the "Tender Agreement") pursuant to which such
shareholders agreed (i) to tender to Purchaser in the Offer described
herein all shares of the Company's common stock, no par value per share and
Class B Common Stock no par value per share (collectively, the "Shares")
owned or hereafter acquired by them, at a price of $1.67 per share, and
(ii) granted to Purchaser an option (the "Stock Option") to purchase, under
certain circumstances, at a price of $1.67 per share, Shares in an
aggregate amount equal to 19.9% of the Company's aggregate outstanding
Shares. The Tender Agreement is more fully described in Section 11 of the
Offer to Purchase, which is attached hereto as Exhibit (a)(1). Prior to
April 11, 1997, neither the Purchaser nor any of its affiliates
beneficially owned any Shares. After the consummation of the Offer, the
Purchaser will beneficially own at least a majority of the outstanding
Shares.
3
<PAGE>
SCHEDULE 14D-1 AND 13D
CUSIP NO. 254680-10-1
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS: PANDORA CAPITAL CORPORATION
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):
(A) [X]
(B) [_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS):
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(E) OR 2(F):
[_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION:
DELAWARE
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
[ ]*
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (SEE
INSTRUCTIONS):
[_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (7):
[ ]%*
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
CO, GM
- -------------------------------------------------------------------------------
- --------
* On April 11, 1997, R-B Acquisition Corporation, a Minnesota corporation (the
"Purchaser"), R-B Capital Corporation, a Delaware corporation (the
"Parent") and certain shareholders of Peerless Industrial Group, Inc., a
Minnesota corporation (the "Company") entered into a Tender and Stock
Option Agreement (the "Tender Agreement") pursuant to which such
shareholders agreed (i) to tender to Purchaser in the Offer described
herein all shares of the Company's common stock, no par value per share and
Class B Common Stock no par value per share (collectively, the "Shares")
owned or hereafter acquired by them, at a price of $1.67 per share, and
(ii) granted to Purchaser an option (the "Stock Option") to purchase, under
certain circumstances, at a price of $1.67 per share, Shares in an
aggregate amount equal to 19.9% of the Company's aggregate outstanding
Shares. The Tender Agreement is more fully described in Section 11 of the
Offer to Purchase, which is attached hereto as Exhibit (a)(1). Prior to
April 11, 1997, neither the Purchaser nor any of its affiliates
beneficially owned any Shares. After the consummation of the Offer, the
Purchaser will beneficially own at least a majority of the outstanding
Shares.
4
<PAGE>
SCHEDULE 14D-1 AND 13D
CUSIP NO. 254680-10-1
- -------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS: WILLIAM BLAIR MEZZANINE CAPITAL FUND II, L.P.
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON:
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS):
(A) [X]
(B) [_]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS (SEE INSTRUCTIONS):
WC
- -------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(E) OR 2(F):
[_]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION:
DELAWARE
- -------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
[ ]*
- -------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES CERTAIN SHARES (SEE
INSTRUCTIONS):
[_]
- -------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED TO AMOUNT IN ROW (7):
[ ]*
- -------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON*
PN, GM
- -------------------------------------------------------------------------------
- --------
* On April 11, 1997, R-B Acquisition Corporation, a Minnesota corporation (the
"Purchaser"), R-B Capital Corporation, a Delaware corporation (the
"Parent") and certain shareholders of Peerless Industrial Group, Inc., a
Minnesota corporation (the "Company") entered into a Tender and Stock
Option Agreement (the "Tender Agreement") pursuant to which such
shareholders agreed (i) to tender to Purchaser in the Offer described
herein all shares of the Company's common stock, no par value per share and
Class B Common Stock no par value per share (collectively, the "Shares")
owned or hereafter acquired by them, at a price of $1.67 per share, and
(ii) granted to Purchaser an option (the "Stock Option") to purchase, under
certain circumstances, at a price of $1.67 per share, Shares in an
aggregate amount equal to 19.9% of the Company's aggregate outstanding
Shares. The Tender Agreement is more fully described in Section 11 of the
Offer to Purchase, which is attached hereto as Exhibit (a)(1). Prior to
April 11, 1997, neither the Purchaser nor any of its affiliates
beneficially owned any Shares. After the consummation of the Offer, the
Purchaser will beneficially own at least a majority of the outstanding
Shares.
5
<PAGE>
This Statement relates to the offer by R-B Acquisition Corporation, a
Minnesota corporation (the "Purchaser"), a wholly-owned subsidiary of R-B
Capital Corporation, a Delaware corporation (the "Parent") to purchase all
issued and outstanding shares of the Common Stock, no par value per share and
the Class B Common Stock, no par value per share (collectively, the "Shares"),
of Peerless Industrial Group, Inc., a Minnesota corporation (the "Company"),
at the purchase price of $1.67 per Share, net to the tendering stockholder in
cash, upon the terms and subject to the conditions set forth in the Offer to
Purchase dated April 17, 1997 and in the related Letter of Transmittal (which
together constitute the "Offer"). Each of Parent and Purchaser have been
formed by William Blair Mezzanine Capital Fund II, L.P, a Delaware limited
partnership ("Blair Mezzanine Fund"), Pandora Capital Corporation, an Illinois
corporation ("Pandora") and Ridge Capital Corporation, an Illinois corporation
and its affiliates (collectively, "Ridge") in connection with the Offer and
the transactions contemplated thereby.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Peerless Industrial Group, Inc., a
Minnesota corporation, and the address of its principal executive offices is
2430 Metropolitan Centre, 333 South Seventh Street, Minneapolis, Minnesota
55402.
(b) The securities to which this statement relates are the Shares. The
information set forth in the Introductory Section and Section 1 ("Terms of the
Offer") of the Offer to Purchase for Cash annexed hereto as Exhibit (a)(1)
(the "Offer to Purchase") is incorporated herein by reference.
(c) The information set forth in Section 6 ("Price Range of Shares;
Dividends") of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d); (g) This Schedule 14D-1 is filed by Ridge, Pandora, Blair Mezzanine
Fund, Parent and Purchaser. Ridge and Pandora are corporations organized under
the laws of the State of Illinois and having a business address at 257 East
Main Street, Barrington, Illinois 60070. Blair Mezzanine Fund is a limited
partnership organized under the laws of the State of Delaware and having a
business address at 222 West Adams Street, Chicago Illinois 60606. Parent and
Purchaser have been organized by Ridge, Pandora and Blair Mezzanine Fund in
order to execute the Merger Agreement and make the Offer. The Purchaser is
incorporated under the laws of the State of Minnesota, and is wholly owned by
Parent. Parent is incorporated under the laws of the State of Delaware and is
owned by Ridge, Pandora and Blair Mezzanine Fund. The business address of the
Purchaser and Parent is 257 East Main Street, Barrington, Illinois, 60010. The
information set forth in Section 9 ("Certain Information Concerning Ridge,
Blair Mezzanine Fund, the Purchaser and Parent") of the Offer to Purchase and
in Schedules I and II thereto is incorporated herein by reference.
(e); (f) During the last five years, none of the Purchaser, Parent, Blair
Mezzanine Fund, Pandora, Ridge nor, to the best of their knowledge, any of the
persons listed in Schedules I and II to the Offer to Purchase has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as result of which any such
person was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such law.
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth in the Introductory Section and Sections
10 ("Background of the Merger and the Offer; Contacts with the Company") and
11 ("Purpose of the Offer and the Merger; Plans for the Company; the Merger
Agreement; the Tender Agreement; Dissenters' Rights") of the Offer to Purchase
is incorporated herein by reference.
6
<PAGE>
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in Section 12 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
The information set forth in the Introductory Section and Sections 7
("Effect of the Offer on the Market for the Shares; NASDAQ Quotation; and
Exchange Act Registration") and 11 ("Purpose of the Offer and the Merger;
Plans for the Company; the Merger Agreement; the Tender Agreement; Dissenters'
Rights") of the Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth in the Introductory Section and Sections
10 ("Background of the Merger and the Offer") and 11 ("Purpose of the Offer
and the Merger; Plans for the Company; the Merger Agreement; the Tender
Agreement; Dissenters' Rights") of the Offer to Purchase is incorporated
herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introductory Section and Sections 9
("Certain Information Concerning Ridge, Blair Mezzanine Fund, the Purchaser
and Parent"), 10 ("Background of the Merger and the Offer; Contacts with the
Company") and 11 ("Purpose of the Offer and the Merger; Plans for the Company;
the Merger Agreement; the Tender Agreement; Dissenters' Rights") of the Offer
to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in Section 16 ("Fees and Expenses") of the Offer
to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth in Section 9 ("Certain Information Concerning
Ridge, Blair Mezzanine Fund, the Purchaser and the Parent") of the Offer to
Purchase is incorporated herein by reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Not applicable.
(b)-(c) The information set forth in Section 15 ("Certain Legal Matters") of
the Offer to Purchase is incorporated herein by reference.
(d) The information set forth in Sections 7 ("Effect of the Offer on the
Market for Shares; NASDAQ Quotation; and Exchange Act Registration") and 15
("Certain Legal Matters") of the Offer to Purchase is incorporated herein by
reference. The Shares are not "margin securities" under applicable Federal
Reserve Board regulations.
(e) Not applicable.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, to the extent not otherwise set forth herein, is incorporated
herein by reference.
7
<PAGE>
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated April 17, 1997.
(2) Letter of Transmittal.
(3) Letter, dated April 17, 1997, from the Information Agent to brokers,
dealers, commercial banks, trust companies and nominees.
(4) Letter, dated April 17, 1997, to be sent by brokers, dealers, commercial
banks, trust companies and nominees to their clients.
(5) Notice of Guaranteed Delivery.
(6) IRS Guidelines to Substitute Form W-9.
(7) Press Release, dated April 14, 1997.
(8) Summary newspaper advertisement, dated April 17, 1997.
(b) Form of Senior Subordinated Loan Agreement between the Parent and
William Blair Mezzanine Capital Fund II, L.P.
(c)(1) Confidentiality and Non-Disclosure Agreement, dated October 30, 1996,
between Pandora Capital Corporation and the Company.
(c)(2) Agreement and Plan of Merger, dated as of April 11, 1997, among the
Parent, the Purchaser and the Company.
(c)(3) Tender and Stock Option Agreement, dated as of April 11, 1997, among
the Parent, the Purchaser and various shareholders of the Company.
(c)(4) Form of Consulting Agreement among the Company, Peerless Chain
Company and William Spell.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
8
<PAGE>
SIGNATURE
After due 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.
Dated: April 17, 1997
R-B Acquisition Corporation
/s/ Harrington Bischof
-------------------------------------
Name: Harrington Bischof
Title: President
R-B Capital Corporation
/s/ Harrington Bischof
-------------------------------------
Name: Harrington Bischof
Title: President
Ridge Capital Corporation
/s/ J. Bradley Davis
-------------------------------------
Name: J. Bradley Davis
Title: President
Pandora Capital Corporation
/s/ Harrington Bischof
-------------------------------------
Name: Harrington Bischof
Title: President
William Blair Mezzanine Capital Fund
II, L.P.
By: William Blair Mezzanine Capital
Partners II, L.L.C., its general
partner
/s/ Terrance M. Shipp
By: _________________________________
Name: Terrance M. Shipp
Title: Managing Director
9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
(a)(1) Offer to Purchase, dated April 17, 1997.
(2) Letter of Transmittal.
(3) Letter, dated April 17, 1997, from the Information Agent to brokers,
dealers, commercial banks, trust companies and nominees.
(4) Letter, dated April 17, 1997, to be sent by brokers, dealers,
commercial banks, trust companies and nominees to their clients.
(5) Notice of Guaranteed Delivery.
(6) IRS Guidelines to Substitute Form W-9.
(7) Press Release, dated April 14, 1997.
(8) Summary newspaper advertisement, dated April 17, 1997.
(b) Form of Senior Subordinated Loan Agreement between the Parent and
William Blair Mezzanine Capital Fund II, L.P.
(c)(1) Confidentiality and Non Disclosure Agreement, dated October 30, 1996,
between Pandora Capital Corporation and the Company.
(c)(2) Agreement and Plan of Merger, dated as of April 11, 1997, among the
Parent, the Purchaser and the Company.
(c)(3) Tender and Stock Option Agreement, dated as of April 11, 1997, among
the Parent, the Purchaser and various shareholders of the Company.
(c)(4) Form of Consulting Agreement among The Company, Peerless Chain Company
and William Spell.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
</TABLE>
10
<PAGE>
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.
1
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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.
2
<PAGE>
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
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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.
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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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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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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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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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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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<PAGE>
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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<PAGE>
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
25
<PAGE>
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
26
<PAGE>
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
27
<PAGE>
(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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<PAGE>
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
29
<PAGE>
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
30
<PAGE>
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>
LETTER OF TRANSMITTAL
TO TENDER SHARES
OF
COMMON STOCK AND CLASS B COMMON STOCK
OF
PEERLESS INDUSTRIAL GROUP, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED APRIL 17, 1997
BY
R-B ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
R-B CAPITAL CORPORATION
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, MAY 15, 1997, UNLESS THE OFFER IS EXTENDED.
TO: HARRIS TRUST COMPANY OF NEW YORK, DEPOSITARY
<TABLE>
<S> <C> <C>
By Hand: By Overnight Courier: By Mail:
Receive Window 77 Water Street, 4th Floor Wall Street Station
77 Water Street, 5th Floor New York, NY 10005 P.O. Box 1023
New York, NY 10005 New York, NY 10268-1023
</TABLE>
Other Information
<TABLE>
<S> <C>
By Facsimile Telephone Numbers
(212) 701-7636 For information call collect
(212) 701-7640 (212) 701-7624
Confirm by telephone
(212) 701-7624
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST
SIGN THIS LETTER OF TRANSMITTAL IN THE APPROPRIATE SPACE PROVIDED BELOW AND
COMPLETE THE SUBSTITUTE FORM W-9 SET FORTH BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used by shareholders of Peerless
Industrial Group, Inc., a Minnesota corporation (the "Company") if
certificates for Shares (as defined below) are to be forwarded herewith or,
unless an Agent's Message (as defined in the Offer to Purchase) is utilized,
if delivery of Shares is to be made by book-entry transfer to the Depositary's
account at The Depository Trust Company or Philadelphia Depository Trust
Company (hereinafter collectively referred to as the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth under "3. Procedure for
Tendering Shares" in the Offer to Purchase dated April 17, 1997. Shareholders
who tender Shares by book-entry transfer are referred to herein as "Book-Entry
Shareholders."
<PAGE>
Shareholders whose Shares are not immediately available or who cannot deliver
their Shares and all other documents required hereby to the Depositary on or
prior to the Expiration Date (as defined in the Offer to Purchase) or who
cannot complete the procedures for book-entry transfer on a timely basis, must
tender their Shares pursuant to the guaranteed delivery procedure set forth
under "3. Procedure for Tendering Shares" in the Offer to Purchase. See
Instruction 2. DELIVERY OF DOCUMENTS TO ONE OF THE BOOK-ENTRY TRANSFER
FACILITIES, WHETHER OR NOT IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES, DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
DESCRIPTION OF SHARES TENDERED--COMMON STOCK
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED SHARES TENDERED
HOLDER(S) (ATTACH ADDITIONAL LIST IF
(PLEASE FILL IN, IF BLANK, EXACTLY AS NECESSARY)
NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S))
- --------------------------------------------------------------------------------
CERTIFICATE TOTAL NUMBER OF
NUMBERS* NUMBER SHARES
OF SHARES TENDERED**
REPRESENTED
BY
CERTIFICATES*
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
TOTAL
NUMBER
OF SHARES
- --------------------------------------------------------------------------------
*Need not be completed by shareholders tendering by book-entry transfer.
**Unless otherwise indicated, it will be assumed that all Shares
represented by any certificates delivered to the Depositary are being
tendered. See Instruction 4.
DESCRIPTION OF SHARES TENDERED--CLASS B COMMON STOCK
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED SHARES TENDERED
HOLDER(S) (ATTACH ADDITIONAL LIST IF
(PLEASE FILL IN, IF BLANK, EXACTLY AS NECESSARY)
NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S))
- --------------------------------------------------------------------------------
CERTIFICATE TOTAL NUMBER OF
NUMBERS* NUMBER SHARES
OF SHARES TENDERED**
REPRESENTED
BY
CERTIFICATES*
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
TOTAL
NUMBER
OF SHARES
- --------------------------------------------------------------------------------
*Need not be completed by shareholders tendering by book-entry transfer.
**Unless otherwise indicated, it will be assumed that all Shares
represented by any certificates delivered to the Depositary are being
tendered. See Instruction 4.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most banks, savings and loan associations and brokerage
houses) which is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program (an "Eligible Institution"). Signatures on this
Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal
is signed by the registered holder(s) of the Shares (which term, for purposes
of this document, shall include any participant in one of the Book-Entry
Transfer Facilities whose name appears on a security position listing as the
owner of Shares) tendered herewith and such holder(s) have not completed the
instruction entitled "Special Delivery Instruments" or "Special Payment
Instructions" on this Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal
is to be used if certificates are to be forwarded herewith pursuant to the
procedures set forth in "3. Procedure for Tendering Shares" of the Offer to
Purchase. Certificates for all physically delivered Shares, or a confirmation
of a book-entry transfer into the Depositary's account at one of the Book-
Entry Transfer Facilities of all Shares delivered electronically, as well as a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) (or, in the case of a book-entry delivery, an Agent's Message) and
any other documents required by this Letter of Transmittal, must be received
by the Depositary at one of its addresses set forth on the front page of this
Letter of Transmittal by the Expiration Date. Shareholders who cannot deliver
their Shares and all other required documents to the Depositary by the
Expiration Date must tender their Shares pursuant to the guaranteed delivery
procedure set forth in "3. Procedure for Tendering Shares" of the Offer to
Purchase. Pursuant to such procedure: (a) such tender must be made by or
through an Eligible Institution, (b) a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form provided by Purchaser
must be received by the Depositary by the Expiration Date and (c) the
certificates for all physically delivered Shares, or a confirmation of a book-
entry transfer into the Depositary's account at one of the Book-Entry Transfer
Facilities of all Shares delivered electronically, as well as a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) (or,
in the case of a book-entry delivery, an Agent's Message) and any other
documents required by this Letter of Transmittal, must be received by the
Depositary within three Nasdaq Stock Market trading days after the date of
execution of such Notice of Guaranteed Delivery, all as provided in "3.
Procedure for Tendering Shares" of the Offer to Purchase. If Shares are
forwarded separately to the Depositary, each must be accompanied by a duly
executed Letter of Transmittal (or facsimile thereof).
THE METHOD OF DELIVERING SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS INCLUDING DELIVERY THROUGH BOOK-ENTRY TRANSFER FACILITIES,
IS AT THE OPTION AND SOLE 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 ENSURE
TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted. By
executing this Letter of Transmittal (or facsimile thereof), the tendering
shareholder waives any right to receive any notice of the acceptance for
payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto and separately signed on each page thereof in the
same manner as this Letter of Transmittal is signed.
4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any certificate
delivered to the Depositary are to be tendered, fill in the number of Shares
which are to be tendered in the box entitled "Number of Shares Tendered." In
such case, a new certificate for the remainder of the Shares represented by
the old certificate will be sent to the person(s) signing this Letter of
Transmittal, unless otherwise provided in the appropriate box on this Letter
of Transmittal, as promptly as practicable following the expiration or
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise
indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must be EXACTLY the same as the name(s) as
written on the face of the certificates without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are held of record by two or more
persons, all such persons must sign this Letter of Transmittal.
<PAGE>
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock
powers are required unless payment of the purchase price is to be made, or
Shares not tendered or not purchased are to be returned, in the name of any
person other than the registered holder(s). Signatures on any such
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares tendered hereby, 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 for such Shares. Signatures(s) on any such certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory
to Purchaser of the authority of such person so to act must be submitted.
6. STOCK TRANSFER TAXES. Purchaser will pay any stock transfer taxes with
respect to the sale and transfer of any Shares to it or its order pursuant to
the Offer. If, however, payment of the purchase price is to be made to, or
Shares not tendered or not purchased are to be returned in the name of, any
person other than the registered holder(s), or if a transfer tax is imposed
for any reason other than the sale or transfer of Shares to Purchaser pursuant
to the Offer, then the amount of any stock transfer taxes (whether imposed on
the registered holder(s), such other person or otherwise) will be deducted
from the purchase price unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted herewith.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the purchase
price of any Shares purchased is to be issued, or any Shares not tendered or
not purchased are to be returned, in the name of a person other than the
person(s) signing this Letter of Transmittal or if the check or any
certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to the
person(s) signing this Letter of Transmittal at an address other than that
shown above, the appropriate boxes on this Letter of Transmittal should be
completed. Shareholders tendering Shares by book-entry transfer may request
that Shares not purchased be credited to such account at any of the Book-Entry
Transfer Facilities as such shareholder may designate under "Special Payment
Instructions." If no such instructions are given, any such Shares not
purchased will be returned by crediting the account at the Book-Entry Transfer
Facilities designated above.
8. SUBSTITUTE FORM W-9. Under the federal income tax laws, the Depositary
will be required to backup withhold 31% of the amount of any payments made to
certain shareholders pursuant to the Offer. In order to avoid such backup
withholding, each tendering shareholder, and, if applicable, each other payee,
must provide the Depositary with such shareholder's or payee's correct
taxpayer identification number and certify that such shareholder or payee is
not subject to such backup withholding by completing the Substitute Form W-9
set forth below. In general, if a shareholder or payee is an individual, the
taxpayer identification number is the Social Security number of such
individual. If the Depositary is not provided with the correct taxpayer
identification number, the shareholder or payee may be subject to a $50
penalty imposed by the Internal Revenue Service ("IRS"). If the tendering
shareholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future, the shareholder or other payee must
complete the Certificate of Awaiting Taxpayer Identification Number below the
Substitute Form W-9 in order to avoid backup withholding. Notwithstanding that
the Certificate of Awaiting Taxpayer Identification Number is completed, the
Depositary will withhold 31% on all payments made prior to the time a properly
certified TIN is provided to the Depositary. However, such amounts will be
refunded to such holder if a TIN is provided to the Depositary within 60 days.
The holder is required to give the Depositary the TIN of the record owner of
the Shares or of the last transferee appearing on the transfers attached to,
or endorsed on, the Shares. If the Shares are in more than one name or are not
in the name of the actual owner, consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which number to report. Certain shareholders or payees
(including, among others, all corporations and certain foreign individuals)
are not subject to these backup withholding and reporting requirements. In
order to satisfy the Depositary that a foreign individual qualifies as an
exempt recipient, such shareholder or payee must submit a Form W-8, signed
under penalties of perjury, attesting to that individual's exempt status. A
Form W-8 can be obtained from the Depositary. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do
not have one), consult the enclosed GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9.
<PAGE>
Failure to complete the Substitute Form W-9 will not, by itself, cause
Shares to be deemed invalidly tendered, but may require the Depositary to
withhold 31% of the amount of any payments made pursuant to the Offer. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of a person subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained provided that the required information is
furnished to the IRS.
NOTE: FAILURE TO COMPLETE AND RETURN THE SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or
additional copies of the Offer to Purchase and this Letter of Transmittal may
be obtained from the Information Agent at its address or telephone number set
forth below.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the shareholder should
promptly notify the Depositary. Instructions will then be given to what steps
must be taken to obtain a replacement certificate(s). The Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing such missing certificate(s) have been followed.
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
Account No. ________________________________________________________________
[_] The Depository Trust Company ("DTC")
[_] Philadelphia Depository Trust Company ("PHILADEP")
Transaction Code No. _______________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Shareholder(s) _______________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution which Guaranteed Delivery ______________________________
If delivery is by book entry transfer:
Name of Tendering Institution ______________________________________________
[_] DTC [_] PHILADEP (check one) Account No. _______________________________
Transaction Code No. _______________________________________________________
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to R-B Acquisition Corporation, a Minnesota
corporation (the "Purchaser"), a wholly owned subsidiary of R-B Capital
Corporation, the above-described shares of Common Stock, no par value per
share, and/or Class B Common Stock, no par value per share (collectively, the
"Shares"), of Peerless Industrial Group, Inc., a Minnesota corporation (the
"Company"), pursuant to Purchaser's offer to purchase all of the outstanding
Shares at a price of $1.67 per Share, net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions set forth in
the Offer to Purchase dated April 17, 1997, receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which together constitute the
"Offer"). The undersigned understands that Purchaser reserves the right to
transfer or assign, in whole or from time to time in part, to one or more of
its affiliates, the right to purchase all or any portion of the Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve Purchaser of its obligations under the Offer or prejudice the rights
of tendering holders of the Shares to receive payment for Shares validly
tendered and accepted for payment pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms of the Offer, including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment, the undersigned hereby sells, assigns and transfers to or upon
the order of Purchaser all right, title and interest in and to all the Shares
that are being tendered hereby or orders the registration of such Shares
delivered by book-entry transfer (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 irrevocably appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares (and all Distributions), with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (a) deliver certificates for such Shares (and all such other
shares or securities), or transfer ownership of such Shares (and all
Distributions) on the account books maintained by any of the Book-Entry
Transfer Facilities, together, in any such case, with all accompanying
evidences of transfer and authenticity, to or upon the order of Purchaser upon
receipt by the Depositary, as the undersigned's agent, of the purchase price,
(b) present such Shares (and all Distributions) for transfer on the books of
the Company and (c) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Shares (and all Distributions), all in accordance
with the terms of the Offer.
The undersigned hereby irrevocably appoints Harrington Bischof and Clark
Davis and each of them, the attorneys-in-fact and proxies of the undersigned,
each with full power of substitution, to exercise all voting and other rights
of the undersigned in such manner as each such attorney and proxy or his
substitute shall in his sole discretion deem proper, with respect to all of
the Shares (and any Distributions) tendered hereby which have been accepted
for payment by Purchaser prior to the time of any vote or other action at any
meeting of shareholders of the Company (whether annual or special and whether
or not an adjourned meeting), by written consent or otherwise. This power of
attorney and proxy is coupled with an interest and is irrevocable and is
granted in consideration of, and is effective upon, the acceptance for payment
of such Shares by Purchaser in accordance with the terms of the Offer. Such
acceptance for payment shall revoke, without any further action, any other
power of attorney or proxy granted by the undersigned at any time with respect
to such Shares, and no subsequent power of attorney or proxies will be given
or will be executed by the undersigned (and if given or executed, will not be
deemed to be effective). The undersigned understands that Purchaser reserves
the right to require that, in order for such Shares to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares,
Purchaser is able to exercise full voting rights with respect to such Shares
and other securities, including voting at any meeting of shareholders.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares and all
Distributions tendered hereby 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 undersigned will, upon request, execute and deliver any additional
documents deemed by the Depositary or Purchaser to be necessary or desirable
to complete the sale, assignment and transfer of the Shares and all
Distributions tendered hereby. In addition, the undersigned will promptly
remit and transfer to the Depositary for the account of Purchaser any and all
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer and, pending such remittance or
appropriate assurance thereof, Purchaser shall be entitled to all rights and
privileges as owner of any such Distributions, and may withhold the entire
purchase price or deduct from the purchase price of Shares tendered hereby,
the amount or value thereof, as determined by Purchaser in its sole
discretion.
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer, this
tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described under "Section 3. Procedure for Tendering Shares" in
the Offer to Purchase and in the instructions hereto will constitute a binding
agreement between the undersigned and Purchaser upon the terms and subject to
the conditions of the Offer.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in "Procedure for Tendering Shares" in the
Offer to Purchase and in the instructions hereto will constitute a binding
agreement between the undersigned and Purchaser with respect to such Shares
upon the terms and subject to the conditions of the Offer. The undersigned
recognizes that, under certain circumstances set forth in the Offer to
Purchase, Purchaser may not be required to accept for payment any of the
Shares tendered hereby. See "Section 13. Certain Conditions of the Offer" in
the Offer to Purchase.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price and/or return any Shares not tendered
or accepted for payment in the name(s) of the undersigned. Similarly, unless
otherwise indicated under "Special Delivery Instructions," please mail the
check for the purchase price and/or return any Share certificates not tendered
or accepted for payment (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Payment Instructions" and "Special Delivery
Instructions" are completed, please issue the check for the purchase price
and/or return any Shares not tendered or accepted for payment in the name(s)
of, and deliver said check and/or return certificates to, the person or
persons so indicated. The undersigned recognizes that Purchaser has no
obligation pursuant to the "Special Payment Instructions" to transfer any
Shares from the name of the registered holder thereof if Purchaser does not
accept for payment any of such Shares.
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the To be completed ONLY if the
check for the purchase price of check for the purchase price of
Shares purchased or stock Shares purchased or stock
certificates for Shares not certificates for Shares not
tendered or not purchased are to tendered or not purchased are to
be issued in the name of someone be mailed to someone other than
other than the undersigned. the undersigned or to the
undersigned at an address other
Issue check and/or certificates than that shown below the
to: undersigned's signature(s).
Name _____________________________
(Please Print)
Mail check and/or certificates
to:
Address __________________________
---------------------------------- Name _____________________________
(Please Print)
(Zip Code)
Address __________________________
----------------------------------
(Taxpayer Identification No. or ----------------------------------
(Zip Code)
Social Security No.)
(Complete Substitute Form W-9)
<PAGE>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
SIGN
HERE
X
----------------------------------------------------------------------------
Signature(s) of Owner(s)
X
----------------------------------------------------------------------------
(Must be signed by registered holder(s) EXACTLY as name(s) appear(s) on
stock certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please set
forth full title and see Instruction 5.)
Dated _______________________________________________________________ , 1997
Name(s) ____________________________________________________________________
(Please Print)
----------------------------------------------------------------------------
Capacity (full title) ______________________________________________________
Address ____________________________________________________________________
(Include Zip Code)
Area Code and Telephone No. ________________________________________________
Tax Identification or Social Security No. __________________________________
(Complete Substitute W-9 on Reverse Side)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Name of Firm _______________________________________________________________
Authorized Signature _______________________________________________________
Name _______________________________________________________________________
Address ____________________________________________________________________
Area Code and Telephone Number _____________________________________________
Dated _______________________________________________________________ , 1997
<PAGE>
TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS
(SEE INSTRUCTION 8)
PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
PART I--PLEASE PROVIDE YOUR
SUBSTITUTE TIN IN THE BOX AT THE RIGHT
AND CERTIFY BY SIGNING AND
DATING BELOW.
FORM W-9 ----------------------
DEPARTMENT OF THE TREASURY Social security
INTERNAL REVENUE SERVICE number
PAYER'S REQUEST FOR or
TAXPAYER IDENTIFICATION
NUMBER (TIN) ----------------------
Employer
identification number
- --------------------------------------------------------------------------------
CERTIFICATION.--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me);
(2) I am not subject to backup withholding because (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup
withholding because of underreporting or dividends on your tax return.
However, if after being notified by the IRS that you were subject to backup
withholding you received another notification from the IRS that you are no
longer subject to backup withholding, do not cross out such item (2).
- --------------------------------------------------------------------------------
SIGNATURE _________________________________________ DATE __________ , 1997
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TAX
IDENTIFICATION NUMBER.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a taxpayer identification number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all reportable
payments made to me will be withheld, but that such amounts will be
refunded to me if I then provide a Taxpayer Identification Number within
sixty (60) days.
Signature _________________________________________ Date _________________
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates of Shares
and any other required documents should be sent or delivered by each
shareholder of the Company or his broker, dealer, commercial bank, trust
company or other nominee to the Depositary at one of its addresses set forth
below:
Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
By Hand: By Overnight Courier: By Mail:
Receive Window 77 Water Street Wall Street Station
77 Water Street, 5th New York, NY 10005 P.O. Box 1023
Floor New York, NY 10268-1023
New York, NY 10005
By Facsimile Transmission: Telephone Numbers:
(212) 701-7636 For information call collect
(212) 701-7640 (212) 701-7624
Confirm by telephone
(212) 701-7624
(For Eligible Institutions Only)
Questions and requests for assistance may be directed to the Information
Agent at its address and telephone number listed below. Additional copies of
this Offer to Purchase, the Letter of Transmittal and other tender offer
materials may be obtained from the Information Agents as set forth below, and
will be furnished promptly at Purchaser's expense. You may also contact your
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning this Offer.
The Information Agent is:
LOGO
156 FIFTH AVENUE
NEW YORK, NY 10010
CALL TOLL FREE (800) 322-2885
<PAGE>
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
OFFER TO PURCHASE FOR CASH
ALL 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 EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON THURSDAY, MAY 15, 1997, UNLESS THE OFFER IS EXTENDED.
April 17, 1997
To Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees:
We have been appointed by R-B Acquisition Corporation, a Minnesota
corporation (the "Purchaser"), a wholly owned subsidiary of R-B Capital
Corporation, a Delaware corporation ("Parent") to act as Information Agent in
connection with the Purchaser's offer to purchase all of the outstanding
shares of Common Stock, no par value per share, and Class B Common Stock, no
par value per share (collectively, the "Shares"), of Peerless Industrial
Group, Inc., a Minnesota corporation (the "Company"), at $1.67 per Share, net
to the seller in cash, without interest thereon, upon the terms and subject to
the conditions set forth in the Purchaser's Offer to Purchase, dated April 17,
1997 (the "Offer to Purchase") and the related Letter of Transmittal (which
together constitute the "Offer").
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A
NUMBER OF SHARES WHICH CONSTITUTES AT LEAST (I) A MAJORITY OF THE SHARES, AND
(II) A NUMBER OF OUTSTANDING SHARES ENTITLED TO ELECT AT LEAST A MAJORITY OF
THE BOARD OF DIRECTORS OF THE COMPANY, IN EACH CASE ON A FULLY DILUTED BASIS
OR, AT THE ELECTION OF PURCHASER IN ITS SOLE DISCRETION, ON THE BASIS OF THE
NUMBER OF SHARES OUTSTANDING AT THE EXPIRATION OF THE OFFER. SEE "13. CERTAIN
CONDITIONS OF THE OFFER" IN THE OFFER TO PURCHASE.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase, dated April 17, 1997.
2. Letter of Transmittal to tender Shares for your use and for the
information of your clients, together with Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 providing information
relating to backup federal income tax withholding (facsimile copies of the
Letter of Transmittal may be used to tender Shares);
<PAGE>
3. Notice of Guaranteed Delivery for Shares to be used to accept the
Offer if the certificates for the Shares being tendered and all other
required documents are not immediately available or cannot be delivered to
the Depositary by the Expiration Date (as defined in the Offer to Purchase)
or if procedures for book-entry transfer cannot be completed by the
Expiration Date; and
4. A printed form of letter which may be sent to your clients for whose
accounts you hold Shares registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instruction with
regard to the Offer.
YOUR PROMPT ACTION IS REQUESTED, WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MAY 15, 1997,
UNLESS THE OFFER IS EXTENDED.
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 pay for the Shares
which are validly tendered prior to the Expiration Date and not therefore
properly withdrawn when, as and if the Purchaser gives oral or written notice
to the Depositary of the Purchaser's acceptance of such Shares for payment
pursuant to the Offer. Payment for the Shares purchased pursuant to the Offer
will in all cases be made only after timely receipt by the Depositary of
certificates for the Shares or timely confirmation of a book-entry transfer of
such Shares into the Depositary's account at The Depository Trust Company or
the Philadelphia Depository Trust Company, pursuant to the procedures
described in "3. Procedure for Tendering Shares" of the Offer to Purchase, a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) or an Agent's Message in connection with a book-entry
transfer, and all other documents required by the Letter of Transmittal.
If holders of Shares wish to tender their Shares, but it is impracticable
for them to forward their Share certificates or other required documents to
the Depositary on or prior to the Expiration Date or to comply with the book-
entry transfer procedure on a timely basis, a tender may be effected by
following the guaranteed delivery procedures specified in "3. Procedure for
Tendering Shares" in the Offer to Purchase.
The Purchaser will not pay any fees or commissions to any broker or dealer
or other person for soliciting tenders of the Shares pursuant to the Offer.
The Purchasers will, however, upon request, reimburse you for reasonable and
necessary costs and expenses incurred by you in forwarding materials to your
customers. The Purchaser will pay or cause to be paid all stock transfer taxes
applicable to its purchase of Shares pursuant to the Offer, subject to
Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Offer should be addressed to,
and additional copies of the enclosed materials may be obtained from, the
undersigned at the addresses and telephone numbers set forth on the back cover
of the Offer to Purchase and the Letter of Transmittal.
Very truly yours,
MACKENZIE PARTNERS, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE
YOU OR ANY PERSON AS AN AGENT OF THE PURCHASER, THE PARENT, THE COMPANY,
ANY AFFILIATE OF THE COMPANY, THE INFORMATION AGENT OR THE DEPOSITARY, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY
STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN
THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
2
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL 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 EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON THURSDAY, MAY 15, 1997, UNLESS THE OFFER IS EXTENDED.
April 17, 1997
To Our Clients:
Enclosed for your consideration are the Offer to Purchase dated April 17,
1997 (the "Offer to Purchase") and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, constitute the "Offer")
in connection with the offer by R-B Acquisition Corporation, a Minnesota
corporation (the "Purchaser") and wholly owned subsidiary of R-B Capital
Corporation, to purchase all of the outstanding shares of Peerless Industrial
Group, Inc.'s Common Stock, no par value per share, and Class B Common Stock,
no par value per share (collectively, the "Shares"), at a price of $1.67 per
Share, net to the seller in cash, without interest thereon, upon the terms and
conditions set forth in the Offer. We are (or our nominee is) the holder of
record of the Shares held for your account. A tender of such Shares can be
made only by us as the holder of record and pursuant to your instructions. THE
LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT
BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
THE BOARD OF DIRECTORS OF PEERLESS INDUSTRIAL GROUP, INC. HAS UNANIMOUSLY
APPROVED THE OFFER AND THE MERGER AND RECOMMENDS THAT SHAREHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES.
We request instructions as to whether you wish us to tender any or all of
the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Please note carefully the following:
1. The tender price is $1.67 per Share, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set
forth in the Offer.
2. The Offer and withdrawal rights expire at 12:00 Midnight, New York
City time, on Thursday, May 15, 1997, unless the Offer is extended.
3. The Offer is being made for all of the Shares of Common Stock and
Class B Common Stock.
4. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A
NUMBER OF SHARES WHICH CONSTITUTES AT LEAST (I) A MAJORITY OF THE SHARES,
AND (II) A NUMBER OF OUTSTANDING SHARES ENTITLED TO ELECT AT LEAST A
<PAGE>
MAJORITY OF THE BOARD OF DIRECTORS OF PEERLESS INDUSTRIAL GROUP, INC., IN
EACH CASE ON A FULLY DILUTED BASIS OR, AT THE ELECTION OF PURCHASER IN ITS
SOLE DISCRETION, ON THE BASIS OF THE NUMBER OF SHARES OUTSTANDING AT THE
EXPIRATION OF THE OFFER. SEE "13. CERTAIN CONDITIONS OF THE OFFER" IN THE
OFFER TO PURCHASE.
5. Any brokerage fees, commissions or stock transfer taxes applicable to
the sale of the Shares to the Purchaser pursuant to the Offer will be paid
by such Purchaser, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing, detaching and returning to us the instruction
form set forth below. An envelope to return your instructions to us is
enclosed. If you authorize tender of your Shares, all such Shares will be
tendered unless otherwise specified on the instruction form set forth below.
YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO
SUBMIT A TENDER ON YOUR BEHALF BY THE EXPIRATION OF THE OFFER. THE OFFER AND
WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY,
MAY 15, 1997, UNLESS THE PURCHASER EXTENDS THE OFFER.
The Offer is not being made to, nor will tenders be accepted from or on
behalf of, holders of the Shares in any jurisdiction in which the making of
the Offer or acceptance thereof would not be in compliance with the laws of
such jurisdiction. In those jurisdictions the laws of which require that the
Offer be made by a licensed broker or dealer, the Offer shall be deemed to be
made on behalf of the Purchaser by one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
<PAGE>
INSTRUCTIONS WITH RESPECT TO
OFFER TO PURCHASE FOR CASH
ALL 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 undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase dated April 17, 1997 and the related Letter of Transmittal (which
collectively constitute the "Offer") in connection with the offer by R-B
Acquisition Corporation, a Minnesota corporation and wholly owned subsidiary
of R-B Capital Corporation, a Delaware corporation, to purchase all of the
outstanding shares of Common Stock, no par value per share and Class B Common
Stock, no par value per share (collectively, the "Shares") of Peerless
Industrial Group, Inc.
This will instruct you to tender the number of Shares indicated below held
by you for the account of the undersigned, upon the terms and subject to the
conditions set forth in the Offer and the related Letter of Transmittal.
Number/1/ of Shares to be Tendered: Shares of Common Stock
Shares of Class B Common Stock
Account Number: __________________________
Dated: , 1997
- -------------------------------------------------------------------------------
SIGN HERE
Signature(s): _________________________________________________________________
- -------------------------------------------------------------------------------
Print Name(s): ________________________________________________________________
- -------------------------------------------------------------------------------
Print Address(es): ____________________________________________________________
- -------------------------------------------------------------------------------
Area Code and Telephone No.: __________________________________________________
Taxpayer ID No. or Social Security No.: _______________________________________
- --------
/1/Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
<PAGE>
NOTICE OF GUARANTEED DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
TO TENDER SHARES OF COMMON STOCK OR CLASS B COMMON STOCK
OF
PEERLESS INDUSTRIAL GROUP, INC.
PURSUANT TO THE OFFER TO PURCHASE DATED APRIL 17, 1997
OF
R-B ACQUISITION CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
R-B CAPITAL CORPORATION
This Notice of Guaranteed Delivery, or one substantially equivalent to the
attached form, must be used to accept the Offer (as defined below) if (i)
certificates for shares of Common Stock, no par value per share or Class B
Common Stock, no par value per share (collectively, the "Shares"), of Peerless
Industrial Group, Inc. and all other documents required by the Letter of
Transmittal cannot be delivered to the Depositary by the expiration of the
Offer (as defined in the Offer to Purchase) or (ii) the procedures for
delivery of book-entry transfer cannot be completed on a timely basis. This
Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile
transmission or mail to the Depositary. See "3. Procedure for Tendering
Shares" in the Offer to Purchase.
The Depositary for the Offer is:
HARRIS TRUST COMPANY OF NEW YORK
By Hand: By Overnight Courier: By Mail:
Receive Window 77 Water 77 Water Street, 4th Wall Street Station P.O.
Street, 5th Floor New Floor New York, NY 10005 Box 1023 New York, NY
York, NY 10005 10268-1023
By Facsimile: Telephone Numbers:
(212) 701-7636 For information call collect
(212) 701-7640 (212) 701-7624
Confirm by telephone
(212) 701-7624
(Eligible Institutions Only)
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION
TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature of a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
The financial institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such financial
institution.
THE GUARANTEE CONTAINED HEREIN MUST BE COMPLETED
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to R-B Acquisition Corporation (the
"Purchaser"), upon the terms and subject to the conditions set forth in the
Offer to Purchase dated April 17, 1997 and the related Letter of Transmittal
(which together constitute the Offer), receipt of which is hereby
acknowledged, the number (indicated below) of Shares pursuant to the
guaranteed delivery procedure set forth in "3. Procedure for Tendering Shares"
of the Offer to Purchase.
Number of Shares being tendered hereby: Shares of Common Stock
Shares of Class B Common Stock
SIGN HERE:
Certificate No(s).
(if available):
- -------------------------------------
-------------------------------------
If Shares will be tendered by book-entry transfer: (Signature(s))
Name of Tendering Institution _______ -------------------------------------
(Name(s) of Record Holders)
Account No. _____________________ at (Please Print)
[_] The Depository Trust Company -------------------------------------
[_] Philadelphia Depository Trust Company (Address)
-------------------------------------
(Zip Code)
-------------------------------------
(Area Code and Telephone No.)
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc.,
or a commercial bank or trust company having an office, branch or agency in
the United States, hereby guarantees to deliver to the Depositary the Shares
tendered hereby, together with a properly completed and duly executed
Letter(s) of Transmittal (or facsimile(s) thereof) or an Agent's Message as
defined in the Offer to Purchase in the case of a book-entry delivery, and any
other required documents, all within three Nasdaq Stock Market trading days of
the date hereof.
<PAGE>
- -------------------------------------
(NAME OF FIRM)
-------------------------------------
- ------------------------------------- (AUTHORIZED SIGNATURE)
(ADDRESS)
-------------------------------------
- ------------------------------------- (NAME)
(ZIP CODE)
-------------------------------------
- ------------------------------------- (TITLE)
(AREA CODE AND TELEPHONE NO.)
-------------------------------------
DATED: , 1997
DO NOT SEND STOCK CERTIFICATES WITH THIS FORM.
YOUR STOCK CERTIFICATES MUST BE SENT WITH
THE LETTER OF TRANSMITTAL.
Questions and requests for assistance may be directed to the Information
Agent at its address and telephone number listed below. Additional copies of
this Offer to Purchase, the Letter of Transmittal and other tender offer
materials may be obtained from the Information Agents as set forth below, and
will be furnished promptly at Purchaser's expense. You may also contact your
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning this Offer.
The Information Agent is:
MACKENZIE PARTNERS, INC.
156 FIFTH AVENUE
NEW YORK, NY 10010
CALL COLLECT (800) 322-2885
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.
Social Security numbers have nine digits separated by two hyphens: i.e., 000-
00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number
to give the payer.
- --------------------------------------- ---------------------------------------
<TABLE>
<CAPTION>
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -------------------------------------------------------
<S> <C>
1.Individual The individual
2.Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, the first individual
on the account(2)
3. Custodian account of a The minor(4)
minor (Uniform Gift to
Minors Act)
4.a The usual The grantor-trustee(2)
revocable
savings trust
(grantor is
also trustee)
b. So-called The actual owner(2)
trust account
that is not a
legal or valid
trust under
State law
5. Sole The owner(1)
proprietorship
</TABLE>
<TABLE>
<CAPTION>
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
-------
<S> <C>
6.Sole proprietorship The owner(1)
7. A valid trust, estate, Legal entity(3)
or pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered The broker or
nominee nominee
12. Account with the The public entity
Department of
Agriculture in the name
of a public entity (such
as a State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
- --------------------------------------- ---------------------------------------
(1) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use either your SSN or EIN.
(2) List first and circle the name of the person whose number you furnish.
(3) List first and circle the name of the legal trust, estate, or pension
trust. (Do not furnish the identifying number of the personal
representative or trustee unless the legal entity itself is not designated
in the account title.)
(4) Circle the minor's name and furnish the minor's social security number.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at the local office
of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
The following is a list of payees exempt from backup withholding and for which
no information reporting is required. For interest and dividends, all listed
payees are exempt except item (9). For broker transactions, payees listed in
items (1) through (13) and a person registered under the Investment Advisers
Act of 1940 U.C. who regularly acts as a broker are exempt. Payments subject
to reporting under sections 6041 and 6041A are generally exempt from backup
withholding only if made to payees described in items (1) through (7), except
a corporation that provides medical and health care services or bills and
collects payments for such services is not exempt from backup withholding or
information reporting. Only payees described in items (2) through (6) are
exempt from backup withholding for barter exchange transactions, patronage
dividends, and payments by certain fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an individual
retirement plan or custodial account under section 403(b)(7).
(3) The United States or any agency or instrumentality thereof.
(4) A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
(5) A foreign government, a political subdivision of a foreign government, or
an agency or instrumentality thereof.
(6) An international organization or any agency or instrumentality thereof.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S. or
a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times under the Investment Company Act of
1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
(15) An exempt charitable remainder trust, or a non-exempt trust described in
section 4947.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends not paid in money.
. Payments made by certain foreign organizations. NOTE: You may be subject
to backup withholding if this interest is $600 or more and is paid in the
course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, royalties, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish
a taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail
to furnish your taxpayer identification number to a payer, you are subject to
a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<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>
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
------------------------------------------------------------------------------
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase dated
April 17, 1997 and the related Letter of Transmittal, and is being made to
all holders of Shares, except in any jurisdiction where the making of such
Offer would be illegal. The Purchaser is not aware of any State in which
the making of the Offer or the acceptance of shares pursuant thereto is
prohibited by administrative or judicial action pursuant to a state
statute. If the Purchaser becomes aware of any State where the making
of the Offer or the acceptance of shares pursuant thereto is so
prohibited, the Purchaser will make a good faith effort to comply
with any such statute or seek to have such statute declared
inapplicable to the Offer. If, after such good faith effort, the
Purchaser cannot comply with any applicable statute, the Offer
will not be made to (nor will tenders be accepted from or on
behalf of) holders of Shares in such State. In any
jurisdictions, the securities laws or blue sky laws of which
require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of the
Purchaser, if at all, by one or more registered brokers or
dealers that are licensed under the laws of such
jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL 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
R-B Acquisition Corporation, a corporation formed under the laws of the State
of Minnesota (the "Purchaser") and a wholly owned subsidiary of R-B Capital
Corporation, a corporation formed under the laws of the State of Delaware
("Parent"), is offering to purchase any and all outstanding shares of Common
Stock, no par value per share, and Class B Common Stock, no par value per share
(collectively, the "Shares"), of Peerless Industrial Group, Inc., a corporation
formed under the laws of the State of Minnesota (the "Company"), at $1.67 per
Share, net to the seller 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 in the related Letter of Transmittal (which, together,
constitute the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON THURSDAY, MAY 15, 1997,
UNLESS THE OFFER IS EXTENDED.
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 SUBSEQUENT MERGER OF THE COMPANY AND THE PURCHASER IS FAIR TO AND
IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS, HAVE APPROVED THE OFFER
AND THE SUBSEQUENT MERGER OF THE COMPANY AND THE PURCHASER AND RECOMMEND THAT
THE COMPANY'S SHAREHOLDERS ACCEPT THE OFFER AND TENDER ALL OF THEIR SHARES
PURSUANT THERETO.
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 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 completion of the Offer, the Company and
the Purchaser will be merged and each outstanding Share (other than Shares
owned by the Purchaser, Parent, or any of their affiliates and Shares held by
shareholders who perfect any available dissenters' rights under Minnesota law)
will be converted into the right to receive an amount in cash equal to the
price per Share paid pursuant to the Offer.
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, 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 as of April 15, 1997), 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.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered and not validly
withdrawn, as, if and when the Purchaser gives oral or written notice to Harris
<PAGE>
------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Trust Company of New York (the "Depositary") of the Purchaser's acceptance of
such Shares for payment pursuant to the Offer. In all cases, upon the terms and
subject to the conditions of the Offer, payment for Shares purchased pursuant
to the Offer will be made by deposit of the purchase price therefor with the
Depositary, which will act as agent for tendering shareholders for the purpose
of receiving payments from the Purchaser and transmitting such payments to
validly tendering shareholders. Under no circumstances will interest on the
purchase price for Shares be paid by the Purchaser by reason of any delay in
making such payment. In all cases, payment for Shares accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of (1) certificates representing such Shares ("Share Certificates") or timely
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 (collectively, the "Book-Entry Transfer Facilities"), pursuant to the
procedures set forth in "Section 3. Procedure for Tendering Shares" in the
Offer to Purchase, (2) the Letter of Transmittal (or a facsimile thereof)
properly completed and duly executed with any required signature guarantees
(or, alternatively, an Agent's Message, as set forth in the Offer to Purchase),
and (3) any other documents required by the Letter of Transmittal.
The term "Expiration Date" means 12:00 Midnight, New York City time, on
Thursday, May 15, 1997, unless and until the Purchaser, in its sole judgment
pursuant to the terms of the Merger Agreement, shall have extended the period
of time for which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by the
Purchaser, shall expire. Subject to the terms of the Merger Agreement and
applicable law, including the applicable rules and regulations of the
Securities and Exchange Commission, the Purchaser expressly reserves the right,
in its sole judgment, at any time and from time to time, to extend the period
during which the Offer is open for any reason, including the non-satisfaction
of any of the conditions specified in the Offer to Purchase, by giving oral or
written notice of such extension to the Depositary, followed as promptly as
practicable by public announcement no later than 9:00 A.M., New York City time,
on the next business day after the previously scheduled Expiration Date. During
any such extension, all Shares previously tendered and not withdrawn will
remain subject to the Offer, subject to the right of tendering shareholders to
withdraw such shareholders' Shares.
The Purchaser's acceptance for payment of Shares tendered pursuant to any one
of the procedures described in the Offer to Purchase and in the Letter of
Transmittal will constitute a binding agreement between the tendering
shareholder and the Purchaser upon the terms and subject to the conditions of
the Offer. Except as otherwise provided in "Section 4. Withdrawal Rights" in
the Offer to Purchase, tenders of Shares made pursuant to the Offer are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn at any time
on or 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 to be effective, a written, telegraphic, telex
or facsimile transmission notice of withdrawal must be timely received by the
Depositary at its address set forth on the back cover of the Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Shares to be withdrawn and, if Share Certificates have been tendered, the
name of the registered holder of the Shares as set forth in the Share
Certificate, if different from that of the person who tendered such Shares. If
Share Certificates have been delivered or otherwise identified to the
Depositary, then prior to the physical release of such certificates, the
tendering shareholder must submit the serial numbers shown on the particular
certificates evidencing the Shares to be withdrawn and the signature on the
notice of withdrawal must be guaranteed by an Eligible Institution (as defined
in the Offer to Purchase), except in the case of Shares tendered for the
account of an Eligible Institution. If Shares have been tendered pursuant to
the procedures for book-entry transfer as set forth in "Section 3. Procedure
for Tendering Shares" in the Offer to Purchase, the notice of withdrawal must
specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Shares, in which case a
notice of withdrawal will be effective if a written or facsimile transmission
notice of withdrawal is timely received by the Depositary at its address set
forth on the back cover of the Offer to Purchase. Withdrawals of Shares may not
be rescinded. Any Shares properly withdrawn will be deemed not validly tendered
for purposes of the Offer, but may be retendered at any subsequent time prior
to the Expiration Date by following any of the procedures described in "Section
3. Procedure for Tendering Shares" in the Offer to Purchase. All questions as
to the form and validity (including time of receipt) of any notice of
withdrawal will be determined by the Purchaser, in its sole discretion and
whose determination will be final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
SHAREHOLDERS ARE URGED TO READ THE OFFER TO PURCHASE AND THE RELATED LETTER
OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR SHARES.
Questions and requests for assistance may be directed to the Information
Agent at the address and telephone number set forth below. Requests for copies
of the Offer to Purchase and the related Letter of Transmittal and other Offer
materials may be directed to the Information Agent or brokers, dealers,
commercial banks and trust companies and such materials will be furnished
promptly at the Purchaser's expense. The Purchaser will not pay any fees or
commissions to brokers, dealers, or other persons (other than the Information
Agent) for soliciting tenders of Shares pursuant to the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
LOGO
156 Fifth Avenue
New York, NY 10010
CALL TOLL FREE (800)322-2885
April 17, 1997
<PAGE>
WILLIAM BLAIR MEZZANINE CAPITAL FUND II, L.P.
SENIOR SUBORDINATED LOAN AGREEMENT
$13,500,000 SENIOR SUBORDINATED TERM NOTE
DUE JUNE 30, 2004
[R-B CAPITAL CORPORATION]
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 DEFINITIONS...................................................... 1
1.1 Certain Definitions.............................................. 1
1.2 Accounting Principles............................................ 8
ARTICLE 2 CREDIT TERMS..................................................... 8
2.1 Purchase and Sale of the Notes................................... 8
2.2 Repayment of Principal........................................... 9
2.3 Interest......................................................... 9
2.4 Prepayments...................................................... 9
2.5 Payments.........................................................10
2.6 Pro Rata Payment.................................................10
ARTICLE 3 CLOSING DELIVERIES...............................................11
ARTICLE 4 REPRESENTATIONS AND WARRANTIES...................................12
4.1 Organization and Qualification...................................12
4.2 Authorization, Validity and Enforceability.......................12
4.3 Capitalization...................................................13
4.4 No Event of Default; Compliance with Instruments.................13
4.5 Compliance with Laws.............................................13
4.6 Litigation.......................................................14
4.7 Regulations G and X..............................................14
4.8 ERISA............................................................14
4.9 Subsidiaries.....................................................14
4.10 Financial Condition..............................................14
4.11 Absence of Undisclosed Liabilities...............................14
4.12 Assets...........................................................15
4.13 Tax Matters......................................................15
4.14 Contracts........................................................15
[4.15 Armaments; Northern Ireland; South Africa].......................15
ARTICLE 5 AFFIRMATIVE COVENANTS............................................16
5.1 Payment of Obligations...........................................16
5.2 Preservation of Corporate Existence..............................16
5.3 Payment of Taxes and Claims......................................16
5.4 Reporting Requirements...........................................16
5.5 Notices to Lender................................................18
5.6 Maintenance of Insurance.........................................19
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
5.7 Maintenance of Properties........................................19
5.8 Keeping of Records and Books of Account..........................19
5.9 Visitation Rights................................................19
5.10 Compliance with Laws.............................................19
5.11 Performance of Agreements........................................19
5.12 Environmental and Safety Matters.................................19
5.13 Use of Proceeds..................................................20
5.14 Assertion of Rights Under Certain Agreements.....................20
ARTICLE 6 NEGATIVE COVENANTS...............................................20
6.1 Indebtedness.....................................................20
6.2 Liens............................................................21
6.3 Contingent Obligations...........................................21
6.4 Operating Lease Obligations......................................21
6.5 Merger or Sale...................................................21
6.6 Purchase or Acquisition. Except as contemplated by the
Related Transactions Documents...................................21
6.7 Investments......................................................22
6.8 Distributions....................................................22
6.9 Amendments or Changes in Agreements..............................22
6.10 Transactions with Affiliates.....................................22
6.11 Business Conducted...............................................22
6.12 Fiscal Year......................................................22
6.13 Sale and Leaseback Transactions..................................23
6.14 Investment Banking, Broker's and Finder's Fees...................23
6.15 Subsidiaries.....................................................23
6.16 Capital Expenditures.............................................23
6.17 Allocation of Consideration......................................23
6.18 Additional Financial Covenants...................................23
6.19 Waiver of Rights Under Certain Agreements........................23
ARTICLE 7 DEFAULT..........................................................23
7.1 Events of Default................................................23
7.2 Consequences of Event of Default.................................25
7.3 Other Rights.....................................................25
ARTICLE 8 REPRESENTATIONS AND WARRANTIES OF LENDER.........................25
8.1 Capacity.........................................................25
8.2 Accredited Investor..............................................25
8.3 Investment Purpose...............................................26
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 9 TRANSFER OF THE NOTE..............................................26
9.1 Successors and Assigns in General.................................26
9.2 Transfer..........................................................26
ARTICLE 10 MISCELLANEOUS.....................................................27
10.1 Modifications, Amendments or Waivers..............................27
10.2 No Implied Waivers; Cumulative Remedies; Writing Required.........27
10.3 Reimbursement of Expenses; Taxes..................................27
10.4 Notices...........................................................28
10.5 Survival..........................................................28
10.6 Governing Law; Consent to Jurisdiction and Service of Process;
Waiver of Jury Trial..............................................29
10.7 Severability......................................................30
10.8 Headings..........................................................30
10.9 Counterparts......................................................30
10.10 Indemnification...................................................30
10.11 Payment Set Aside.................................................32
10.12 Interpretation....................................................32
</TABLE>
iii
<PAGE>
SENIOR SUBORDINATED LOAN AGREEMENT
----------------------------------
This SENIOR SUBORDINATED LOAN AGREEMENT is made and entered into as of
_____________, 1997 between [R-B CAPITAL CORPORATION], a [Minnesota]
corporation, as the borrower ("[R-B CAPITAL]"); and WILLIAM BLAIR MEZZANINE
CAPITAL FUND II, L.P., a Delaware limited partnership ("Blair"), as the lender.
In consideration of the mutual covenants and agreements contained herein,
the parties agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Certain Definitions. In addition to other terms defined elsewhere in
this Agreement, the following terms shall have the meanings set forth below:
"Acquisition" shall mean the acquisition of all of the common stock of
Peerless Parent through the Offer and the Merger.
"Affiliate" of any Person shall mean any other Person which directly
or indirectly controls, is controlled by or is under common control with such
Person. For purposes hereof, "control" shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of management or
policies of a Person whether through ownership of securities, by contract or
otherwise; provided, however, that any director, executive officer or other
Person which owns directly or indirectly 5% or more of the securities of any
other Person having ordinary voting power for the election of directors shall be
deemed to control such other Person. Under no circumstances shall Lender be
deemed to be an Affiliate of Borrower or any of its Affiliates.
"Agreement" shall mean this Senior Subordinated Loan Agreement, as it
may be amended, modified or supplemented from time to time.
"Bankruptcy Code" shall mean the Federal Bankruptcy Reform Act of 1978
(11 U.S.C. (S)101, et seq.), as amended and in effect from time to time and the
regulations issued from time to time thereunder.
"Borrower" shall mean [R-B CAPITAL] and, where applicable hereunder,
its successors by merger.
"Business Day" shall mean any day other than a Saturday, Sunday or
public holiday under the laws of the State of Illinois or other day on which
banking institutions are authorized or obligated to close in the State of
Illinois.
<PAGE>
"Capital Expenditures" shall mean, for any period and with respect to
any Person, the aggregate of all expenditures by such Person and its
Subsidiaries for such period for the acquisition or leasing under Capital Leases
of fixed or capital assets or additions to fixed or capital assets (including
replacements, capitalized repairs and improvements during such period) which
should be capitalized under GAAP on a consolidated balance sheet of such Person
and its Subsidiaries.
"Capital Lease" shall mean a lease under which the obligations of the
lessee would, in accordance with GAAP, be included in determining total
liabilities as shown on the liability side of a balance sheet of the lessee.
"Capital Lease Obligations" shall mean the amount of the liability
reflecting the aggregate discounted amount of future payments under all Capital
Leases calculated in accordance with GAAP and Statement of Financial Accounting
Standards No. 13.
"Cash Flow" shall mean, for any period, EBITDA for such period minus
Capital Expenditures paid in cash for such period and otherwise permitted by
this Agreement, all as determined for Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"Change of Control" shall mean the acquisition whether through a
single or series of transactions, by any Person or group of Persons other than
Lender, their respective Affiliates or their Permitted Transferees (as defined
in the Shareholders Agreement) of the voting power of 50% or more of Borrower's
common stock (as computed on a fully diluted basis).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute, together with the rules and regulations
thereunder, in each case as in effect from time to time.
"Contingent Obligations", with respect to any Person, shall mean,
without duplication, any direct or indirect liability, contingent or otherwise
of such Person with respect to any Indebtedness of another or other obligation
or liability of another, including, without limitation, any such Indebtedness,
obligation or liability of another directly or indirectly guaranteed, endorsed
(other than for collection or deposit in the ordinary course of business), co-
made or discounted or sold with recourse by such Person, or in respect of which
such Person is otherwise directly or indirectly liable, including obligations or
liabilities, contingent or otherwise, arising through any agreement to purchase,
repurchase or otherwise acquire such Indebtedness obligation or liability or any
security therefor, or to provide funds for the payment or discharge thereof
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise), or to maintain solvency, assets, level of income or other
financial condition, or to make payment other than for value received. The
amount of any Contingent Obligation shall be the amount of the obligation to the
extent so guaranteed or otherwise supported, or any other contingent obligation
or liability of such Person, whether or not reflected in such Person's financial
statements.
2
<PAGE>
"Distribution", with respect to any Person, shall mean: (a) any
dividend or other distribution, direct or indirect, by such Person on account of
any shares of any class of stock of such Person; (b) any redemption, conversion,
exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, by such Person of any shares of any
class of stock of such Person; and (c) any payment made by such Person to
retire, or to obtain the surrender of, any outstanding warrants, options or
other rights to acquire shares of any class of stock of such Person other than
(x) dividend payments or other distributions payable solely in Securities and
(y) amounts fully funded by keyman insurance policies or the like and amounts of
up to _______ per annum to repurchase Securities of employees of Borrower or any
of its Subsidiaries.
"EBITDA" shall mean, for any period, for Borrower and its Subsidiaries
on a consolidated basis, determined in accordance with GAAP, the sum of (a) Net
Income (Loss) for such period, plus (b) all amounts deducted from net income (or
net loss) for such period for depreciation or amortization, plus (c) interest
expense deducted from net income (or net loss) for such period, plus (d) all
accrued taxes on or measured by income to the extent included in the
determination of such net income (or loss), plus (e) all other non-cash charges
which reduced Net Income (Loss) for such period.
"Environmental and Safety Requirements" shall mean all present and
future federal, state, local and foreign laws, statutes, rules, regulations,
ordinances and other requirements, including, without limitation, permits issued
thereunder, judicial and administrative orders and determinations, contractual
obligations and common law concerning public health and safety, nuisance, worker
health and safety, protection of the environment, pollution or contamination of
any type whatsoever, including, without limitation, all standards of conduct and
bases of obligations relating to the presence, use, production, generation,
handling, transport, treatment, storage, disposal, sale, distribution, labeling,
testing, processing, discharge, release, threatened release, control or cleanup
of any hazardous, toxic or otherwise dangerous chemical, material, substance or
waste, or mixture, pesticide, petroleum product or byproduct, asbestos,
polychlorinated biphenyls, noise or radiation.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute, together with the
rules and regulations thereunder, in each case as in effect from time to time.
"ERISA Affiliate" as applied to any Person, shall mean any trade or
business, (whether or not incorporated) which is a member of a group of which
that Person is a member and which is under common control or otherwise
affiliated within the meaning of Section 414 of the Code or Section 4001 of
ERISA and the regulations promulgated and rulings issued thereunder.
Notwithstanding the foregoing, neither Lender nor any of its Affiliates shall be
deemed an ERISA Affiliate.
3
<PAGE>
"Event of Default" shall mean any of the Events of Default described
in Section 7.1 hereof.
"Excess Cash Flow" shall mean, for any period, Cash Flow for such
period minus, to the extent paid in cash for such period, taxes, interest and
payments of principal on any Indebtedness.
"GAAP" shall mean United States generally accepted accounting
principles, as in effect from time to time, consistently applied.
"Indebtedness" of any Person shall mean, without duplication: (a) all
indebtedness for borrowed money, including, without limitation, indebtedness
constituting all or any part of the deferred purchase price of property or
services; (b) Capital Lease Obligations; (c) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (d) obligations under interest rate swap agreements, interest
rate cap agreements, interest rate collar agreements or other similar agreements
or arrangements designed to protect against fluctuations in interest rates; and
(e) all indebtedness secured by any Lien on any property or asset owned or held
by such Person regardless of whether the indebtedness secured thereby shall have
been assumed by such Person or is nonrecourse to the credit of such Person.
"Intercreditor Agreement" shall mean the Subordination Agreement of
even date herewith between Lender, Borrower and Senior Lender, in the form
attached hereto as Exhibit A, as the same may be amended or supplemented from
time to time.
"Investment" shall mean, with respect to any Person, (a) any direct or
indirect purchase or other acquisition by such Person of any beneficial interest
in, including stock, partnership interest, notes or other securities of, any
other Person and (b) any direct or indirect loan, advance or capital
contribution by such Person to any other Person, including all Indebtedness to
such Person arising from a sale of property by such Person other than in the
ordinary course of business.
"Lender" shall mean Blair and its participants, transferees,
successors and assigns.
"Lien" shall mean any lien, mortgage, pledge, security interest,
charge or encumbrance of any kind, whether voluntary or involuntary, including
any conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest.
"Material Adverse Effect" shall mean a material adverse change in, or
a material adverse effect upon, the business, operations, properties or
condition (financial or otherwise) of Borrower and its Subsidiaries taken as a
whole.
4
<PAGE>
"Merger" shall mean the merger of Borrower's subsidiary with and into
Peerless Parent contemplated by the Merger Agreement.
"Merger Agreement" shall mean the Agreement and Plan of Merger dated
as of April __, 1997 between Peerless Parent, Borrower's subsidiary and
Borrower.
"Multiemployer Plan" shall mean any Plan which is a "multiemployer
plan" as defined in Section 3(37) of ERISA.
"Multiple Employer Plan" shall mean a single employer plan as defined
in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
Borrower or any of its ERISA Affiliates and at least one Person other than
Borrower or its ERISA Affiliates, or (b) was so maintained and with respect to
which Borrower or any of its ERISA Affiliates could have liability under Section
4064 or 4069 of ERISA in the event such plan has been or were to be terminated.
"Net Income (Loss)" shall mean, for any period, the net income (or
loss) of Borrower and its Subsidiaries on a consolidated basis for such period,
determined in accordance with GAAP; provided that in determining Net Income
(Loss) there shall be excluded:
(a) the income (or loss) of any Person which is not a Subsidiary
of Borrower, except to the extent of the amount of dividends or other
distributions actually paid to Borrower or any of its Subsidiaries in cash
by such Person during such period and the payment of dividends or similar
distributions by that Subsidiary is not at the time prohibited by operation
of the terms of its charter or of any agreement, instrument, judgment,
decree, statute, rule or governmental regulation applicable to that
Subsidiary;
(b) the income (or loss) of any Person accrued prior to the date
it becomes a Subsidiary of Borrower or is merged into or consolidated with
Borrower or any of its Subsidiaries or that Person's assets are acquired by
Borrower or any of its Subsidiaries;
(c) the proceeds of any life insurance policy; and
(d) any other extraordinary or non-recurring gains or losses of
Borrower or its Subsidiaries, and related tax effects in accordance with
GAAP.
"Obligations" shall mean all obligations of every nature of Borrower
from time to time owed to Lender under any of the Senior Subordinated Loan
Documents.
"Offer" shall mean the offer to purchase shares of common stock of
Peerless Parent contemplated by the Merger Agreement.
5
<PAGE>
"Peerless Chain" shall mean Peerless Chain Company, a Minnesota
corporation.
"Peerless Parent" shall mean Peerless Industrial Group, Inc., a
Minnesota corporation.
"Pension Plan" shall mean any employee pension benefit plan as defined
in Section 3(2) of ERISA, subject to Title IV of ERISA or Section 412 of the
Code or a money purchase pension plan.
"Person" shall mean any individual, corporation, partnership, company,
joint venture, association, bank, trust company or trust, whether or not legal
entities, or any governmental entity or agency or political subdivision thereof.
"Plan" shall mean any employee benefit plan as defined in Section 3(3)
of ERISA, whether or not terminated, to which Borrower or any of its ERISA
Affiliates maintains, contributes or has any actual or potential liability and
any other employee benefit or compensatory plan, program, policy or arrangement
with respect to which Borrower or any of its ERISA Affiliates has an actual or
potential liability.
"Potential Event of Default" shall mean any occurrence, condition, act
or omission which, with the passage of time or the giving of notice or both,
would result in an Event of Default hereunder.
"Principal" shall mean the unpaid principal amount of the senior
subordinated loans made pursuant to Section 2.1.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
"Qualified Plan" shall mean any employee pension benefit plan as
defined in Section 3(2) of ERISA other than a Pension Plan that is intended to
qualify under Section 401(a) of the Code.
"Quarterly Payment Date" shall mean the last day of March, June,
September and December of each year.
"Related Transactions" shall mean the Merger, the Offer, the Share
Purchase, the execution and delivery of the Related Transactions Documents, the
funding of the term loan pursuant to the Senior Subordinated Loan Documents, and
the payment of all fees, costs and expenses associated with all of the
foregoing.
"Related Transactions Documents" shall mean the Senior Subordinated
Loan Documents, the Senior Loan Documents, the Intercreditor Agreement, the
Shareholders
6
<PAGE>
Agreement, the Merger Agreement, the Tender and Stock Option Agreement, the W.P.
Carey Agreement and any other documents or instruments executed and delivered in
connection with the Merger of the Offer, if any.
"Sale" shall have the meaning set forth in Section 2.4(b).
"Securities" shall mean securities of the Company, including, without
limitation, shares of any class of the Company's common stock and securities
exercisable, convertible or exchangeable into shares thereof.
"Senior Indebtedness" shall mean any and all amounts constituting
Senior Indebtedness (as defined in the Intercreditor Agreement (as in effect on
the date hereof)).
"Senior Lender" shall mean The CIT Group/Business Credit, Inc.
"Senior Loan Agreement" shall mean that certain [Credit Agreement]
dated as of _______________, as amended to date, by and among Peerless Chain,
Peerless Chain of Iowa, Inc. and Senior Lender, as the same may be supplemented,
amended, modified or replaced from time to time in accordance with the
provisions of this Agreement.
"Senior Loan Documents" shall mean the Senior Loan Agreement and all
other documents, agreements, certificates and instruments attached thereto,
referred to therein or delivered in connection therewith, as any or all of the
foregoing may be supplemented, amended, modified or replaced from time to time
in accordance with the provisions of this Agreement.
"Senior Subordinated Loan Documents" shall mean this Agreement, the
Note (as herein defined), the Shareholders Agreement and any and all other
documents, agreements, certificates and instruments executed or delivered in
connection herewith or therewith, as any or all of the foregoing may be
supplemented, amended or modified from time to time.
"Share Purchase" shall mean the issuance and sale by Borrower and
purchase by Lender, upon the making of the Senior Subordinated Loan, of
Securities for an aggregate purchase price of $____________, all subject to and
upon the terms and conditions of the Shareholders Agreement, which such shares
shall, upon their issuance, be validly issued, fully paid and nonassessable and
free and clear of any and all Liens (except for those Liens arising by the terms
of the Shareholders Agreement).
"Shareholders Agreement" shall mean the Shareholders Agreement among
Borrower, Lender, [Ridge Advisors, Inc.] and the other shareholders named
therein, in the form attached hereto as Exhibit B, as the same may be amended or
supplemented from time to time.
7
<PAGE>
"Subsidiary" shall mean (i) any Person of which or in which a Person
owns directly or indirectly 100% of the combined voting power of all classes of
stock having general voting power under ordinary circumstances to elect a
majority of the board of directors of such Person, if it is a corporation, (ii)
the capital interest or profits interest of such Person, if it is a partnership,
joint venture or similar entity or (iii) the beneficial interest of such Person,
if it is a trust, association or other unincorporated entity.
"Tender and Stock Option Agreement" shall mean that certain Tender and
Stock Option Agreement dated as of April __, 1997 by and among Borrower,
Borrower's subsidiary and certain shareholders of Peerless Parent.
"W.P. Carey Agreement" shall mean that certain Subordination, Consent
and Estoppel Agreement dated as of April __, 1997 by and between Lender,
Peerless Chain and CPA Peerless Limited Partnership.
Other terms are defined elsewhere in this Agreement.
1.2 Accounting Principles. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied as to Borrower. If any changes in
GAAP are hereafter required or permitted and are adopted by Borrower with the
agreement of their certified public accountants and such changes result in a
change in the method of calculation of any of the financial covenants,
restrictions or standards herein or in the related definitions or terms used
therein, the parties hereto agree to enter into negotiations to amend such
provisions so as to reflect equitably such changes with the desired result that
the criteria for evaluating the financial condition of Borrower shall be the
same after such changes as if such changes had not been made; provided, however,
that no change in GAAP that would affect the method of calculation of any of the
financial covenants, restrictions or standards or definitions of terms used
therein shall be given effect in such calculations until such provisions are
amended in a manner reasonably satisfactory to Lender.
ARTICLE 2
CREDIT TERMS
2.1 Purchase and Sale of the Notes. Subject to the terms hereof, on the
date hereof, Lender shall purchase from Borrower, and Borrower shall issue and
sell to Lender, a senior subordinated note (the "Note") evidencing a term loan
(the "Loan") in the principal amount of $13,500,000 and for the purchase price
of $__________ . The Note shall be (a) dated as of the date hereof, (b) subject
to the terms of this Agreement and (c) in the form attached hereto as Exhibit C.
8
<PAGE>
2.2 Repayment of Principal. Unless otherwise required or permitted to be
sooner paid pursuant to the provisions hereof and of the Note, Borrower shall,
repay the Principal on the Loan in full on June 30, 2004.
2.3 Interest.
(a) Interest. So long as no Event of Default has occurred and is
continuing, the Principal on the Loan shall bear interest from the date hereof
until paid, computed on the basis of a 360-day year for the actual number of
days elapsed, at a fixed annual rate of 13%.
(b) Periodic Interest Payments. Accrued interest on the Loan shall be
due and payable quarterly in arrears on each Quarterly Payment Date commencing
on the earlier of (i) the first Quarterly Payment Date following the
consummation of the Merger and (ii) the Quarterly Payment Date on September 30,
1997. In addition, all accrued and unpaid interest on the Loans shall be paid
upon the payment in full of the Principal and, if payment in full is not paid
when due, thereafter on demand.
(c) Default Interest Rate. After the occurrence and during the
continuance of any Event of Default, any interest not paid when due to Lender
hereunder shall bear interest, payable on demand, at the rate of 16% per annum.
(d) Savings Clause. In no contingency or event shall the interest
rate charged pursuant to the terms of this Agreement exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that Lender has received interest hereunder in excess of the highest
applicable rate, the amount of such excess interest shall be applied against the
Principal then outstanding, and any excess interest remaining after such
application shall be refunded to Borrower.
2.4 Prepayments.
(a) Optional Prepayments. Borrower may, at its option and without
penalty or premium, prepay Principal on the Loan, together with accrued interest
thereon:
(i) at any time on or after the third anniversary hereof,
provided that such prepayment of Principal shall be (A) in increments of
$500,000 and (B) made out of Excess Cash Flow; and
(ii) upon the consummation of (A) a Change of Control, (B) the
sale, transfer or disposition of all or substantially all of the assets of
Borrower (a "Sale") or (C) an initial public offering of Securities,
provided that the Principal on the Loan is repaid in full.
9
<PAGE>
Borrower shall give notice (a "Prepayment Notice") to Lender of any optional
prepayment under this Section 2.4 not later than 12:00 p.m., Chicago, Illinois
time, on the tenth Business Day preceding the date of prepayment, specifying the
prepayment date and Principal to be prepaid (the "Prepayment Principal Amount").
Once a Prepayment Notice has been given, the Prepayment Principal Amount
specified therein, together with all accrued interest to the date of payment and
the applicable Prepayment Premium, shall become due and payable on the date
specified in the Prepayment Notice.
(b) Mandatory Prepayment on a Sale or a Change of Control. Borrower
shall give written notice (a "Change Notice") to Lender upon the earlier of (i)
30 days prior to the consummation of and (ii) the date of execution of a
definitive agreement providing for, a Sale or a Change of Control. Upon receipt
of a Change Notice, Lender shall have the right, exercisable at any time within
30 days after receipt of a Change Notice, to require that the Principal on the
Loan be repaid in full, without penalty or premium but together with all accrued
interest thereon, on or before the date of consummation of the Sale or the
Change of Control.
2.5 Payments. All payments hereunder and under the Note shall:
(a) be made to the Lender and shall be made prior to 12:00 p.m.,
Chicago, Illinois time, on the date due, to the Lender's account set forth on
Schedule 2.5 hereto, in lawful money of the United States of America, by wire
transfer in immediately available funds; and
(b) except as required by applicable law, be made without set off,
deduction or counterclaim, free and clear of all taxes (other than taxes imposed
on the net income of Lender or franchise taxes), levies, imports, duties, fees
and charges, and without any withholding, restriction or conditions imposed by
any governmental authority. If Borrower is required by law to deduct any such
amounts from or in respect of any sum payable hereunder to Lender, then the sum
payable hereunder shall be increased as may be necessary so that, after making
all required deductions, Lender receives an amount equal to the sum it would
have received had no such deductions been made.
Whenever any payment to be made hereunder or under the Note shall be stated to
be due on a date other than a Business Day, such payment shall be made on the
immediately preceding Business Day.
2.6 Pro Rata Payment. All payments hereunder and under the Note shall, at
all times, if ever, during which there is more than a single holder of the Note
(or notes issued in replacement thereof), be made pro rata among such holders
based upon the aggregate unpaid principal amount of the notes respectively held
by each such holder, as reflected in the register maintained by Borrower
pursuant to Section 9.1.
10
<PAGE>
ARTICLE 3
CLOSING DELIVERIES
------------------
The obligation of Lender to purchase the Note and Securities on the date
hereof is subject to, among other things, Borrower delivering or causing to be
delivered to Lender on the date hereof the following (the form and substance of
each of which is satisfactory to Lender and its counsel):
(a) this Agreement, duly executed by Borrower;
(b) the Note, duly executed by Borrower;
(c) the Intercreditor Agreement, duly executed by Borrower and Senior
Lender;
(d) the W.P. Carey Agreement, duly executed by the parties thereto;
(e) the Shareholders Agreement, duly executed by Borrower and all
other parties thereto;
(f) a transaction fee of $350,000 to William Blair Mezzanine Capital
Partners II, L.L.C.;
(g) certificates and, as applicable, instruments representing the
Securities issued to Lender pursuant to the Share Purchase;
(h) a written opinion of Mayer, Brown & Platt, counsel to Borrower,
dated as of the date hereof, in the form attached hereto as Exhibit D;
(i) certified copies of all documents evidencing corporate action
taken by Borrower with respect to the Senior Subordinated Loan Documents and the
other Related Transactions Documents;
(j) a certificate of Borrower, signed by its chairman or president, to
the effect that: (i) all of the representations and warranties of Borrower
contained in this Agreement are true and correct as of the date hereof; (ii)
Borrower has complied with and performed all of the terms, covenants and
agreements contained in the Senior Subordinated Loan Documents which are to be
complied with or performed by Borrower on or before the date hereof; and (iii)
no Event of Default or Potential Event of Default has occurred and is
continuing;
11
<PAGE>
(k) a certificate of Borrower, signed by its secretary or an assistant
secretary, certifying the names of the officers authorized to sign the Senior
Subordinated Loan Documents, together with specimens of the true signatures of
such officers;
(l) a copy of Borrower's Articles of Incorporation, certified by the
[Minnesota] Secretary of State, and a copy of Borrower's By-Laws, certified by
its Secretary to be true and correct and in full force and effect as of the date
hereof;
(m) a good standing certificate with respect to Borrower from the
[Minnesota] Secretary of State, and from the Secretary of State of each other
jurisdiction where each such entity is qualified to do business;
(n) copies of the Related Transactions Documents, including any
amendments thereto, certified by Borrower's Secretary to be true and correct and
in full force and effect; and
(o) such other documents, agreements, certificates and instruments as
Lender may reasonably request.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants to Lender that the following statements
are true, correct and complete and such representations and warranties shall
survive the execution and delivery of this Agreement and the issuance of the
Note and Securities, notwithstanding any investigation made by Lender.
4.1 Organization and Qualification. Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the State of
[Minnesota], and is in good standing and is duly qualified to do business as a
foreign corporation in each jurisdiction where failure to be in good standing or
qualified would have a Material Adverse Effect.
4.2 Authorization, Validity and Enforceability. Borrower has the
corporate power and authority to execute, deliver and perform each of the Senior
Subordinated Loan Documents to which it is a party and to incur the borrowings
or other obligations contemplated by the provisions thereof. Borrower has taken
all necessary corporate action (including, without limitation, obtaining
approval of its shareholders) to authorize the execution, delivery and
performance of each of the Senior Subordinated Loan Documents to which it is a
party. No consent, approval or authorization of, or declaration or filing with,
any governmental authority, and no consent of any other Person, is required in
connection with the execution, delivery and performance by Borrower of the
Senior Subordinated Loan Documents to which it is a party. Each Senior
Subordinated Loan Document to which Borrower is a party has been duly executed
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and delivered by Borrower and constitutes the legal, valid and binding
obligation of Borrower, enforceable against it in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of equitable
remedies. Borrower's execution, delivery and performance of each Senior
Subordinated Loan Document to which it is a party do not and will not conflict
with, or constitute a violation or breach of, or constitute a default under, or
result in the creation or imposition of any Lien upon its property by reason of
the terms of (a) any contract, mortgage, lease, agreement, indenture or
instrument to which it is a party or which is binding upon it, (b) any judgment,
law, statute, rule or governmental regulation applicable to it or (c) its
Articles of Incorporation or By-laws.
4.3 Capitalization.
(a) The authorized and outstanding capital stock of Borrower, after
giving effect to the Share Purchase, is as set forth on Schedule 4.3 hereto.
Except as contemplated by Shareholders Agreement, all of the outstanding shares
of capital stock of Borrower are validly issued, fully paid and nonassessable
and free and clear of any and all Liens.
(b) There are not outstanding any shares of stock, securities, rights
or options convertible or exchangeable into or exercisable for any shares of
Borrower's capital stock, stock appreciation rights or phantom stock. Except
pursuant to the Shareholders Agreement, Borrower is not under any obligation,
contingent or otherwise, to redeem or otherwise acquire any shares of its
capital stock or any securities, rights or options to acquire such capital
stock, stock appreciation rights or phantom stock. Schedule 4.3 sets forth a
complete and accurate list of the names of, and indicates the respective
ownership of, the holders of all capital stock, securities or other rights of
Borrower.
(c) Except as otherwise contemplated by the Shareholders Agreement,
there are no statutory or contractual shareholders' preemptive rights with
respect to the issuance of Securities in connection with the Share Purchase or
otherwise related to any Securities. Except for the Shareholders Agreement,
there are no agreements between Borrower's direct or indirect shareholders with
respect to the voting or transfer of Borrower's capital stock or with respect to
any other aspect of Borrower's affairs.
4.4 No Event of Default; Compliance with Instruments. No event has
occurred and no condition exists which would constitute an Event of Default or
Potential Event of Default. Borrower is not in violation of any term of (a) its
Articles of Incorporation or By-laws, or (b) any agreement, instrument, contract
or commitment to which it is a party or by which it may be bound.
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4.5 Compliance with Laws. Borrower is in compliance in all material
respects with all applicable laws and regulations of foreign, federal, state and
local governments and all agencies thereof. No claims have been filed against
Borrower alleging a violation of, or liability or responsibility under, any such
law or regulation which have not been heretofore settled.
4.6 Litigation. There are no actions, suits or proceedings pending or, to
Borrower's knowledge, threatened against or affecting Borrower before any court
or governmental department, agency or instrumentality, domestic or foreign,
which purport to affect or pertain to this Agreement or any other of the Related
Transactions Documents or any of the Related Transactions. No injunction, writ,
temporary restraining order or any order of any nature has been issued by any
court or governmental department, agency or instrumentality, domestic or foreign
purporting to enjoin or restrain the execution, delivery or performance of this
Agreement or any other Related Transactions Documents, or directing that any of
the Related Transactions not be consummated as provided herein or therein.
4.7 Regulations G and X. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying "margin stock", as
defined in Regulation G of the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), and no part of the proceeds of the Obligations
shall be used to purchase or carry any margin stock or to extend credit to
others for the purpose of purchasing or carrying any margin stock in violation
of Regulations G and X of the Federal Reserve Board.
4.8 ERISA. Neither Borrower nor any of its ERISA Affiliates maintains,
contributes to, or has any obligation to contribute to or has maintained or
contributed to at any time prior to the date hereof any Multiemployer Plan,
Multiple Employer Plan or Pension Plan.
4.9 Subsidiaries. Borrower has no Subsidiaries other than its wholly-
owned Subsidiary, [R-B MERGER SUB, INC.].
4.10 Financial Condition. Borrower has delivered to Lender the audited
consolidated balance sheets and related consolidated statements of operations,
shareholders' equity and cash flows and partnership capital of Peerless Parent
for the years ended as of December 31, 1995 and December 31, 1996. To the best
knowledge of Borrower, such financial statements were prepared in accordance
with GAAP and present fairly the consolidated financial position of Peerless
Parent as at the dates thereof and the consolidated results of its operations
for the periods then ended. To the best knowledge of Borrower, since December
31, 1996, there has not occurred, and no event, occurrence or condition exists,
which has or is reasonably likely to have a material adverse effect upon the
business, operations, properties or condition (financial or otherwise) of
Peerless Parent and its subsidiaries, taken as a whole.
4.11 Absence of Undisclosed Liabilities. To the best of Borrower's
knowledge, Borrower has no obligation or liability (whether accrued, known to
it, whether due or to become due and regardless of when asserted) arising out of
transactions entered into, on or prior to the
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date hereof, or any action or inaction on or prior to the date hereof, or any
state of facts existing on or prior to the date hereof.
4.12 Assets. Borrower will, upon consummation of the Acquisition, have
good and indefeasible title to, or a valid leasehold interest in, or a valid
license to use, the properties and assets used in the conduct of its business as
presently conducted and as presently proposed to be conducted by it, located on
its premises, free and clear of all Liens, except for Liens permitted under
Section 6.2.
4.13 Tax Matters. Borrower and its Subsidiaries have filed all federal
and other material tax returns and reports required to be filed, and have paid
all federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their Properties, income or assets
otherwise due and payable.
4.14 Contracts. (a) Borrower has performed all the obligations required
to be performed by it to the date of this Agreement and is not in receipt of any
written claim of default under any contract, commitment or other agreement to
which it is a party; (b) to the best knowledge of Borrower, no event has
occurred which, with the passage of time or the giving of notice or both, would
result in a breach or default under any contract, instrument or other agreement
to which Borrower is a party or is bound; and (c) to the best knowledge of
Borrower, no contract or commitment to Borrower has been breached in any
material respect or canceled by the other party.
[4.15 Armaments; Northern Ireland; South Africa.
(a) No material portion of the businesses of Borrower or Peerless
Chain consists of the production or sale of armaments.
(b) Neither Borrower nor Peerless Chain engages in the manufacture,
distribution or sale of firearms, munitions (including rubber or plastic
bullets), tear gas, armored vehicles or military aircraft for use or deployment
in any activity in Northern Ireland.
(c) Neither Borrower nor Peerless Chain is an agency or
instrumentality of the government of The Republic of South Africa nor a
corporation (i) incorporated under the laws of The Republic of South Africa,
(ii) doing business directly or through any Subsidiary, in or with The Republic
of South Africa, (iii) receiving in excess of 50% of its revenues from The
Republic of South Africa or (iv) otherwise having any interests in or
relationships with The Republic of South Africa.]
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ARTICLE 5
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that, except with the prior written consent of Lender,
so long as any of the Obligations remain outstanding:
5.1 Payment of Obligations. Borrower shall pay all of the Obligations,
as the same become due and payable.
5.2 Preservation of Corporate Existence. Borrower shall, except as
contemplated by the Related Transactions, preserve and maintain its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified as a foreign corporation in such
jurisdictions where failure to so qualify would have a Material Adverse Effect.
5.3 Payment of Taxes and Claims. Borrower shall pay and discharge all
taxes, assessments and other governmental charges imposed upon it or upon its
income or properties, prior to the date on which penalties attach thereto, and
shall pay all claims which, if unpaid, would become a Lien upon any of its
properties, except for any such tax, assessment, charge, levy or claim which is
being contested by or on behalf of such entity in good faith and by proper
proceedings and for which such reserves or other provisions as may be required
by GAAP shall have been made and recorded.
5.4 Reporting Requirements. Borrower shall promptly furnish to Lender
all such financial information respecting it as Lender shall reasonably request
and shall notify its auditors and accountants that Lender is authorized to
obtain such information directly from them if such entity fails to furnish such
information to Lender. Without limiting the foregoing, Borrower shall furnish to
Lender, in such detail as Lender shall reasonably request, the following:
(a) Monthly Financial Statements. As soon as available and in any
event within thirty (30) days after the end of each month (commencing after the
month in which the Merger is consummated), an unaudited consolidated and
consolidating balance sheet, statement of income and expense and statement of
cash flow for Borrower and its subsidiaries for such monthly period and for the
then current fiscal year to date, all in reasonable detail, and setting forth in
comparative form, figures for the corresponding period of the previous fiscal
year and the corresponding period of Borrower's budget. Such statements shall
be certified by the president or senior financial officer of Borrower as fairly
presenting the consolidated and consolidating financial position of Borrower and
its Subsidiaries as of the dates indicated and the results of operations and
cash flow for the calendar month indicated in accordance with GAAP, subject to
normal year-end adjustments and the absence of footnote.
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(b) Annual Financial Statements. As soon as available and in any
event within ninety (90) days after the end of each fiscal year, an audited
annual report of Borrower containing a (i) balance sheet, (ii) statement of
income and expense, (iii) statement of shareholders' equity and (iv) statement
of cash flow for such year, and setting forth in each case, in comparative form,
figures for the previous fiscal year, all in reasonable detail, fairly
presenting the consolidated and consolidating financial position and the results
of operations of Borrower and its subsidiaries as of the close of such previous
year and for the year then ended and prepared in accordance with GAAP. Such
statements shall be accompanied by an unqualified opinion of an independent
certified public accountant satisfactory to Lender.
(c) Certificates.
(i) With each of the audited financial statements delivered
pursuant to Section 5.4(b), a certificate of the independent certified
public accountants addressed to Lender to the effect that they have
reviewed and are familiar with this Agreement and that, in examining such
financial statements, they did not become aware of any fact or condition
which then constituted an Event of Default or Potential Event of Default,
except for those, if any, described in reasonable detail in such
certificate.
(ii) With each of the annual audited financial statements
delivered pursuant to Section 5.4(b) and with each monthly unaudited
financial statement delivered pursuant to Section 5.4(a), a certificate of
Borrower's president or senior financial officer (A) setting forth in
reasonable detail the calculations required to establish that Borrower was
in compliance with the covenants set forth in Sections 6.4, 6.16 and 6.18
during the period covered in such financial statements and as at the end
thereof, and (B) stating that, except as explained in reasonable detail in
such certificate, (x) Borrower is, at the date of such certificate, in
compliance with all of the covenants and agreements in this Agreement, and
(y) no Event of Default or Potential Event of Default then exists. If such
certificate discloses that a covenant has not been complied with or that an
Event of Default or Potential Event of Default exist, such certificate
shall set forth what action Borrower has taken or proposes to take with
respect thereto.
(d) Accountants' Reports. Promptly upon receipt thereof, Borrower
shall deliver copies of all significant reports submitted to Borrower by
independent public accountants in connection with each annual, interim or
special audit of its financial statements made by such accountants, including
the management letter submitted by such accountants to management in connection
with its annual audit.
(e) Annual Budget. As soon as available but in any event prior to the
end of each fiscal year, Borrower's annual budgets prepared on a monthly and
annual basis for the succeeding fiscal year (displaying anticipated statements
of income and cash flows and balance sheet) and promptly upon preparation
thereof any other significant budgets which they prepare (including any
revisions of such annual or other budgets).
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(f) Reports to Senior Lender. Together with any compliance
certificate furnished to Senior Lender pursuant to the Senior Loan Agreement,
Borrower shall also deliver to Lender a copy of the same setting forth in
reasonable detail all calculations for all amounts contained therein and,
together with all other notices or certificates furnished to Senior Lender
pursuant to the Senior Loan Agreement, Borrower shall also deliver to Lender a
copy of the same.
5.5 Notices to Lender. Borrower shall notify Lender in writing of the
following matters at the following times:
(a) Promptly after becoming aware thereof, any Event of Default or
Potential Event of Default.
(b) Promptly after becoming aware thereof, the assertion by the holder
of any Indebtedness in excess of $250,000, including Senior Lender, that a
default exists with respect thereto or that Borrower is not in compliance with
the terms thereof, or the threat or commencement by such holder of any
enforcement action because of such asserted default or non-compliance.
(c) Promptly after becoming aware thereof, any event, occurrence or
condition that is reasonably likely to have a Material Adverse Effect.
(d) Promptly after becoming aware thereof, any pending or threatened
action, suit, proceeding or counterclaim by any Person, or any pending or
threatened investigation by any governmental authorities, which could result in
a Material Adverse Effect.
(e) Promptly after becoming aware thereof, any pending or threatened
strike, work stoppage, material unfair labor practice claim or other material
labor dispute affecting Borrower that could reasonably be expected to have a
Material Adverse Effect.
(f) Promptly after becoming aware thereof, any violation of any law,
statute, regulation or ordinance of any governmental authority (including,
without limitation, any Environmental and Safety Requirement) which could
reasonably be expected to have a Material Adverse Effect.
(g) (A) Promptly and in any event within 5 days after receipt thereof
by Borrower or any of its ERISA Affiliates, copies of each notice from the IRS
relating to the disqualification of any Plan that is intended to be qualified
under Section 401(a) of the Code; (B) promptly and in any event within 5
Business Days of the occurrence of the event, written notice of any event with
respect to any Plan which could result in the incurrence by Borrower or any of
its ERISA Affiliates of any material liabilities, fine or penalty; (C) together
with each copy of such notice received by Borrower or any of its ERISA
Affiliates, a written statement of Borrower's senior financial officer setting
forth details as to all events referred to therein and the
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action with respect thereto taken, or proposed to be taken, by Borrower or its
ERISA Affiliates, as applicable, and a copy of any notice, filing or
correspondence to or required by the IRS, the Department of Labor, or any
government agency or adverse party as may be applicable.
Each notice given under this Section 5.5 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that Borrower has
taken or propose to take with respect thereto.
5.6 Maintenance of Insurance. Borrower shall maintain insurance on its
properties and businesses with reputable insurance companies in such amounts, of
such types and covering such casualties, risks and contingencies as is
ordinarily carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which they operate.
5.7 Maintenance of Properties. Borrower shall maintain and preserve all
of its properties which are necessary for the proper conduct of its businesses
in good working order and condition, ordinary wear and tear excepted.
5.8 Keeping of Records and Books of Account. Borrower shall keep complete
and accurate records and books of account, in which full and correct entries in
accordance with GAAP shall be made of all of its financial transactions.
5.9 Visitation Rights. Borrower shall, at any time and from time to time
during normal business hours, permit Lender or any agent or representative of
Lender to examine and make copies of and abstracts from the records and books of
account of, and to visit its properties and to discuss its affairs, finances and
accounts with any of its officers or directors and, subject to the first
sentence of Section 5.4, its independent accountants.
5.10 Compliance with Laws. Borrower shall comply in all material respects
with the applicable requirements of all laws, rules, regulations and orders of
any governmental authority.
5.11 Performance of Agreements. Borrower shall use reasonable efforts to
preserve its business organization and the goodwill and business of all Persons
with whom it has business relations and, in that context, perform in all
material respects all of the obligations to be performed by it under each lease,
indenture, agreement, contract and other instrument to which it is a party or by
which it and its properties may be bound, including, without limitation, the
Related Transactions Documents, except where its failure to so perform would not
have a Material Adverse Effect.
5.12 Environmental and Safety Matters.
(a) Borrower shall comply in all material respects with all
Environmental and Safety Requirements.
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(b) Borrower shall respond immediately to any release or threatened
release of any hazardous, toxic or otherwise dangerous material, substance or
waste in a manner which complies with and meets all standards imposed by any and
all Environmental and Safety Requirements.
(c) If Lender at any time has reason to believe, in its sole and
reasonable judgment, that any activities, events or conditions on any property
or facility owned, operated or otherwise used by Borrower has been or may be
operated in violation of any Environmental and Safety Requirements, or
contaminated with any hazardous, toxic or otherwise dangerous material,
substance or waste, or subject to any governmentally imposed obligation to
conduct any corrective, investigatory, response or remedial action, then
Borrower shall, at Borrower's own cost and expense, if Lender so elects,
conduct, as appropriate, such investigation or study, through retention of a
consulting firm reasonably satisfactory to Lender, as is necessary to
demonstrate that such activities, operations, property or facility have not had
or are not reasonably likely to have a Material Adverse Effect.
5.13 Use of Proceeds. Borrower shall use the proceeds hereunder solely
to consummate the Acquisition and the fees and expenses arising in connection
with the Related Transactions or the Related Transactions Documents.
5.14 Assertion of Rights Under Certain Agreements. Borrower shall (a)
promptly notify Lender of each and every dispute with, and claims against, any
Person for which Borrower has or may have a claim under the Merger Agreement or
any documents, agreements, certificates or instruments executed or delivered in
connection therewith, (b) diligently enforce such claim and (c) promptly provide
Lender with copies of all notices, demands, requests and other communications
sent or received by Borrower pursuant to the Merger Agreement, together with
prior written notice of Borrower's intention to exercise any power, right or
remedy pursuant to the Merger Agreement.
ARTICLE 6
NEGATIVE COVENANTS
------------------
Borrower covenants that, except with the prior written consent of Lender,
so long as any of the Obligations remain outstanding:
6.1 Indebtedness. Borrower shall not create, incur, assume, guarantee or
be or remain liable for, contingently or otherwise, or suffer to exist, any
Indebtedness, except for the following:
(a) the Obligations; and
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(b) the Senior Indebtedness.
6.2 Liens. Borrower shall not create, assume, incur or suffer to be
created, assumed, incurred or to exist, any Lien on any of its now owned or
hereafter acquired property except for (i) Liens granted to Senior Lender
pursuant to the terms of the Senior Loan Documents; (ii) Liens for taxes not yet
due or for taxes being contested in good faith by appropriate proceedings, (iii)
Liens of landlords, carriers, warehousemen, mechanics and materialmen incurred
in the ordinary course of business for sums not yet due or which are being
contested in good faith and by appropriate proceedings, (iv) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of bids, tenders, sales, contracts (other than for the
repayment of borrowed money), surety, appeal and performance bonds, (v) zoning
restrictions, easements, licenses, reservations, covenants, rights of way,
utility easements, building restrictions and other similar charges or
encumbrances on the use of real property which do not interfere with the
ordinary conduct of the business of Borrower, (vi) rights of lessors with
respect to leases of machinery, equipment or real property of Borrower; (vii)
any judgment lien the existence or continuance of which does not constitute an
Event of Default under Section 7.1(h); and (viii) any other Liens existing on
the date hereof which constitute Permitted Liens [(as defined in the Senior Loan
Agreement)].
6.3 Contingent Obligations. Borrower shall not become liable for any
Contingent Obligations.
6.4 Operating Lease Obligations. Borrower shall not enter into any lease
of real or personal property if, after giving effect thereto, the aggregate
amount of all rental and other payments under such lease and all other leases of
Borrower then in effect would exceed for any fiscal year an amount equal to
________.
6.5 Merger or Sale. Borrower shall not (a) be a party to any merger,
liquidation or consolidation (other than those associated with the Acquisition),
(b) sell, transfer, convey, lease or otherwise dispose of any of its assets,
except for (i) the sale of inventory by Borrower in the ordinary course of
business, (ii) sales by Borrower of worn-out, excess or obsolete equipment or
other equipment, in each case, consistent with the terms of [Section ___ of the
Senior Loan Agreement (as in effect on the date hereof)], or (c) sell with
recourse, or discount or otherwise sell for less than the face thereof, any of
its accounts or notes receivable.
6.6 Purchase or Acquisition. Except as contemplated by the Related
Transactions Documents, Borrower shall not purchase or otherwise acquire, or
enter into any agreement to purchase or acquire (a) all or substantially all of
the assets or the capital stock or other ownership interests of any Person or of
the business conducted by any Person or (b) any property or assets outside of
the ordinary course of business.
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6.7 Investments. Except as contemplated by the Related Transactions
Documents, Borrower shall not make or permit to exist any Investment in any
Person, except for: (a) advances to employees of Borrower for travel or other
ordinary business expenses in the ordinary course of, and pursuant to the
reasonable requirements of Borrower's business; (b) extensions of credit by
Borrower in the nature of accounts or notes receivable arising from the sale of
goods and services in the ordinary course of business; (c) shares of stock,
obligations or other securities received by Borrower in settlement of claims
arising in the ordinary course of business; (d) securities issued or fully
guaranteed or insured by the United States of America or any agency thereof and
maturing within one year; (e) time deposits and certificates of deposits of a
commercial bank organized under the laws of the United States of America having
capital and surplus in excess of $100,000,000 and maturing within one year; (f)
commercial paper of any United States corporation rated at least A-1 by Standard
& Poor's Corporation or at least P-1 by Moody's Investors Service, Inc. and
maturing within one year; and (g) investments in money market funds
substantially all of whose assets are comprised of securities of the type
described in (f) and (g) above.
6.8 Distributions. Borrower shall not directly or indirectly, declare or
make, or incur any liability to make, any Distributions.
6.9 Amendments or Changes in Agreements. Borrower shall not amend its
Articles of Incorporation or By-Laws. Borrower shall not modify, alter,
supplement, extend, amend or waive any rights under any of the Related
Transactions Documents without the prior written consent of Lender; [provided,
however, that Borrower may, without the prior written consent of Lender, modify
or otherwise amend the terms of the Senior Loan Documents in a manner permitted
by Section __ of the Intercreditor Agreement (as in effect on the date hereof)].
Borrower shall not enter into, modify, alter, supplement, extend, amend or waive
any right under any agreement or understanding of any kind with any key
employee, member of Borrower's senior management or consultant without the prior
written consent of Lender.
6.10 Transactions with Affiliates. [Except as permitted by the terms of
the Senior Loan Agreement (as in effect on the date hereof)], Borrower shall not
enter into or be a party to any transaction or arrangement, including, without
limitation, the purchase, sale, lease or exchange of property or the rendering
of any service, with any of its Affiliates.
6.11 Business Conducted. Borrower shall not enter into any new business
unrelated to its business as conducted on the date hereof or make any change
which is material, either individually or in the aggregate, in any of its
business objectives, purposes and operations as disclosed to Lender on the date
hereof.
6.12 Fiscal Year. Borrower shall not change its fiscal year.
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6.13 Sale and Leaseback Transactions. Borrower shall not, directly or
indirectly, enter into any arrangement with any Person providing for Borrower
to lease or rent property that Borrower has or will sell or otherwise transfer
to such Person.
6.14 Investment Banking, Broker's and Finder's Fees. Except (a) as set
forth in paragraph (f) of Article III, (b) for amounts payable to [Ridge Capital
Corporation] pursuant to its management agreement with Borrower or (c) for any
amounts payable to Senior Lender pursuant to the Senior Loan Documents, Borrower
shall not pay or agree to pay, or reimburse any other Person with respect to,
any investment banking or similar or related fee, underwriter's fee, finder's
fee or broker's fee to any Person in connection with the consummation of the
Related Transactions. Borrower shall defend and indemnify Lender against and
hold Lender harmless from all claims of any Person for any such fees and all
costs and expenses, including, without limitation, attorneys' fees, incurred by
Lender in connection therewith.
6.15 Subsidiaries. Except as contemplated by the Related Transactions,
Borrower shall not, directly or indirectly, organize or acquire any Subsidiary.
6.16 Capital Expenditures. Borrower shall not make or incur any Capital
Expenditures if, after giving effect thereto, the aggregate amount of all
Capital Expenditures made by Borrower would exceed ________ during any fiscal
year.
6.17 Allocation of Consideration. Borrower shall take no action in
preparation of tax returns or financial statements that is inconsistent with the
allocation of the consideration paid by Lender for the Note and the Securities
purchased by it in connection with the Share Purchase.
6.18 Additional Financial Covenants. [TO BE INSERTED]
6.19 Waiver of Rights Under Certain Agreements. Borrower shall not,
without the prior written consent of Lender, waive, release or discharge any
Person with respect to any of the rights, representations, warranties,
covenants, indemnification agreements or other agreements in favor of Borrower
in connection with the Acquisition or other Related Transactions, or compromise
or settle any claim or dispute with respect thereto (it being understood that no
such waiver, release, discharge, compromise or settlement shall be effective
without the prior written consent of Lender).
ARTICLE 7
DEFAULT
-------
7.1 Events of Default. The occurrence of any of the following events
shall constitute an Event of Default hereunder:
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(a) Borrower shall fail to pay when due (i) any interest owing on the
Obligations or (ii) any Principal; or
(b) Borrower shall default (i) in the payment when due, subject to any
applicable grace period, of any Indebtedness or Contingent Obligation in excess
of [$250,000] (other than (A) any Indebtedness constituting Obligations, and (B)
the Senior Indebtedness), or (ii) in the performance of any other covenant,
agreement, term or condition contained in any agreement under which any such
Indebtedness or Contingent Obligation is created if the effect of such default
is to cause, whether automatically or by declaration of acceleration, or permit
the holder of such obligation to cause such obligation to become due prior to
its stated maturity; or
(c) an Event of Default shall occur under the Senior Loan Documents
which shall result in the [acceleration] of the Senior Indebtedness; or
(d) any representation or warranty made herein by Borrower, or in any
certificate or financial statement furnished by Borrower pursuant to the
provisions hereof, shall prove to have been false or misleading in any material
respect as of the time made or furnished; or
(e) Borrower shall default in the performance of or compliance with
any of the covenants set forth in Section 5.1, 5.4 or 5.13 or Article 6 hereof;
or
(f) Borrower shall default in the performance of or compliance with
any other covenant, condition or provision of this Agreement or other Senior
Subordinated Loan Documents to which it is a party (and not constituting an
Event of Default under any of the other subsections of this Section 7.1) and
such default shall not be remedied for a period of 30 days after notice thereof;
or
(g) a final judgment not fully covered by insurance or otherwise
indemnified to Lender's satisfaction which, with all other such undischarged
final judgments against Borrower, exceeds an aggregate of [$250,000] shall have
been entered against Borrower if, within 30 days after the entry thereof, such
judgment shall not have been discharged or execution thereof stayed pending
appeal, or if, within 30 days after the expiration of any such stay, such
judgment shall not have been discharged, or if, enforcement proceedings shall
have been commenced by any creditor upon such judgment; or
(h) a proceeding shall have been instituted in a court having
jurisdiction seeking a decree or order for relief in respect of Borrower in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
Borrower or for any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such proceeding shall remain undismissed or
unstayed and in effect
24
<PAGE>
for a period of 60 consecutive days or such court shall enter a decree or order
granting the relief sought in such proceeding; or
(i) Borrower shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an involuntary case under any
such law, or shall consent to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of Borrower or for any substantial part of its property, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action in furtherance of any of the foregoing.
7.2 Consequences of Event of Default.
(a) Bankruptcy. If an Event of Default specified in Section 7.1(h) or
(i) hereof shall occur, the unpaid balance of the Note and interest accrued
thereon and all other liabilities of Borrower hereunder and thereunder shall be
immediately due and payable, without presentment, demand notice, protest or any
other demand or notice in connection with the delivery, acceptance, performance,
default or enforcement of the Note, all of which are hereby expressly waived.
(b) Other Defaults. If any other Event of Default shall occur, Lender
may, at its option declare the unpaid balance of the Note and interest accrued
thereon and all other liabilities of Borrower hereunder and thereunder to Lender
shall be immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived.
7.3 Other Rights. The rights and remedies of Lender upon the occurrence
of an Event of Default set forth in Section 7.2 hereof are in addition to and
not in limitation of any other rights it may have under applicable law and other
agreements.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES OF LENDER
----------------------------------------
Lender represents and warrants to Borrower as follows:
8.1 Capacity. Lender has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of and to
protect its own interest in connection with the acquisition of the Note and
Securities.
8.2 Accredited Investor. Lender is an "accredited investor" as defined in
Regulation D promulgated under the Securities Act of 1933, as amended.
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<PAGE>
8.3 Investment Purpose. Lender is making this investment for its own
account and not for the account of others and not with a view to the
distribution thereof and has no present intention of reselling the Note or
Securities.
ARTICLE 9
TRANSFER OF THE NOTE
--------------------
9.1 Successors and Assigns in General. This Agreement shall be binding
upon and, subject to Section 9.2, inure to the benefit of the parties hereto and
their respective successors and assigns, except that Borrower may not, except as
contemplated by the Acquisition and other Related Transactions, assign or
transfer its rights hereunder or any interest herein or delegate its duties
hereunder without the prior written consent of Lender. Lender shall give
Borrower prompt written notice of any assignment of or participation in the
Obligations. Borrower shall maintain a register, which shall include, without
limitation, a record of ownership that identifies each owner of any interest in
the Obligations, for registration as to the rights to principal and interest on
the Note and shall promptly register any such assignment or participation in the
Obligations upon receipt of such notice.
9.2 Transfer. Lender or any assignee of Lender may assign all or any
portion of its interest in and rights under this Agreement and the Note to any
other Person (an "Assignee"), or grant a participating or beneficial interest in
this Agreement and the Obligations to any lending institution (a "Participant")
subject to the following conditions:
(a) Securities Laws. Such assignment or participation shall not be
made under circumstances as may constitute a violation of federal
securities laws or any applicable state securities laws or regulations.
(b) Payments; Set Off. Any payments to or recoveries by Lender or any
Assignee or Participant under this Agreement or under any instrument or
agreement delivered in connection herewith shall be for the account of
Lender, and all Assignees and Participants, in proportion to the amount of
each such Person's interest in the Obligations. Rights of set off and
banker's lien, if any, may be exercised by each such Person, and amounts
and property so set off or covered by such Lien may be applied to all or
any of the obligations incurred by Borrower under this Agreement, and all
other amounts payable by Borrower under this Agreement which may be due or
unpaid as determined by Lender, Assignees or Participants to the end that
the property and credit balances of Borrower with each such Person shall be
security for, and may be applied to the payment of, all or any of the
obligations incurred by Borrower under this Agreement, and such other
amounts as though such rights were exercised, and such amounts were
recovered, by Lender.
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(c) Further Assurance. Borrower shall, from time to time at the
request of Lender, execute and deliver to Lender or to such party or
parties as Lender may designate, any and all further instruments as may in
the reasonable opinion of Lender be necessary or advisable to give full
force and effect to any transfer contemplated by this Article 9.
ARTICLE 10
MISCELLANEOUS
-------------
10.1 Modifications, Amendments or Waivers. The provisions of this
Agreement may be modified, amended or waived, but only by a written instrument
signed by Lender and Borrower.
10.2 No Implied Waivers; Cumulative Remedies; Writing Required. No delay
or failure of Lender in exercising any right, power or remedy hereunder shall
affect or operate as a waiver thereof, nor shall any single or partial exercise
thereof or any abandonment or discontinuance of steps to enforce such a right,
power or remedy preclude any further exercise thereof or of any other right,
power or remedy. The rights and remedies hereunder of Lender are cumulative and
not exclusive of any rights or remedies which they would otherwise have. Any
waiver, permit, consent or approval of any kind or character on the part of
Lender of any breach or default under this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent in such writing specifically set forth.
10.3 Reimbursement of Expenses; Taxes. Borrower agrees upon demand to pay
or reimburse Lender for all of its reasonable out-of-pocket expenses, including,
without limitation, all travel expenses and all legal, consulting, accounting
and independent analyst fees and expenses, from time to time (a) arising in
connection with the Related Transactions or the Related Transactions Documents,
(b) relating to any amendments, waivers or consents pursuant to the provisions
hereof or thereof, (c) incurred by Lender or its designees in the performance of
their duties as directors of Borrower; (d) arising in connection with the
assertion of any claims or demands, or the enforcement of any rights or
remedies; and (e) arising in connection with the enforcement of the Senior
Subordinated Loan Documents, collection of the Obligations or actions for
declaratory relief in any way related thereto or the protection or preservation
of any rights of Lender hereunder. Borrower also agrees to pay and save Lender
harmless from all liability for any stamp or other similar taxes which may be
payable in connection with this Agreement and the other Senior Subordinated Loan
Documents or the performance of any transactions contemplated hereby or thereby.
27
<PAGE>
10.4 Notices. All notices and other communications given to or made upon
any party hereto in connection with this Agreement shall, except as otherwise
expressly herein provided, be in writing (including telexed or telecopied
communication) and mailed, telexed, telecopied or delivered by hand or by
reputable overnight courier service to the respective parties, as follows:
Borrower: [R-B CAPITAL CORPORATION]
_____________________________
_____________________________
Attn: President
Telecopy: _____________________
With a copy to: Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attn: Richard S. Millard, Esq.
Telecopy: (312) 701-7711
Lender: William Blair Mezzanine Capital Fund II, L.P.
222 West Adams Street
Chicago, IL 60606
Attn: Terrance M. Shipp
Telecopy: (312) 236-8075
With a copy to: Altheimer & Gray
10 South Wacker Drive
Suite 4000
Chicago, IL 60606
Attn: Robert L. Schlossberg, Esq.
and Laurence R. Bronska, Esq.
Telecopy: (312) 715-4800
or in accordance with any subsequent written direction from the recipient party
to the sending party. All such notices and other communications shall, except
as otherwise expressly herein provided, be effective upon delivery if delivered
by hand; when deposited with a reputable courier service, delivery charges
prepaid; when deposited in the mail, postage prepaid; or in the case of telex or
telecopy, when received.
10.5 Survival. All representations, warranties, covenants,
indemnifications, consents and agreements of Borrower contained herein or made
in writing in connection herewith shall survive the execution and delivery of
this Agreement, the making of the term loan hereunder and the issuance of the
Note and, notwithstanding any implication to the contrary, shall remain in
effect through, but not beyond, the date that all amounts due hereunder are paid
to Lender.
28
<PAGE>
10.6 Governing Law; Consent to Jurisdiction and Service of Process;
Waiver of Jury Trial.
(a) Governing Law. THIS AGREEMENT, THE NOTE AND THE OTHER SENIOR
SUBORDINATED LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER SHALL BE DEEMED TO BE CONTRACTS UNDER THE LAWS OF THE
STATE OF ILLINOIS AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT GIVING
EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF ILLINOIS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF ILLINOIS.
(b) Consent to Jurisdiction and Service of Process. BORROWER HEREBY
CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE
COUNTY OF COOK, STATE OF ILLINOIS AND AGREE THAT ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE OR ANY OF THE OTHER
SENIOR SUBORDINATED LOAN DOCUMENTS MAY BE LITIGATED IN SUCH COURTS. BORROWER
ACCEPTS THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS AND WAIVE ANY DEFENSE OF
FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY. BORROWER DESIGNATES AND APPOINTS THE PRENTICE-HALL CORPORATION SYSTEM,
INC. AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY BORROWER WHICH
IRREVOCABLY AGREES IN WRITING PURSUANT TO AN APPOINTMENT OF AGENT AGREEMENT TO
SO SERVE AS THEIR AGENT TO RECEIVE ON THEIR BEHALF SERVICE OF ALL PROCESS IN ANY
SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY
BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY
SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO BORROWER AT THE
ADDRESS STATED IN SECTION 10.4; PROVIDED, HOWEVER, THAT, TO THE EXTENT PERMITTED
BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY
OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY BORROWER REFUSES TO ACCEPT
SERVICE, BORROWER AGREES THAT SERVICE UPON THEM BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING
PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
29
<PAGE>
(c) Waiver of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER IN
CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER SENIOR SUBORDINATED LOAN DOCUMENT. EACH OF THE PARTIES
HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF TRIAL BY
JURY.
10.7 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law in any jurisdiction, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating any other provision of this Agreement.
10.8 Headings. Section and subsection headings in this Agreement are
included for convenience of reference only and shall not constitute a part of
this Agreement for any other purpose.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts and by any of the parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.10 Indemnification.
(a) General. (i) In addition to all of Borrower's other obligations
under this Agreement and the other Senior Subordinated Loan Documents, Borrower
agrees to defend, protect, indemnify and hold harmless each of Lender, its
Assignees and Participants, and all of their respective officers, directors,
shareholders, partners, employees, attorneys, consultants and agents (including,
without limitation, those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in this Agreement)
(collectively, the "Indemnitees") from and against any and all losses, damages,
liabilities, obligations, penalties, fees, costs and expenses (including,
without limitation, reasonable attorneys' and paralegals' fees, costs and
expenses) incurred by such Indemnitees, whether prior to or from and after the
date of this Agreement, whether direct, indirect or consequential, as a result
of or arising from or relating to any suit, investigation, action or proceeding
by any Person, either threatened or initiated, asserting a claim for any legal
or equitable remedy against any Person under any law or regulation (other than
suits or other actions by Borrower against an Indemnitee where Borrower
30
<PAGE>
is successful on the merits), regardless of whether the Indemnitee seeking
indemnification is a party to the action or proceeding for which indemnification
is sought, including, without limitation, any federal or state securities or
labor laws, or under any Environmental and Safety Requirements or common law
principles arising from or in connection with any of the following: (A)
Borrower's negotiation, preparation, execution or performance of the Senior
Subordinated Loan Documents or any other documents, agreements, certificates or
instruments executed or delivered in connection with the Related Transactions,
including, without limitation the Related Transactions Documents, (B) Lender's
furnishing of funds to Borrower under this Agreement or under the Note or (C)
any matter relating to the financing transactions contemplated by this
Agreement, the other Senior Subordinated Loan Documents or by any document,
agreement, certificate or instrument executed or delivered in connection with
the transactions contemplated hereby or thereby (including, without limitation,
any transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the Obligations) (collectively, "Indemnified
Matters"). Notwithstanding the foregoing, Indemnified Matters shall not include
losses, damages, liabilities, obligations, penalties, fees, costs and expenses
incurred by any Indemnitee in connection with (1) any violations of law or
governmental regulations by such Indemnitee, (2) any acts of willful misconduct
or gross negligence by such Indemnitee, (3) any actions against such Indemnitee
by partners, shareholders or creditors of such Indemnitee or partners,
shareholders or creditors of such Indemnitee's ultimate parent company or (4)
any action against such Indemnitee to the extent based on such Indemnitee's
status as a shareholder of Borrower. To the extent that this undertaking to
indemnify, pay and hold harmless set forth in this Section 10.10 may be
unenforceable for any reason, Borrower shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law, to the payment
and satisfaction of all Indemnified Matters incurred by the Indemnitees.
(b) Environmental Liabilities. Without limiting the generality of the
indemnity set forth in Section 10.10(a) hereof, Borrower hereby further agrees
to indemnify and to hold harmless Lender and all Indemnitees from and against
any and all losses, liabilities, damages, obligations, penalties, injuries,
costs, fees (including, without limitation, reasonable attorneys', paralegals'
and expert witnesses' fees, costs and expenses), expenses and claims of any and
every kind whatsoever paid, incurred or suffered by, or asserted against, each
of Lender or any Indemnitee for, with respect to, or as a direct or indirect
result of, the past, present or future events, activities or operations on, or
the past, present or future condition of, any property owned, operated or
otherwise used by Borrower, any Environmental Affiliate, or its or their
predecessors or successors, or any off-site hazardous, toxic or otherwise
dangerous material, substance or waste treatment, storage or disposal facility
associated therewith (the "Properties"), including, without limitation, the
presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission, release, or threatened release into, onto or from the Properties of
any toxic, hazardous or otherwise dangerous substance, material or waste,
including, without limitation, any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental and Safety
Requirement regardless of whether caused by, or within the control of, Borrower.
31
<PAGE>
10.11 Payment Set Aside. To the extent that Borrower makes a payment or
payments to Lender, or Lender exercises its rights of set off, and such payment
or payments or the proceeds of such set off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to Borrower, a trustee, receiver or any other Person under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or set off had not occurred.
10.12 Interpretation. In this Agreement and each other Senior
Subordinated Loan Document, unless a clear, contrary intention appears, (a) the
singular number includes the plural number and vice versa, and (b) reference to
any gender includes each other gender (including the neuter gender).
32
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
LENDER:
------
WILLIAM BLAIR MEZZANINE CAPITAL FUND II, L.P.
By: William Blair Mezzanine Capital
Partners II, L.L.C., its general partner
By:______________________________________
A Managing Director
BORROWER:
--------
[R-B CAPITAL CORPORATION]
By:___________________________________________
Its:__________________________________________
33
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT
--------------------------------------------
October 29, 1996
Mr. Harrington Bischof
Pandora Capital
117 South Cook Street, Suite 352
Barrington, IL 60010
Dear Mr. Bischof:
In connection with Coopers & Lybrand L.L.P.'s ("C&L") role as exclusive
financial advisor to Peerless Industrial Group, Inc. ("Peerless" or the
"Company") regarding the sale or merger of the Company, we have furnished or
will furnish you with certain information, both oral and written, concerning the
Company. Such information, in whole or in part, together with any additional
such information furnished to you and any analyses, compilations, studies,
materials, memoranda, data, notes or documents prepared during the review of the
Company, including verbal information or information acquired during a plant
tour, by you, your agents, directors, officers, employees, counsel, consultants,
affiliates or advisors (your "Representatives") which contain or otherwise
reflect such information, is hereinafter referred to as the "Information." In
consideration of our furnishing the Information to you, you hereby agree that:
1. The Information will be kept confidential and shall not, without the
prior written consent of C&L or the Company, be disclosed by you, or
your Representatives, in any manner whatsoever, in whole or in part,
and shall not be used by you or your Representatives other than in
connection with the transaction identified above, and shall be
disclosed by you only to your Representatives who have a "need to
know" such Information in order to evaluate whether to proceed with
the transaction identified above and who shall be informed by you of
the confidential nature of the Information and who shall have first
agreed to be bound by the terms and conditions of this Agreement.
2. Without the prior written consent of C&L or the Company you will not,
and will direct your Representatives not to, disclose to any person
either the fact that discussions or negotiations are taking place
concerning a possible transaction or any of the terms, conditions or
other facts with respect to any such possible transaction, including
the status thereof and the subject matter of this Agreement. No
request or proposal to amend, modify or waive any provision of this
1
<PAGE>
Agreement (other than a request or proposal made or solicited by the
Company) shall be made or solicited except in a non-public and
confidential manner. The term "person" as used in this Agreement
shall be broadly interpreted to include, without limitation, any
corporation, company, partnership or individual.
3. The Information, except for that portion of the Information which
consists of analyses, compilations, studies, material, memoranda,
data, notes or other documents prepared by you or your
Representatives, will be returned to C&L or the Company immediately
upon C&L's request without retaining any copies thereof. That portion
of the Information which consists of analyses, compilations, studies,
material, memoranda, data, notes or other documents prepared by you or
your Representatives will be destroyed and such destruction shall be
certified in writing to C&L by an authorized officer supervising such
destruction.
4. In the event that you or anyone to whom you transmit the Information
pursuant to this Agreement becomes legally compelled to disclose any
of the Information, you will provide C&L and the Company with prompt
notice before such Information is disclosed so that the Company may
seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. In the event that
such protective order or other remedy is not obtained, you will
furnish only that portion of the Information which you are advised by
written reasonable opinion of counsel is legally required and will
exercise your best efforts to assist the Company in obtaining a
protective order or other reliable assurance that confidential
treatment will be accorded to the Information that is disclosed.
5. Any questions concerning the Information will be directed by you
exclusively to C&L. You shall not approach the Company or any of its
employees, without the prior consent of C&L.
6. Until December 31, 1997, unless such shall have been specifically
invited in writing by the Company, neither you nor any of your
subsidiaries will in any manner, directly or indirectly, (a) effect or
seek, offer or propose (whether publicly or otherwise) to effect, or
cause or participate in or in any way knowingly assist any other
person to effect or seek, offer or propose (whether publicly or
otherwise) to effect or participate in, (i) any acquisition of any
securities (or beneficial ownership thereof) or assets of the Company
or any of its subsidiaries; (ii) any tender offer or exchange offer,
merger or other business combination involving the Company or any of
its subsidiaries; (iii) any recapitalization, restructuring,
liquidation, dissolution or other extraordinary transaction with
respect to the Company or any of its subsidiaries; or (iv) any
"solicitation" of "proxies" (as such terms are used in the proxy rules
of the Securities and Exchange Commission) or consents to vote any
voting securities of the Company; (b) form, join or in any way
participate in a "group" (as defined under the Securities Exchange Act
of 1934); (c) otherwise knowingly act, alone or in concert with
others, to seek to control or influence the management, board of
directors or policies of the Company; (d) knowingly take any action
which might force the Company to make a public announcement regarding
any of the types of
2
<PAGE>
matters set forth in (a) above; or (e) knowingly enter into any
discussions or arrangements with any third party with respect to any
of the foregoing.
7. Nothing contained herein shall in any way restrict or impair your
right to use, disclose or otherwise deal with:
(a) Information which at the time of its disclosure is, or which
thereafter becomes through no fault of yours or your
Representatives, part of the public domain by publication or
otherwise; and
(b) Information which you can show was in your possession, or the
possession of one or more of your parent, subsidiary or
affiliated companies or Representatives at the time of disclosure
and was not acquired, directly or indirectly, under any secrecy
obligation to the Company or another party.
8. You will not, for a period of one (1) year from the date hereof,
advise or encourage any employee or independent contractor employed by
the Company to terminate employment with the Company, knowingly
interfere or attempt to interfere with the employment relationship
between the Company and any of its employees or with any independent
contractor who performs services for the Company.
9. You will not, based upon the Information, directly or indirectly,
solicit customers, suppliers or distributors of the Company.
10. You understand and agree that (i) the Company and C&L shall be free to
conduct the process relating to any possible transaction as they shall
determine in their sole discretion and (ii) you shall not have any
rights or claims whatsoever against the Company, C&L or any of their
respective Representatives arising out of or relating to any
transaction (other than any rights or claims arising out of any
definitive written agreement that may be entered into with the Company
in accordance with its terms).
11. You understand that neither C&L nor the Company are making any
representation or warranty, express or implied, as to the accuracy or
completeness of the Information. C&L, the Company and their
respective Representatives have disclaimed any and all liability to
you and your Representatives arising from your use of or reliance on
the Information.
12. Except as expressly provided herein with respect to the
confidentiality and non-disclosure of the Information, nothing in this
Agreement shall obligate any party in any manner whatsoever with
respect to the consummation of negotiations for any transaction
between and among you and the Company.
13. No failure or delay by the Company or any of its representatives in
exercising any right, power or privilege under this Agreement shall
operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise of any right, power or
privilege herewith. No provision of this
3
<PAGE>
Agreement may be waived or amended nor any consent given except by a
writing signed by a duly authorized representative of the Company,
which specifically refers to this Agreement and the provision so
amended or for which such waiver or consent is given. In case any
provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be
affected or impaired thereby.
You agree that money damages would not be sufficient remedy for any breach of
this Agreement and, therefore, in addition to any other remedies available to
the Company in the event of your, or your Representatives', breach of the terms
hereof, the Company shall also be entitled to specific performance and
injunctive or other equitable relief. You agree to waive, and to cause your
Representatives to waive, any requirement for the securing or posting of any
bond in connection with such remedy. This Agreement constitutes the entire
Agreement between and among the parties as to the subject matter hereof, no
representations having been made by any of the parties except as herein
specifically set forth. No rights or obligations other than those expressly
recited herein are to be implied from this Agreement. This Agreement shall be
construed and enforced in accordance with the laws of the State of New York,
without regard to such State's conflict of laws principles.
Sincerely,
/s/ John Patek
John Patek
Managing Director
Coopers & Lybrand L.L.P.
Accepted and agreed to this 30th day of October, 1996:
Pandora Capital
By: /s/ Harrington Bischof
----------------------
Name: Harrington Bischof
----------------------
Title: President
----------------------
4
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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
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TABLE OF CONTENTS
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RECITALS.................................................................... 3
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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
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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
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6.11. Expenses........................................................36
6.12. Publicity.......................................................38
6.13. Specific Performance............................................38
6.14. Certain Definitions.............................................38
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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
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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
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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
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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.
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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
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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
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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
6
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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
9
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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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<PAGE>
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
27
<PAGE>
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
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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
34
<PAGE>
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
<PAGE>
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.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
R-B CAPITAL CORPORATION
By
----------------------------
Its
---------------------------
R-B ACQUISITION CORPORATION
By
------------------------------
Its
----------------------------
PEERLESS INDUSTRIAL GROUP, INC.
By
-----------------------------
Its
---------------------------
38
<PAGE>
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
<PAGE>
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
-2-
<PAGE>
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.
-3-
<PAGE>
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.
-4-
<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
-5-
<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.
-6-
<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.
-7-
<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.
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<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
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<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.
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<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________________________________
Name:
Title:
R-B ACQUISITION CORPORATION
By________________________________
Name:
Title:
NORTHLAND BUSINESS CAPITAL L.L.P.
By:____________________________,
its general partner
Name:__________________________
Title:_________________________
PERKINS CAPITAL MANAGEMENT, INC.
By:____________________________
Name:__________________________
Title:_________________________
_______________________________
Harry W. Spell
_______________________________
William H. Spell
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<PAGE>
________________________________
Bruce A. Richard
________________________________
Richard W. Perkins
________________________________
Reynold M. Anderson
________________________________
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>
Consulting Agreement
--------------------
THIS AGREEMENT is made and entered into as of _____________, 1997, among
William Spell ("Consultant"), Peerless Chain Company, a Minnesota corporation
("Subsidiary") and Peerless Industrial Group, Inc., a Minnesota corporation (the
"Company").
RECITALS:
--------
A. Consultant has been employed as Chief Executive Officer of the Company
prior to the Company's merger (the "Merger") with R-B Acquisition Corporation
(the "Purchaser").
B. Pursuant to an Agreement and Plan of Merger dated as of April __, 1997
(the "Merger Agreement"), R-B Acquisition Corporation (the "Purchaser") has
acquired a majority of the outstanding shares of the Company, and has been
merged with and into the Company with the Company being the surviving
corporation;
C. The Company is the sole shareholder of Subsidiary.
D. In connection with the transactions contemplated by the Merger
Agreement, Consultant's employment with the Company has terminated.
E. Consultant has valuable knowledge relating to the business of the
Company and Subsidiary and the industries in which they are engaged.
F. The Company and Subsidiary desire to retain Consultant's services as a
consultant for a period after his termination of employment and Consultant
desires to provide such services.
NOW, THEREFORE, the parties agree as follows:
1. Consulting Term. Subject to the terms and conditions of this
Agreement, the Company and Subsidiary hereby retain the services of Consultant
as a consultant for the period beginning at the Effective Time of the Merger and
ending on the second anniversary thereof (the "Consulting Term") and Consultant
hereby agrees to render consulting services to the Company and Subsidiary during
the Consulting Term in accordance with this Agreement.
2. Consulting Services. Consultant agrees that, during the Consulting
Term, he shall provide such consulting services relating to the business and
operations of Company, Subsidiary, their employees and/or the chain and cordage
industry as may be reasonably requested from time to time by the Company, on
reasonable notice to Consultant (collectively "Consulting Services"); provided,
however, that, in no event shall Consultant be required to devote more than 40
hours during any month to the
<PAGE>
performance of Consulting Services hereunder. Subject to the foregoing
provisions of this Section 2 and the provisions of Section 6, nothing in this
Agreement shall preclude Consultant from performing services for persons or
entities other than the Company and Subsidiary during the Consulting Term or
thereafter. Consultant shall perform the Consulting Services only as requested
by the Company, and shall make no contact with Subsidiary or its employees
except as authorized by the Company.
3. Payments. In consideration of the Consulting Services to be performed
by him during Consulting Term, the Company and Subsidiary, jointly and
severally, shall pay or provide to Consultant (a) within seven days after the
execution of this Agreement, the sum of $120,000, and thereafter, (b) the sum of
$25,000 per quarter for the first four quarters of this Agreement, payable
quarterly in arrears, and (c) $22,500 per quarter for the second four quarters
of this Agreement, payable quarterly in arrears. The Company and Subsidiary,
jointly and severally, shall also reimburse Consultant for all expenses incurred
by Consultant with the prior approval of the Company in connection with the
performance of the Consulting Services.
4. Assistance with Claims. Without limiting the generality of
Consultant's obligation to provide the Consulting Services described in Section
2, Consultant further agrees that during the Consulting Term, at the request of
the Company, he will assist the Company and any of its affiliates (including
Subsidiary) in the defense of any third-party claims that have been or may be
made against the Company or any of its affiliates (including Subsidiary), and
will assist the Company and any of its affiliates (including Subsidiary) in the
prosecution of any claims that may be made by the Company or any of its
affiliates (including Subsidiary). Consultant agrees, unless precluded by law,
to promptly inform the Company if he is asked to participate (or otherwise
become involved) in any lawsuits involving such claims that may be filed against
the Company or any of its affiliates (including Subsidiary). Consultant also
agrees, unless precluded by law, to promptly inform the Company if he is asked
to assist in any investigation of the Company or any of its affiliates
(including Subsidiary), or their actions, that may relate to services performed
by Consultant for the Company or any of its affiliates (including Subsidiary),
regardless of whether a lawsuit has then been filed against the Company or any
of its affiliates with respect to such investigation. The Company and
Subsidiary, jointly and severally, agree to reimburse Consultant for all of his
reasonable out-of-pocket expenses associated with such assistance, including
travel expenses.
5. Confidential Information. Except as may be required by the lawful
order of a court or agency of competent jurisdiction, or except to the extent
that Consultant has express authorization from
2
<PAGE>
the Company, Consultant agrees that he will keep secret and confidential
indefinitely, will not disclose, either directly or indirectly, to any other
person, firm, or business entity, and will not use in any way, any non-public
information concerning the Company, Subsidiary and their affiliates which was
acquired by or disclosed to him during the course of his employment with the
Company or Subsidiary or his performance of Consulting Services, including,
without limitation, the Company's, Subsidiary's and their affiliates' customers,
products, equipment, processes, costs, operations and methods, whether past,
current, or planned, as well as knowledge and data relating to processes,
business plans (including, without limitation, prospective acquisitions),
marketing and sales information originated, owned, controlled or possessed by
the Company, Subsidiary or their affiliates. Nothing in the foregoing
provisions of this Section 5 shall be construed so as to prevent Consultant from
using, in connection with his employment for himself, for an employer (or other
recipient of his services), or otherwise, knowledge which was acquired by him
during the course of his employment or other engagement by the Company or
Subsidiary and which is generally known to persons of his experience in other
companies in the same industry.
6. Non-competition. Consultant agrees that during the Consulting Term, he
will not directly or indirectly assist, perform services for or have any equity
interest in, any competitor of the Company, Subsidiary or their affiliates,
whether as an employee, officer, director, agent, security holder, creditor,
consultant or otherwise.
7. Amendment. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing. No person, other than the parties hereto,
shall have any rights under or interest in this Agreement or the subject matter
hereof.
8. Death of Consultant; Change in Control. If Consultant shall die during
the Consulting Term, the Company and Subsidiary, jointly and severally, shall
pay to Consultant's estate the quarterly payment for the quarter in which such
death occurs and upon such payment this Agreement shall terminate. If a Change
of Control (as defined below) shall occur, the obligations of Consultant to
provide the Consulting Services shall cease, and all amounts that would have
been payable to Consultant over the remainder of the Consulting Term shall
become immediately due and payable. As used herein, a "Change of Control" shall
mean any one or more of the following: (a) the Company shall be a party to any
merger or consolidation in which the Company (or an entity which is, immediately
following the Effective Time, an affiliate of the Company) is not the surviving
entity, or (b) any person or entity (other than an entity which is, immediately
following the Effective Time, an affiliate of the Company), shall acquire,
directly or indirectly, beneficial ownership of common stock of the Company or
3
<PAGE>
Subsidiary having the power to elect a majority of the board of directors of the
Company or Subsidiary, or (c) the Company or Subsidiary shall sell all or
substantially all of its assets in any transaction or series of related
transactions.
9. Remedies. Consultant acknowledges that the Company and Subsidiary
would be irreparably injured by his violation of this Agreement, and he agrees
that the Company and Subsidiary , in addition to any other remedies available to
them for such breach or threatened breach, shall be entitled to a preliminary
injunction, temporary restraining order, or other equivalent relief, restraining
Consultant from any actual or threatened breach of this Agreement.
10. Withholding. To the extent required by applicable law, all amounts
otherwise payable under the Agreement shall be subject to withholding and other
employment taxes.
11. Waiver of Breach. The waiver by Consultant or the Company and
Subsidiary of a breach of any provision of this Agreement shall not operate as
or be deemed a waiver by the non-breaching party of any subsequent breach.
Continuation of payments hereunder by the Company and Subsidiary following a
breach by Consultant of any provision of this Agreement shall not preclude the
Company and Subsidiary from thereafter exercising any right that it may
otherwise independently have to terminate said payments based upon the same
violation.
12. Severability. The invalidity or unenforceability of any provision of
this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).
13. Notices. All notices hereunder shall be in writing and shall be
deemed sufficiently given if personally delivered, sent by registered or
certified mail, postage prepaid, sent by overnight courier or facsimile, at such
addresses as the parties may from time to time provide to each other.
14. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Minnesota, without regard to the conflict of law
provisions of any state.
15. Counterparts. This Agreement may be executed in more than one
counterpart, but all of which together will constitute one and the same
agreement.
16. Other Agreements. Except as otherwise specifically provided in this
Agreement, this instrument constitutes the entire
4
<PAGE>
agreement between Consultant and Subsidiary or the Company relating to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties relating to the subject matter hereof, whether written or
oral. Consultant represents and warrants to the Company and Subsidiary that all
employment agreements that may have been made by and between Consultant and the
Company, Subsidiary or their predecessors or affiliates (collectively, the
"Prior Agreements") have been terminated and that Consultant is not entitled to
any further payment or benefit thereunder.
19. Release of Other Claims. Except for a claim based upon a breach of
this Agreement, Consultant, on behalf of himself and his heirs, representatives,
agents, and insurers (hereinafter the "Releasors") releases and forever
discharges the Company and Subsidiary, their current and former officers,
directors, trustees, members, representatives, agents, employees, and insurers,
and their affiliates, and their respective officers, directors, representatives,
agents, employees, and insurers (hereinafter collectively and individually the
"Releasees") from any and all rights, claims, demands, debts, dues, sums of
money, accounts, attorneys' fees, complaints, judgments, executions, actions and
causes of action of any nature whatsoever, cognizable at law or equity, known or
unknown (sometimes referred to herein as "Claims") which Consultant (or the
other Releasors may have) now has or claims, or might hereafter have or claim,
against the Releasees based upon or arising out of any matter or thing
whatsoever, through the date of this Agreement; provided, that the foregoing
shall not limit the right of Consultant to the same indemnifications that are
provided under the Merger Agreement to other former officers of the Company.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first set forth above.
PEERLESS INDUSTRIAL GROUP, INC.
By __________________________
Its__________________________
PEERLESS CHAIN COMPANY
By ___________________________
Its___________________________
WILLIAM SPELL
_____________________________
William Spell
6
